The beginnings of derivatives products in the US

A bit of history

The history of derivatives markets began in 1848 with the creation in Chicago of CBOT, the first agricultural commodity futures exchange. From 1848 to 1975, this market developed and specialized in cereal markets (wheat, corn, oats) and oilseed products (soybeans, peanuts…). Also, since the 1970s, the market has been developing contracts on indices, rates and currencies.

In 1872, a group of dairy traders tried to standardize trade in this market and created the Butter and Cheese Exchange of New York. Other agricultural products were gradually added and ten years later, this exchange was renamed the New York Mercantile Exchange (NYMEX).

Until the late 1970s, the NYMEX specialized in agricultural commodity contracts. But a serious problem on the potato market in 1976 (failure in the delivery process of nearly 1000 contracts) pushed them to develop new markets, particularly for petroleum products including Texas oil and crude oil. The NYMEX then refocused its activities on industrial products such as energy and metals (gold, silver, platinum…). In 1994, it took control of the Commodity Exchange (Comex), also located in New York.

The Chicago Butter and Egg Board opened in 1898. It was renamed the Chicago Mercantile Exchange (CME) in 1919 and traded in agricultural commodities (eggs, butter, onions and potatoes). He then failed to develop contracts on metals and petroleum products, but success was achieved when in the 1970s, the CME began trading futures and options on interest rates, currencies, exchange rates and stock market indices. In 1982, he launched the trading of futures and options on the S&P500, one of the flagship indices of the New York Stock Exchange, but also a series of contracts on the 3-month Dollar-LIBOR (known as the “Eurodollar market”) constituting one of the most active trading compartments of the CME.

In 2006 CBOT and CME merged to become the world’s leading derivatives market. In 2008, CME Group merged with NYMEX, then the leading American energy market.

In New York, another derivative market exists: the NYBOT (New York Board of Trade). It results from the merger in 2004 between NYCE and CSCE.

Created in 1870, the NYCE (New York Cotton Exchange) was the oldest New York stock exchange. This market developed in particular contracts on currencies and currency pairs, then on stock market and commodity indices from 1995 onwards.

The CSCE (Coffee Sugar and Cocoa Exchange), for its part, dated from 1882 for the coffee market initially, then developed the assets of brown sugar from 1916 and finally on cocoa in 1979 after a merger with the New York Cocoa Exchange.

Option trading was first introduced in 1973 with the opening of the Chicago Board of Option Exchange (CBOE). It is on this market that American equity options, mainly listed on the NYSE and NASDAQ, are traded, although these two markets began offering their own products in 1985. CBOE remains today the leader in American options, ahead of NYSE LIFFE and NASDAQ OM

In 2007, the NYBOT was renamed ICE Futures US following its takeover by the Intercontinental Exchange Group (ICE).

 

Electronic trading platforms

The Intercontinental Exchange is not an exchange, but a company managing an electronic trading platform that was created in 2000 by major international banks involved in oil derivatives markets and a number of leading oil companies. At the beginning of 2000, the group acquired the International Petroleum Exchange (IEP), a London market created in 1981 that was the second largest derivative market in the world for futures and options on energy commodities, with the North Sea oil contract in particular.

Today, two groups are the leaders in derivatives products in the United States:

  1. CME Group,the world’s leading and most diverse derivatives marketplace, made up of four exchanges, CME, Chicago Board of Trade (CBOT), NYMEX, and Commodity Exchange, Inc. (COMEX).
  2. ICE Group, the American company that owns exchanges for financial and commodity markets, and operates 12 regulated exchanges and marketplaces.

Consolidation should continue, especially as there are still a large number of stock exchanges in the United States (Kansas City Board of Trade, Minneapolis Grain Exchange,…) but also in the Americas (Bolsa De mercadorias & Futures, Canada Dérivatives Exchange,…) and in Asia (Korea Futures Exchange, Tokyo Commodity Exchange,…).

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