Yesterday’s Tomorrows: Past Visions of Future Financial Markets

Abstract

It is easy to imagine that the present - yesterday’s tomorrow - was always the future expected in the past. Yet, what we now accept as the normal state of affairs - the present - was not the only possible outcome that could have come to pass nor was it often the most commonly expected one. What is now considered “inevitable” – when viewed from the vantage point of 20/20 hindsight - was often not immediately embraced or accepted. In order to understand where we are going it is important to understand where we  have been and how we got there. I want to discuss some past visions of the future of financial markets, in general, and derivative markets, in particular, as seen by academics, practitioners and policymakers at various points in time. There are few advantages of age but one of them is the opportunity to witness changes and remember the contemporary context in which they occurred. I have been fortunate to have had a catbird seat to observe some of the changes in financial markets; first as a student of finance, and later with service: at a regulator; at an exchange; as a trader; in academia. I will draw upon some of my recollections and personal experiences in the discussion that follows. Most readers have always lived in a world where exchange traded derivatives on financial assets existed. Many readers have always lived in a world where interest rate swaps and other over-the-counter (OTC) derivatives were important. Many readers have always lived in a world where exchange traded derivatives on energy, in general, and crude oil, in particular, existed and were important. Some readers have always lived in a world where large Asian financial and commodity futures markets existed and were important in the global price discovery process. Yet, this was not always the case