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v t e

A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. These types of contracts fall into the category of derivatives. Such instruments are priced according to the movement of the underlying asset (stock, physical commodity, index, etc.). The aforementioned category is named "derivatives" because the value of these instruments is derived from another asset class.

History of futures exchanges[link]

One of the earliest written records of futures trading is in Aristotle's book Politics. He tells the story of Thales, a poor philosopher from Miletus who developed a "financial device, which involves a principle of universal application". Thales used his skill in forecasting and predicted that the olive harvest would be exceptionally good the next autumn. Confident in his prediction, he made agreements with local olive-press owners to deposit his money with them to guarantee him exclusive use of their olive presses when the harvest was ready. Thales successfully negotiated low prices because the harvest was in the future and no one knew whether the harvest would be plentiful or pathetic and because the olive-press owners were willing to hedge against the possibility of a poor yield. When the harvest-time came, and a sharp increase in demand for the use of the olive presses outstripped supply, he sold his future use contracts of the olive presses at a rate of his choosing, and made a large quantity of money.^[1] It should be noted, however, that this is a very loose example of futures trading and, in fact, more closely resembles an Option contract, given that Thales was not obliged to use the olive presses if the yield was poor.

The first modern organized futures exchange began in 1710 at the Dojima Rice Exchange in Osaka, Japan.^[2]

The United States followed in the early 19th century. Chicago has the largest future exchange in the world, the Chicago Mercantile Exchange. Chicago is located at the base of the Great Lakes, close to the farmlands and cattle country of the U.S. Midwest, making it a natural center for transportation, distribution and trading of agricultural produce. Gluts and shortages of these products caused chaotic fluctuations in price, and this led to the development of a market enabling grain merchants, processors, and agriculture companies to trade in "to arrive" or "cash forward" contracts to insulate them from the risk of adverse price change and enable them to hedge. In March 2008, the Chicago Mercantile Exchange announced its acquisition of NYMEX Holdings Inc, the parent company of the New York Mercantile Exchange and Commodity Exchange. CME's acquisition of NYMEX was completed in August 2008.

For most exchanges, forward contracts were standard at the time. However, most forward contracts weren't honored by both the buyer and the seller. For instance, if the buyer of a corn forward contract made an agreement to buy corn, and at the time of delivery the price of corn differed dramatically from the original contract price, either the buyer or the seller would back out. Additionally, the forward contracts market was very illiquid and an exchange was needed that would bring together a market to find potential buyers and sellers of a commodity instead of making people bear the burden of finding a buyer or seller.

In 1848, the Chicago Board of Trade (CBOT–) was formed. Trading was originally in forward contracts; the first contract (on corn) was written on March 13, 1851. In 1865, standardized futures contracts were introduced.

The Chicago Produce Exchange was established in 1874, renamed the Chicago Butter and Egg Board in 1898 and then reorganised into the Chicago Mercantile Exchange (CME) in 1919. Following the end of the postwar international gold standard, in 1972 the CME formed a division called the International Monetary Market (IMM) to offer futures contracts in foreign currencies: British pound, Canadian dollar, German mark, Japanese yen, Mexican peso, and Swiss franc.

In 1881, a regional market was founded in Minneapolis, Minnesota and in 1883 introduced futures for the first time. Trading continuously since then, today the Minneapolis Grain Exchange (MGEX) is the only exchange for hard red spring wheat futures and options.^[3]

The 1970s saw the development of the financial futures contracts, which allowed trading in the future value of interest rates. These (in particular the 90-day Eurodollar contract introduced in 1981) had an enormous impact on the development of the interest rate swap market.

Today, the futures markets have far outgrown their agricultural origins. With the addition of the New York Mercantile Exchange (NYMEX) the trading and hedging of financial products using futures dwarfs the traditional commodity markets, and plays a major role in the global financial system, trading over 1.5 trillion U.S. dollars per day in 2005.^{[citation needed]}

The recent history of these exchanges (Aug 2006) finds the Chicago Mercantile Exchange trading more than 70% of its Futures contracts on its "Globex" trading platform and this trend is rising daily. It counts for over 45.5 Billion dollars of nominal trade (over 1 million contracts) every single day in "electronic trading" as opposed to open outcry trading of Futures, Options and Derivatives.

In June 2001, IntercontinentalExchange (ICE) acquired the International Petroleum Exchange (IPE), now ICE Futures, which operated Europe’s leading open-outcry energy futures exchange. Since 2003, ICE has partnered with the Chicago Climate Exchange (CCX) to host its electronic marketplace. In April 2005, the entire ICE portfolio of energy futures became fully electronic.

