Good Derivatives: A Story of Financial and Environmental Innovation

Chapter 6

Educating Users and Building the Market

Education is not the filling of a pail, but the lighting of a fire.

—William Butler Yeats

On October 22, 1975, I started a whole new career as vice president of the ContiFinancial division of ContiCommodity Services, Inc. It was a difficult adjustment. I went from being the chief economist of the world's largest futures exchange to a commodity futures salesman in a small brokerage company. It was also my first job with a for-profit company. My loyal secretary and I were the only employees at the start. The early days were tough because the division was losing money.

Although the mortgage interest rates contract was now listed for trading, the market still needed a constant stream of buyers and sellers to be successful. My network of S&Ls, mortgage bankers, and dealers provided me with a solid base of potential clients.

Just before I started my new post, Freddie Mac had opened an account with ContiFinancial and hedged $5 million of mortgages that it held in inventory. They sold 50 futures contracts. Fixed commissions were being phased out, but were for the time being still $60 round turns per contract.¹ The hedge generated $3,000 in commissions. Today, because of competition, that same commission would be $1.00 or less. My payout was 40 percent of $1,500, or $600. I foolishly figured that this level of business would become business as usual, only to later suffer through many days for hedging and speculating when I did no business ...