From Green Fields to Green Felt Tables and Back: The Origins of Index-Based Derivatives

Abstract:     
The introduction of index-based derivatives is one of the most important developments in post-war financial markets; today these contracts are amongst the most commonly traded financial instruments. Yet, no sociological accounts based on empirical material have focused on the creation of index-based derivatives as a social and political institution. This paper offers index-based derivatives as a topic for sociological investigation. Focusing on the creation and regulatory approval of the first exchange-traded index-based futures in the early 1980s, the paper assesses empirical evidence collected through interviews with key figures who took part in the historical events, as well as extensive archival research. The paper makes two central claims. Firstly, that the nature of index-based financial markets is critically dependent on the nature of the qualification process it undergoes - a process through which the particular qualities are negotiated and attached to the products and in particular on the viability of the connections made between the financial contract and the assets on which it is based. Secondly, that qualification of products takes place within a network made up of heterogeneous agents, whose worldviews and motivations are frequently conflicting.

Keywords: derivatives, index-based, futures, qualification, regulation, sociology of finance, sociology of financial markets, market network, heterogeneous agents

JEL Classifications: G29, K22, N22, N42

Working Paper Series