Throughout the first seven decades of the twentieth century, the futures industry remained essentially as it had been – a secondary, little understood corner of business activity, mired in esoteric economics and focused on the trading of futures on agricultural products. For most of its history it attracted many detractors and few supporters, and at best, was considered a distant cousin to the orthodox temples of finance. But in 1971 a remarkable change occurred in the financial industry, one that altered the destiny of markets around the world. It happened at the Chicago Mercantile Exchange: The introduction of futures based on financial instruments.
In December of 1971, under the direction of its principal architect, Leo Melamed, chairman of the CME, the exchange chartered the International Monetary Market (IMM), a newly created independent division specifically designed to exclusively specialize in futures trade of instruments of finance. To fully comprehend the innovative impact of the International Monetary Market on the history of markets, one must understand that from its inception the IMM represented both a specific and general revolutionary departure from traditional futures. In the narrow sense, by launching FX futures contracts, the first financially based futures product, the IMM led futures markets into the financial arena. However, in a macroeconomic sense, it represented a much more significant transformation: it ushered in the era of financial derivatives and its modern risk management applications
The creation of the IMM as a separate exchange for the exclusive trading in instruments of finance, was perhaps as important a factor in its success as was the revolutionary introduction of financial instruments themselves. The participants coveted by our new financial contracts – corporate treasurers, financiers, multinational corporations, pension fund managers, and a whole array of financial decision-makers in business – were entities and individuals who most likely never before participated in futures markets. They were not likely to begin putting their funds into markets trading in such commodities as live cattle, pork bellies or frozen turkeys – products about which they were both richly inexperienced and wholly disinterested. Under the influence of our agricultural origins, we simply were not offering futures denominated in instruments understood by corporate America. For these participants a separate financial exchange was clearly preferable. (In 1986, the IMM was merged into the CME. However, the divisional concept it represented remained a permanent part of the exchange's structure to this very day.).
During the first decade its existence, the IMM initiated a series of revolutionary financial innovations in foreign exchange, interest rates, and equity indices, upon which the superstructure of the modern CME was built. It ultimately catapulted the Chicago Mercantile Exchange as the foremost futures market in the world. Concurrently, these new markets served as a catalyst to accelerate the movement toward financial engineering, the development of OTC products, and spawned financial futures exchanges in every corner of the globe-from Argentina to Australia, from Italy to India, from London to Kuala Lumpur. Virtually every currently successful exchange-traded financial derivative is a simple translation of one of the IMM initiated products to a geographically different underlying market.
In 1986, precisely fourteen years after its inception, Nobel Laureate in economics, Merton H. Miller, nominated financial futures as "the most significant financial innovation of the last twenty years" (Miller 1986).