Richard (Doc) Sandor has been described as brilliant by many but from my perspective his genius is in being able to see the essence of things; understanding the simple purpose of a product and applying it free from any preconceived parameters.
Sandor, who created the first interest rates futures in the 1970s and later a market for carbon emissions, envisioned interest rate futures because he understood the basic purpose of futures and saw a need. He was free to look for industries and elements in the world that carried risk and looked to invent markets that would allow that risk to be hedged.
Sandor headlined a stellar group of industry professionals on the final day of the Marketswiki World of Opportunity Summer Intern Education Series, put on by John J. Lothian & Company.
Sandor talked about what was needed to create or invent (his preferred word) new markets.
He noted that back in 1970, when he first began contemplating interest rates futures, annual futures volume was 13.7 million contracts, by 2010 that had grown to 23.1 billion, a compound annual growth of 18%. He added that 90% of current futures contracts didn’t exist at the time.
“There were no stock options; there was no energy trading; no financial futures; no interest rates and no stock indices. All of this growth is attributed to new products,” Sandor said.
“What brought about the growth of these markets and how do you spot a new one,” he challenged the interns.
He then detailed how new markets are born. “The first thing that happens is structural change that creates the need for capital, then you have standardization, that is followed by legal rights followed by trading rights,” Sandor said.
Sandor then listed four innovations that brought about invention of markets. The first was the Limited Liability Company. “[This] came about with the Dutch East Indian Company in 1605, to finance trading with the Far East. The Chicago Board of Trade was born because there was a need to export wheat [internationally] in 1853. You had to have a homogeneous set of standards so that you could export the products both to the Midwest and the Far East,” Sandor said.