New derivatives markets initially lacked liquidity and depended on founders’ moral suasion to survive

Evidence

“Respect” and “obligation,” in their turn, are resources for moral suasion. On the CBOE’s first morning, its failure seemed an alarming possibility. “There were two traders on the floor,” recalls Eisen. “Eddie [O’Connor] and I were running all over the floor making markets.” They returned to the floor of the CBT: “We went around and we convinced everybody to come in at least when grains got a little slow, around 11.15, 11.30 … and then they’d go back and trade the close in grains” (Eisen, in CBOE/OCC 1998b). The success of IMM, similarly, initially seemed precarious: “Once the novelty wore off, the market liquidity completely dried up… . For most of the day … we just sat around playing chess and backgammon” (Randy McKay, quoted in Schwager 1992, p. 82). Like Eisen and O’Connor, though, Melamed was able to exercise moral influence: “I became an obsessed one-man enforcer—coercing, cajoling, admonishing, pleading with our … members to trade the currency markets. We needed liquidity, I begged. Everyone had to lend a hand… . And for the most part, the floor responded to my pleas. These were, after all, my guys” (Melamed and Tamarkin 1996, p. 198). — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 84

Categorization

• CANDY: Traders initially played chess and backgammon all day on the new IMM currency market while waiting for liquidity.
• XREF: connects to: Pure rational self-interest cannot explain founding a derivatives exchange; New financial markets require coercive persuasion of members to create initial liquidity — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 691; Moral suasion via respect and obligation recruided members to trade new derivatives products. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 687 (+5 more)

Related

• Pure rational self-interest cannot explain founding a derivatives exchange (similarity 0.88)
• Building a new market required mobilizing existing exchange members through moral suasion. (similarity 0.88)
• New financial markets require coercive persuasion of members to create initial liquidity (similarity 0.85)
• Launching a new market contract requires coercive mobilization of its own members. (similarity 0.82)
• Building financial derivatives exchanges demanded large unpaid, personally costly commitments from organizers (similarity 0.80)
• Moral suasion via respect and obligation recruided members to trade new derivatives products. (similarity 0.80)
• LOR’s own founders feared their trading would move markets (similarity 0.79)

Broader Connections

• Moral suasion via respect and obligation recruided members to trade new derivatives products. #corroborates (0.90) — Donald MacKenzie, An Engine, Not a Camera, 687
• New financial markets require coercive persuasion of members to create initial liquidity #contradicts (0.85) — Donald MacKenzie, An Engine, Not a Camera, 691
• Derivative markets grew from near-zero to systemically central in seventeen years #expands (0.72) — Donald MacKenzie, An Engine, Not a Camera, 31