Exploring global trading
of futures markets

The Chicago Mercantile ExchangeGroup Foundation sees a vital need for practical research on current "hot topics" relating to the complex financial derivatives industry and, in particular, futures markets.  The grant's impartial research findings will be used to educate market users, public policy makers, regulators, academics and other interested parties in the financial world.  This research will be critically important, ensuring the factual exploration of global trading of futures markets and the effects of regulation and its global impact on the economy.

To this end, the Chicago Mercantile Exchange Group Foundation feels the Center for Financial Engineering is uniquely positioned to successfully accomplish this task.  The Center for Financial Engineering can leverage its existing educational expertise and active industry connections through several initiatives; the annual international Asia-Pacific Futures Research Symposium, the Review of Future Markets journal, the Journal of Futures Markets, and Center for Financial Engineering Educational Workshops.  These established and well-respected  endeavors provide the vehicles needed to accomplish the CME Group Foundation's goal to further derivatives and risk management education and awareness in the United States and worldwide.

"I'm very excited about this important research grant.  It affords us many opportunities," says Holder.  "In today's market environment, generating academic research and promoting awareness surrounding these high priority issues are of critical importance to the trading of listed derivatives worldwide."  Holder adds, " The interlocking nature of global markets, combined with the sophisticated modeling of prices, products and processes has created a market structure that presents a new and innovative landscape ­- one that is ripe to examine and explore."

One of the first efforts the Center for Financial Engineering is planning is to work with the Review of Future Markets, a respected financial journal, to publish a special edition solely focusing on these topics in the spring of 2011.   A Call for Papers has been initiated to internationally-respected academics and practitioners in the derivatives field.  Their independent research findings will be subjected to a rigorous peer-review process to determine the best research topics and corresponding papers. 

"The response received thus far is incredibly positive" says Holder. "We received thought-provoking proposals from leading researchers all over the globe." Given the excellent quality of the proposals received to date, the Center for Financial Engineering has decided to fund 10 research projects and have the findings not only published in the special edition but also have them presented at the 2011 Asia-Pacific Research Symposium being held in Singapore in February. 

The research to be undertaken encompasses a selection of timely topics in financial and commodity derivatives and include:

• Is speculation beneficial to the global economy?  What is the role of market liquidity and the relationship with speculative activity?
• Do futures markets contribute to increased economic efficiency of markets and associated standard of living in the Unites States?
• What is the role of the futures markets in relation to economic development?
• Do futures markets act as an economic engine for the United States?
• What is the contribution of the United States futures markets to financial innovation?
• Does electronic trading allow for the growth of United States futures markets and what is the impact on the competitive position of the United States?
• What would the impact of a transaction tax be on the futures markets in the United States?
• What is the history, rationale and value of the blended 60/40 tax rate on the United States futures markets?
• What role did the futures markets play in the financial meltdown of 2008 and how comparable is that to past financial crises such as 1987?
• How has central party clearing contributed to the success of the futures markets?
• What are the benefits to end users of over-the-counter products being cleared on a regulated futures exchange?
• Should exchanges be self-regulated?

To follow on the momentum of Review of Future Markets  Special Edition and the funded research presentations at the Asia Pacific Futures Research Symposium, other initiatives will include further publication of research findings in the Journal of Futures Markets and forums to present the research findings to the financial and educational communities.

The Chicago Mercantile Exchange Trust was established by Chicago Mercantile Exchange in 1969, under the direction of its chairman, to provide financial protection to customers in the event a Chicago Mercantile Exchange member firm became insolvent or unable to meet its obligations to its customers. However, no Chicago Mercantile Exchange customer has ever suffered losses due to a member's adverse financial condition. In 2005, the Chicago Mercantile Exchange Trust received approval to distribute the net income of the Trust to public charities; now called the Chicago Mercantile Exchange Group Foundation. The trustees are Craig S. Donohue, Terrence A. Duffy, Leo Melamed, William P. Miller II, James E. Oliff, Howard J. Siegel, and John F. Sandner.