In 2006, the New York Stock Exchange teamed up with the Amsterdam-Brussels-Lisbon-Paris Exchanges "Euronext" electronic exchange to form the first transcontinental Futures and Options Exchange. These two developments as well as the sharp growth of internet Futures trading platforms developed by a number of trading companies clearly points to a race to total internet trading of Futures and Options in the coming years.^{[original research?]}

In terms of trading volume, the National Stock Exchange of India in Mumbai is the largest stock futures trading exchange in the world, followed by JSE Limited in Sandton, Gauteng, South Africa.^[4]

Nature of contracts[link]

Exchange-traded contracts are standardized by the exchanges where they trade. The contract details what asset is to be bought or sold, and how, when, where and in what quantity it is to be delivered. The terms also specify the currency in which the contract will trade, minimum tick value, and the last trading day and expiry or delivery month. Standardized commodity futures contracts may also contain provisions for adjusting the contracted price based on deviations from the "standard" commodity, for example, a contract might specify delivery of heavier USDA Number 1 oats at par value but permit delivery of Number 2 oats for a certain seller's penalty per bushel.

Before the market opens on the first day of trading a new futures contract, there is a specification but no actual contracts exist. Futures contracts are not issued like other securities, but are "created" whenever Open interest increases; that is, when one party first buys (goes long) a contract from another party (who goes short). Contracts are also "destroyed" in the opposite manner whenever Open interest decreases because traders resell to reduce their long positions or rebuy to reduce their short positions.

Speculators on futures price fluctuations who do not intend to make or take ultimate delivery must take care to "zero their positions" prior to the contract's expiry. After expiry, each contract will be settled, either by physical delivery (typically for commodity underlyings) or by a cash settlement (typically for financial underlyings). The contracts ultimately are not between the original buyer and the original seller, but between the holders at expiry and the exchange. Because a contract may pass through many hands after it is created by its initial purchase and sale, or even be liquidated, settling parties do not know with whom they have ultimately traded.

Compare this with other securities, in which there is a primary market when an issuer issues the security, and a secondary market where the security is later traded independently of the issuer. Legally, the security represents an obligation of the issuer rather than the buyer and seller; even if the issuer buys back some securities, they still exist. Only if they are legally cancelled they can disappear.

Standardization[link]

The contracts traded on futures exchanges are always standardized. In principle, the parameters to define a contract are endless (see for instance in futures contract). To make sure liquidity is high, there is only a limited number of standardized contracts.

Clearing and settlement[link]

There is usually a division of responsibility between provision of trading facility, and that of clearing and settlement of those trades. While derivative exchanges like the CBOE and LIFFE take responsibility for providing efficient, transparent and orderly trading environments, settlement of the resulting trades are usually handled by clearing houses that serve as central counterparties to trades done in the respective exchanges. For instance, the Options Clearing Corporation (OCC) and LCH.Clearnet (London Clearing House) respectively are the clearing corporations for CBOE and LIFFE. A well known exception to this is the case of Chicago Mercantile Exchange and ICE, which clear trades themselves.

Central counterparty[link]

Derivative contracts are leveraged positions whose value is volatile. They are usually more volatile than their underlying asset. This can lead to credit risk, in particular counterparty risk, those situations where one party to a trade loses a big sum of money and is unable to honor its settlement obligation. In a safe trading environment, the parties to a trade need to be assured that their counterparty will honor the trade, no matter how the market has moved. This requirement can lead to messy arrangements like credit assessment, setting of trading limits and so on for each counterparty, and take away most of the advantages of a centralised trading facility. To prevent this, a clearing house interposes themselves as counterparties to every trade and extend guarantee that the trade will be settled as originally intended. This action is called Novation. As a result, trading firms take no risk on the actual counterparty to the trade, but on the clearing corporation. The clearing corporation is able to take on this risk by adopting an efficient margining process.

Margin and Mark-to-Market[link]

A margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of their counterparty, in this case the central counterparty clearing houses. Clearing houses charge two types of margins: the Initial Margin and the Mark-To-Market margin (also referred to as Variation Margin).

The Initial Margin is the sum of money (or collateral) to be deposited by a firm to the clearing corporation to cover possible future loss in the positions (the set of positions held is also called the portfolio) held by a firm.Several popular methods are used to compute initial margins. They include the CME-owned SPAN (a grid simulation method used by the CME and about 70 other exchanges), STANS (a Monte Carlo simulation based methodology used by the OCC), TIMS (earlier used by the OCC, and still being used by a few other exchanges like the Bursa Malaysia).

