American law defined legitimate futures by physical delivery and outlawed cash settlement
Evidence
A futures contract was legal, the Supreme Court ruled in 1905, if it could be settled by physical delivery of a commodity such as grain. If it could be settled only in cash, it was an illegal wager. Since an index was an abstraction, there was no straightforward way in which an index future could be settled other than in cash. In 1968, Sullivan and two leading members of the CBT consulted securities lawyer Milton Cohen about the feasibility of a Dow Jones futures contract. Cohen advised against proceeding: the contract would violate Illinois law (Falloon 1998, pp. 209–10). — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 58
Categorization
- DEFINE: Concretely defines the legal settlement criterion (physical delivery vs. cash) that constrained derivatives design before 1970s reform.
- CANDY: The 1905 Supreme Court rule makes cash-settled index futures illegal as wagers — a tidy historical fact for explaining modern finance’s legal scaffolding.
- XREF: connects to: Physical delivery once legally distinguished futures trading from gambling. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 761; Cash-settled index futures were barred by legal logic until decades into the century — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 58; Physical-delivery possibility, not actual delivery, marked legal futures off from gambling. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 639 (+2 more)
Related
- Cash-settled index futures were barred by legal logic until decades into the century (similarity 0.93)
- Physical delivery once legally distinguished futures trading from gambling. (similarity 0.90)
- The delivery test blocked cash-settled index futures as illegal in the US. (similarity 0.89)
- Physical-delivery possibility, not actual delivery, marked legal futures off from gambling. (similarity 0.87)
- Whether futures contracts count as wagers determined whether they were illegal. (similarity 0.86)
- Cash settlement allowed index futures to evade securities regulation. (similarity 0.82)
- Cash-settled derivatives were legally classed as gambling in the US until the 1980s (similarity 0.81)
Broader Connections
- Cash-settled index futures were barred by legal logic until decades into the century
#expands(0.95) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 58 - Physical delivery once legally distinguished futures trading from gambling.
#corroborates(0.92) — Donald MacKenzie, An Engine, Not a Camera, 761 - Whether futures contracts count as wagers determined whether they were illegal.
#corroborates(0.85) — Donald MacKenzie, An Engine, Not a Camera, 638 - Physical-delivery possibility, not actual delivery, marked legal futures off from gambling.
#qualifies(0.80) — Donald MacKenzie, An Engine, Not a Camera, 639 - Friedman’s intellectual authority legitimated the currency futures market to the Treasury
#responds-to(0.75) — Donald MacKenzie, An Engine, Not a Camera, 659