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May 4, 2012 ||
Scot Warren ||
Editor’s Note: Today, OpenMarkets launches our Innovate to Advance series, a collection of blog posts and stories that mark several significant product anniversaries this year for CME Group, and recognize how these innovations have helped advance the futures industry and global financial markets. It begins with a look at the 30th anniversary of S&P 500 futures.
The early 1980s gave us push button phones, 8-bit video games, the Atari personal computer, and the first successful equity index futures: the S&P 500 contract. Today, we use smartphones, play 128-bit video games with people on the other side of the globe, and use iPads. But as they mark 30 years of trading, S&P futures are more liquid and relevant to global market participants today.
In his 1993 book, “The Merc,” an exhaustive history of CME, author Bob Tamarkin wrote:
“Cash settlement was the biggest innovation since the introduction of currencies in 1972 because it opened the way for the cash-settled stock indices, the futures product that would dominate the 1980s.”
The revolutionary idea of cash-settlement was married with a way to efficiently express views on the U.S. equity markets with the launch of S&P 500 futures. The success Tamarkin wrote about began with the April 1982 launch, which had the most active opening of any contract in the industry’s history to that time. Nearly 30,000 contracts were traded in those final days of April.
Leo Melamed, Jack Sandner and Howard Hosbach ring the opening bell on April 21 ,1982
30 years later, S&P futures continue to hold a significant place in the global financial market. Perhaps no other market innovation brought such a diverse mix of end users into a central, open and transparent marketplace. Asset managers, hedgers, mutual funds and other market participants suddenly had access to a broad based equity market index that allowed them to collectively express their views on the market.
These contracts served a number of purposes: index replication, cash equitization, hedging and arbitrage, which ensures that markets operate efficiently.
The unprecedented access was enhanced further with the evolution of index products. ETFs served a large number of investors. Perhaps the most significant subsequent change came with the launch of the S&P E-mini in 1997 – still the most liquid product of its kind in the world. To respond to the risk management and trading needs of participants, we brought on other equity indexes like the Dow Jones Industrial Average, the Nikkei 225, and the Nasdaq 100.
Opening day of the S&P 500 pit on the CME floor
With all these advancements, equity indexes are now a part of daily life for many market participants. They have been measures of U.S. equity market performance for decades, so much so that many of us can measure our lives and careers by their performance. From “Black Monday” to the steady climb of the late 90s and the most recent recession, they have marked where we were and when.
As we mark the anniversary of the launch of the S&P 500, equity index futures continue to evolve and reach more market participants across the globe. This is evidenced by CME Group’s recent cross listing agreement with BM&F BOVESPA, which will make the S&P 500 futures available to Brazil’s market participants, and the IBOVESPA more easily accessed outside of Brazil.
Enhanced exposure to a benchmark stock index for an increasingly diverse group of market users. That’s what was intended in 1982 and still holds true today.
Scot Warren is the senior managing director of equity index products at CME Group.
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