Part two of the JLN interview with former CBOT General Counsel Scott Early in The History of Financial Futures series starts with him explaining why the Chicago Board of Trade’s market share went down each year he worked at the exchange. It was because new exchanges all over the world were copying the success of the CBOT and CME and that was growing the overall derivatives markets numbers.
And as the futures volume grew in the U.S., Congress took note and discovered a potential new source of tax revenue, which caused a change in tax laws.
New fringe players came into the markets with contracts that skirted the laws of what was allowed, something that played out all the way to the passage of Dodd-Frank, Early said.
The CBOT was well positioned for the creation of the stock index futures, as Phil Johnson, the then-head of the CFTC, had once been the outside counsel of the CBOT. And cash settlement was just another chapter in a long debate that continues to today about what is a futures contract, Early said.
The reduction in number of FCMs in the industry is another subject Early speaks about.
Early weighs in on why the CBOT and CME have never wanted to be under the jurisdiction of the U.S. Securities and Exchange Commission. He also talks about the relationship between the CBOT and the CBOE and how it evolved over time. A new younger generation of options traders at the CBOE without a historical appreciation for the CBOT impacted the relationship, Early said.