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Pensions & Investments - October 27, 2003
Reprinted with permission.

Leo Melamed
Chairman and chief executive officer, Melamed & Associates Inc., Chicago
by Christine Williamson

Leo Melamed, who had no formal financial training, created the market for financial futures at the Chicago Merc.

Leo Melamed, widely considered the father of financial futures, fell in love with the chaos and brashness of life in the trading pits while in law school, when he worked as a runner for Merrill, Lynch, Pierce, Fenner and Smith, Chicago. In 1965, after practicing law for 10 years, trading commodities part-time, Mr. Melamed chose to concentrate on futures trading at the Chicago Mercantile Exchange, where -- despite having no formal training in finance and economics -- he conceived of a futures market in financial instruments.

Prior to Mr. Melamed's invention, futures markets were limited to pork bellies, onions, eggs and other agricultural products. But in 1972, the International Monetary Market debuted on the Merc.

The system started with currency futures and went on to encompass the Treasury bill, Eurodollar and other interest rate futures, the Standard & Poor's 500 index futures and other stock index contracts.

According to Mr. Melamed's website, his idea got the backing of none other than Milton Friedman, the 1976 Nobel laureate in economics, in a 1976 feasibility study by Mr. Friedman that endorsed the acceptance of currency futures. Merton Miller, the 1990 Nobel laureate in economics, called the introduction of financial futures "the most significant financial innovation of the last 20 years."

Mr. Melamed was also one of the earliest supporters of electronic trading. Under his leadership, the CME sought electronic links with other international exchanges, beginning in 1984 with a link to the Singapore International Monetary Exchange. The CME debuted Globex, the world's first automated trading platform for derivatives contracts, in 1987 in the United States.

Mr. Melamed remained chairman of Globex until 1993.

He was elected to the CME's board of directors in 1967 and made chairman in 1969, a role he held for 27 years. In 1979, the University of Chicago Graduate School of Business established the Leo Melamed Prize for works of outstanding scholarship by business school professors; and in 1991, the university established the Leo Melamed endowed chair for the study of futures markets.

Mr. Melamed also backed the creation of the Commodities Futures Trading Commission, Washington, and the industry credits his political skills with saving financial futures after they were widely blamed for causing the 1987 market crash.

He is also a science fiction writer, with one published novel, The Tenth Planet (1987), and a sequel in the works. Mr. Melamed also published his memoirs, Escape to the Futures, in 1996.