A futures industry without trading in foreign currencies and other financial futures is difficult to imagine today. But in 1971, futures markets were largely seen as unfit for anything but trading in agricultural commodities.
This was the ideological wall Leo Melamed ran into before he requested the opinion of Milton Friedman, who soon agreed to write a commissioned paper validating the idea for a futures market in foreign currencies. The timing was impeccable. A month after the men met to discuss the idea, President Richard Nixon ended the gold standard, triggering the fall of Bretton Woods, and the necessity for a futures market.
On May 16, 1972, under Melamed’s leadership, the Chicago Mercantile Exchange established the International Monetary Market, a futures market in seven foreign currencies.
Opening day for the International Monetary Market – May 16, 1972
Today, thanks to the vision of Melamed and the continued leadership of CME Group, the global FX market has advanced dramatically, to the point where it seems impossible to envision foreign exchange trading any other way. While we are the largest regulated marketplace in the world for FX trading, other exchanges across the globe have followed our lead by offering foreign exchange futures based on the model established here 40 years ago. Over this time, FX products have grown increasingly sophisticated as we have continued to invest in market-leading technology to suit the evolving needs of global market participants.
National flags representing the seven foreign currencies on opening day of the IMM
At CME, we now transact over $120 billion a day in FX products, offering 56 futures and 31 options products in our FX product suite across 20 underlying G10 and emerging market currencies. Our product portfolio includes standard sized Futures contracts as well as smaller-sized e-mini and e-micro versions of contracts, FX volatility products and a robust FX Options product suite.
And with the approaching mandates for clearing over-the-counter FX trades, we continue to lead through innovation by being the first clearing house to go live and clear client trades in OTC FX products. We now offer OTC FX clearing services in 12 emerging market non-deliverable forward currencies.
First day of trading at the IMM
In 1972, many large corporations were conducting business globally, and CME’s groundbreaking new FX futures market allowed them to efficiently and effectively hedge the financial risk they incurred as currency prices fluctuated in response to financial, political and economic events.
Today, we live in a global economy where even the smallest businesses make purchases or earn revenues with some foreign currency risk associated with it. We continue to provide the key hedging and risk management tools these customers need. As the FX market continues to grow in response to these needs, and as transactions get conducted at ever greater speeds and in increasing volumes, there has never been a greater need for a deep and liquid foreign exchange futures market.