A Short History of Derivative Security Markets

Abstract

Contracts for future delivery of commodities spread from Mesopotamia to Hellenistic Egypt and the Roman world. After the collapse of the Roman Empire, contracts for future delivery continued to be used in the Byzantine Empire in the eastern Mediterranean and they survived in canon law in western Europe. It is likely that Sephardic Jews carried derivative trading from Mesopotamia to Spain during Roman times and the first millennium AD, and, after being expelled from Spain, to the Low Countries in the sixteenth century. Derivative trading on securities spread from Amsterdam to England and France at the turn of the seventeenth to the eighteenth century, and from France to Germany in the early nineteenth century. Circumstantial evidence indicates that bankers and banks were at the forefront of derivative trading during the eighteenth and nineteenth centuries.

Financial derivatives trading in CME group

“…This is corroborated by Table 2 which shows Turnovers of futures contracts traded on international exchanges, and Table 3 which shows Turnovers of options traded on international exchanges. Contrary to the belief that derivatives trading emerged in finance in the 1970s and 1980s, Weber (2008) states that derivative contracts emerged as soon as humans were able to make credible promises. In his discussion paper Weber (2008) also states that first derivative contracts were written in Mesopotamia in cuneiform script on clay tablets.…”

“…Weber (2008) cites Van De Mieroop (2005), who has given an example of a Mesopotamian derivative contract: "Thirty wooden [planks? ], ten of 3.5 meters each, twenty of 4 meters each, in…”