FM: When did you know this experiment with currency futures was a success?
LM: There was a critical moment that made a huge difference [around] September 1975 when the Mexican peso was devalued. It devalued by more than 50%. Because normally futures margin was about 3%, we held very little money. We raised the margin when the standard deviation increased. If I had not prepared for the devaluation of the Mexican peso, we might have seen the end of the IMM in ’75. I came to the conclusion that there was no way that Mexico could get out of its troubles without devaluing the peso, and big. Because I was worried that the clearing members would fail and we would fail, we instituted, [roughly] three months before it happened, raising the margin by 30% on peso longs to the clearing firms.
The day it happened, Bill Butcher, chairman of Chase Manhattan, called right after the devaluation and said ‘Leo, I love the market you have, I know you are in trouble today. Chase Manhattan is prepared to give you $100 million to cover the losses in the clearinghouse for the Mexican peso.’ I said, ‘I can’t thank you enough, but we don’t need your money; we raised the margin months ago. We have more than 30% covered; we are fine.’ It was the moment of justification for the IMM. The strength of the clearinghouse was proven at that moment and our volumes took off after that.