Cash settlement allowed index futures to evade securities regulation.

Evidence

The problematic feature of stock index futures from the viewpoint of the gambling laws cash settlement turned into a resource from the viewpoint of negotiating the jurisdictional dispute between the Commodity Futures Trading Commission and the SEC. “We aren’t delivering stocks, you know,” argued Melamed. “We are never going to deliver stocks. This is cash settlement… It’s not necessarily a security. It isn’t anything, in fact.” (ibid.) … In December 1981, John Shad of the SEC and Philip McBride Johnson of the Commodity Futures Trading Commission agreed that a cash-settled futures contract on a sufficiently broad stock index fell within the latter’s jurisdiction, and the Shad Johnson Accord was enacted into law by the U.S. Congress in 1982 (Brady Commission 1988, pp. — Donald MacKenzie, An Engine, Not a Camera, 766

Categorization

• CANDY: A deft reversal: the feature that violated gambling laws became the feature that escaped securities jurisdiction — the ‘nothing in fact’ argument is a fun line.
• SHARE: A legal/finance person would enjoy how a regulatory flaw (cash settlement) was reframed as jurisdictional alibi.
• XREF: connects to: Cash-settled index futures were barred by legal logic until decades into the century — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 58; The delivery test blocked cash-settled index futures as illegal in the US. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 641