The Man Who Made the Futures Markets

The Chicago History Museum will honor Leo Melamed. Hear, hear.

WSJ editorial. 

"Chicago isn’t a beacon for free markets these days, but the city has been home to some of the visionaries of today’s financial system. The Chicago History Museum this month is saluting one of those creators, 92-year-old Leo Melamed, whose journey is a reminder of an era when financial innovation changed the world for the better.

Mr. Melamed was born in Poland, and his Jewish family fled the Nazis on the last train to Lithuania. They made their way through Siberia to Vladivostok and then Japan. They were among the few families to get U.S. visas and arrived in 1941 after a two-year journey.

The family settled in a Chicago neighborhood that Mr. Melamed remembers as full of Irish, Italian and Jewish immigrants. He knew no English but made his way through public schools and John Marshall Law School. Looking for work, he saw a classified ad for Merrill Lynch, Pierce, Fenner & Beane, which he assumed was a law firm. The mistake led him to the Chicago Mercantile Exchange, where he changed the future of trading futures.

The Merc in the 1950s and ’60s was a small exchange, trading primarily in agricultural products. Mr. Melamed foresaw the application of futures to currencies and financial instruments. “Everyone laughed me out of the room when I suggested it,” Mr. Melamed says. So he got up his courage and called economist Milton Friedman, who was then at the University of Chicago.

Friedman told him it was a wonderful idea, and the rest is history. Mr. Melamed became chairman of the Merc and created the International Monetary Market to trade in financial futures. In May 1972, he began trading futures for financial currencies, including the British pound, the Deutschmark, Swiss Franc and Japanese yen. According to the Futures Industry Association, by 2023 the futures market included 29.1 billion contracts.

Futures markets aren’t the gambling dens of populist caricature. They let farmers and businesses hedge risk. They let small investors protect themselves against market volatility, and multinational companies grow by providing insurance against currency fluctuation.

In 1987 Mr. Melamed launched electronic trading with the Globex system. The change directly threatened the open-outcry system that had dominated the exchanges since their inception. Think of the movie “Trading Places.” Many traders were furious, but the change drove financial markets into the future and preserved the Merc’s prominence in global finance. “Competition is the key,” Mr. Melamed says. “It makes growth happen.”

Free markets are out of political fashion these days, though they have lifted billions from poverty. Good for the Chicago museum for recognizing a native son’s contribution to American freedom and prosperity."