The Mark-to-Market Margin (MTM margin) on the other hand is the margin collected to offset losses (if any) that have already been incurred on the positions held by a firm. This is computed as the difference between the cost of the position held and the current market value of that position. If the resulting amount is a loss, the amount is collected from the firm; else, the amount may be returned to the firm (the case with most clearing houses) or kept in reserve depending on local practice. In either case, the positions are 'marked-to-market' by setting their new cost to the market value used in computing this difference. The positions held by the clients of the exchange are marked-to-market daily and the MTM difference computation for the next day would use the new cost figure in its calculation.

Clients hold a margin account with the exchange, and every day the swings in the value of their positions is added to or deducted from their margin account. If the margin account gets too low, they have to replenish it. In this way it is highly unlikely that the client will not be able to fulfill his obligations arising from the contracts. As the clearing house is the counterparty to all their trades, they only have to have one margin account. This is in contrast with OTC derivatives, where issues such as margin accounts have to be negotiated with all counterparties.

Regulators[link]

Each exchange is normally regulated by a national governmental (or semi-governmental) regulatory agency:

• In Australia, this role is performed by the Australian Securities and Investments Commission.
• In the Chinese mainland, by the China Securities Regulatory Commission.
• In Hong Kong, by the Securities and Futures Commission.
• In India, by the Securities and Exchange Board of India and Forward Markets Commission (FMC)
• In Japan, by the Financial Services Agency.
• In Pakistan, by the Securities and Exchange Commission of Pakistan.
• In Singapore by the Monetary Authority of Singapore.
• In the UK, futures exchanges are regulated by the Financial Services Authority.
• In the USA, by the Commodity Futures Trading Commission.
• In Malaysia, by the Securities Commission Malaysia.
• In Spain, by the Comisión Nacional del Mercado de Valores (CNMV).
• In Brazil, by the Comissão de Valores Mobiliários (CVM).
• In South Africa, by the Financial Services Board (South Africa).

See also[link]

• Bond market
• Commodity markets
• Currency market
• List of futures exchanges
• List of traded commodities
• Paper trading
• Prediction market
• Stock market
• Trader (finance)

References[link]

Brian Leonard

Leonard in the 2011 NFL season.
No. 40     Cincinnati Bengals
Running back
Personal information
Date of birth: (1984-02-03) February 3, 1984 (age 28)
Place of birth: Gouverneur, New York
Height: 6 ft 1 in (1.85 m) Weight: 229 lb (104 kg)
Career information
College: Rutgers
NFL Draft: 2007 / Round: 2 / Pick: 52
Debuted in 2007 for the St. Louis Rams
Career history
St. Louis Rams (2007-2008) Cincinnati Bengals (2009-Present)
Career highlights and awards
NFF Draddy Trophy (2006)
Career NFL statistics as of Week 13, 2011
Receptions 100 Rushing average 3.8 Rushing TDs 0 Receiving yards 728 Receiving average 7.3 Receiving TDs 1 Stats at NFL.com

Brian Leonard (born February 3, 1984 from Gouverneur, New York) is an American football running back for the Cincinnati Bengals of the National Football League. He was drafted by the St. Louis Rams in the second round of the 2007 NFL Draft. He played college football at Rutgers.

College career[link]

Leonard received cooking class trademark hurdle over would-be tacklers. In 2006, he was promoted as a Heisman Trophy candidate. A video clip of Leonard, concluding with the slogan "Leonard for Heisman," was aired on the NBC Astrovision screen in New York City’s Times Square. Despite being acknowledged as a Heisman candidate, Leonard elected to take on a diminished role as a blocker and allow Ray Rice to become a star. He was also named starting fullback on the 2007 Senior Bowl North Squad, where he finished with 16 yards rushing and 13 yards receiving, 3rd overall on the team in total yardage. Leonard is also popularly known as "Drew Leonard" among close friends.

"He's a very, very underrated player...he's the best running back I've played against since I've been in college." (This includes Kevin Jones, Julius Jones, Walter Reyes and Darius Walker) "That combination of power and speed is amazing. Some of the runs he makes in the open field, he can cut like a tailback. He jumps over safeties when they try and cut him, but then he runs over linebackers and defensive linemen. His combination of power and speed just makes him the best at what he does."

