It all started at Wiltons. A lot of things to do. Somewhere between the quail
eggs and the bread pudding our conversation turned to the challenge that was
facing my friend.
It was 1997 and Sir Brian Williamson had just agreed to become Chairman
of Liffe—the embattled derivatives exchange that was fighting for survival. Its
demise would be a significant chink in London’s armor and threaten the city’s
preeminence as a financial center. The first step was clear: close the floor and
migrate all trading to an electronic platform. Easily said, but never before
successfully accomplished on this scale. The second step was equally challeng-
ing. Invent a product complex that had the potential to be as significant as the
interest rate complex.
As a student of markets the path was obvious. Equity derivatives had a long
history. Futures and options on single stocks had been traded in Amsterdam in
the 17th century. Their natural evolution demonstrated their importance as
a risk-shifting mechanism. For a variety of institutional and legal reasons
they were dormant for centuries. Modern equity derivatives began in 1973 at
the Chicago Board Options Exchange and had been successfully imitated
worldwide. This was followed by the invention of stock index futures at the
Kansas City Board of Trade. These were successfully innovated at the Chicago
Mercantile Exchange and ultimately imitated worldwide. The missing piece of
the puzzle was a futures market on single stocks. I had unsuccessfully tried to
fill this gap in 1982 at the Chicago Board of Trade with the design of narrowly-
based indices, which in some industries were surrogates for single stocks.