Friday Fun Fact: The Birth of Stock Index Futures

The Evolution of Financial Futures Part III

After more than a century of Agricultural futures at CME Group, the early 1970s brought the advent of financial futures. The first financial products were in the Foreign Exchange markets. In the middle to late 1970s (and early 1980s), the Chicago Mercantile Exchange and the Chicago Board of Trade quickly introduced futures on interest rate products such as Treasury bonds, Treasury Bills and 3-month ICE LIBOR (Eurodollar futures).

Then in early 1982, stock index futures were created when the Kansas City Board of Trade launched futures contracts on the Value Line Index. A few weeks later, the CME launched futures on the S&P 500.

Both had respectable starts, but the Value Line Index had a very stiff headwind to overcome, which was in fact a tailwind to the S&P 500.

It was anticipated that money managers would find stock index futures to be a valuable tool. Moreover, since much of the equity world was benchmarked to the S&P 500, it would garner far more critical mass as the Value Line, which, though well-known in some circles, had very little money benchmarked to it.

As a result, the Value Line contract’s activity dwindled and it was eventually delisted. But the S&P 500 futures complex (the pit-traded and E-mini S&P 500 futures) now trades about 2 million contracts per day, making it one of the top stock index futures in terms of volume and open interest.

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