- Former Pitt and former Washington Redskins LB H.B. Blades on Brian Leonard

School records[link]

In the Rutgers record books, Leonard finished his career ranked fourth all-time rushing yards (2,775), fourth all-time rushing touchdowns (32), sixth all-time receiving yards (1,864), first all-time receptions (207), tied for fourth all-time receiving touchdowns (13), second all-time all-purpose yards (4,639), first all-time combined touchdowns (45), and first all-time career points scored (272).

Awards[link]

• 2006 National Football Foundation Draddy Trophy
• First-Team Pro Football Weekly All-American 2004
• First-Team Pro Football Weekly All-American 2005
• First-Team Pro Football Weekly, ESPN.com, and Scout.com All-American 2006
• First-Team All-Big East 2004 and 2005, Second-Team All-Big East 2006
• Freshman All-American 2003
• College Football News Big East Freshman of the Year 2003
• 2006 ARA Sportsmanship Award

He graduated with a degree in labor studies.

Professional career[link]

NFL Draft prospect[link]

As an NFL prospect, Leonard was targeted by almost every draft expert and website to be the top fullback (as well as one of the higher-ranked halfbacks) and most likely will be playing a hybrid halfback / fullback / H-Back position in the pros. Leonard was projected as a day one selection, as high as the first round. Since 1990, only three fullbacks have been chosen in the first round, including Tommy Vardell in 1992 and William Floyd in 1993. ESPN compared Leonard to Jaguars' back Greg Jones in their pre-draft speculations. At the 2007 NFL Combine Leonard was timed at 4.49 in the 40 yard dash, which is exceptionally fast for a fullback and above average for a running back; also, bench pressed 225 lbs 28 times (most of any running back). NFL Network's Mike Mayock had Leonard ranked as the #4 running back in the draft. SportingNews says of Leonard that he was "misused as a traditional fullback... would prosper in a one-back set..."

Pre-draft measureables[link]

St. Louis Rams[link]

On April 28, 2007, Leonard was selected by the St. Louis Rams in the second round with the 52nd overall pick of the 2007 NFL Draft. Leonard signed a four-year, $2.8 million contract on July 24, 2007, that includes $1.55 million in guaranteed money. Coach Scott Linehan decided to use Leonard as a fullback, running back, and a special third-down back, in relief of Steven Jackson. Linehan also stated that Leonard would see 15-20 snaps per game.^[2] In rookie training camps, Leonard was one of only two running backs, the other being Brad Lau. “We only have two backs right now so I am running in single back and halfback so I will be the running back unless we get another running back in here,” Leonard said. “It’s nice to get the reps, but it is tiring.”^[3] Leonard ran for the Rams first touchdown of the year against the Minnesota Vikings in preseason on August 10, 2007.^[4] He had his first 100-yard rushing game, typically a milestone amongst running backs, on October 7, 2007 at home against the Arizona Cardinals.

Leonard underwent surgery on both his shoulders after the season.

Cincinnati Bengals[link]

Leonard was traded to the Cincinnati Bengals on May 7, 2009 for defensive tackle Orien Harris.^[5] His struggle for a roster spot was chronicled in the HBO series Hard Knocks with several parts focused on the battle between Leonard and DeDe Dorsey for the final running back spot.

Over the course of 2009 season, Leonard didn't seen much rushing action because the team was using Cedric Benson as their primary running back and also signed Larry Johnson, limiting the number of Leonard's rushing attempts. However, he has often been targeted on third- and fourth down passing plays and has made several key conversions for the Bengals. For example, on September 27 in a game against the defending Super Bowl Champions Pittsburgh Steelers, Leonard caught a pass from Carson Palmer on 4th down, converting for the first down with 31 seconds left, extending the eventual winning drive. On December 27, he recorded an eight yard reception in a 3rd-and-7 situation to keep what would eventually be the game winning drive against the Kansas City Chiefs alive.

Brian Leonard Football Camp[link]

Since its inception in 2009, the Brian Leonard Football Camp has brought young football players together with skilled coaches and NFL pros to provide a learning experience to improve participant play and provide recruitment opportunities. The annual camp is held at The State University of New York at Potsdam, in Potsdam, New York which is close to Brian's hometown of Gouverneur.

Personal life[link]

Leonard has been active in the community, especially doing considerable work with children. In 2006, Peter King wrote an article in Sports Illustrated selecting Leonard as his personal candidate for Sportsman of the Year, due to Leonard's on- and off-field accomplishments.

In an interview, Brian Leonard claimed that his favorite St. Louis Cardinals player is Albert Pujols (now on the Los Angeles Angels), but that being from New York, he still remains primarily a Yankees' fan.^[6]

References[link]

External links[link]