10 The History of Derivatives - A Few Milestones.pdf - The History of Derivatives A Few Milestones EFTA Seminar on Regulation of Derivatives Markets

10 The History of Derivatives - A Few Milestones.pdf - The...

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The History of Derivatives: A Few Milestones EFTA Seminar on Regulation of Derivatives Markets, Zurich, 3 May 2012 Steve Kummer (research and redaction) and Christian Pauletto (concept and speech delivery) Policy and Trade in Services Division State Secretariat for Economic Affairs SECO Federal Department of Economic Affairs FDEA Introduction This presentation contains a selection of records and events that constitute a part of the history of derivatives. It relates how derivatives date back as far as Antiquity. Derivatives were first instruments developed to secure the supply of commodities and facilitate trade as well as to insure farmers against crop failures. Over time, derivatives started to serve in addition other purposes such as a source of funding but also the search for quick profits. This presentation also shows that derivatives were regulated from the very beginning. The degree of regulation of derivatives varied across the years, among jurisdictions and depended on, for example, the political but also religious contexts. Some forms of derivatives were banned and later allowed or the other way round. The history of derivatives also provides evidence that the first derivatives markets were “over-the-counter” (OTC). However, negotiating and contracting mostly took place at specific locations, which, early in the history of derivatives, already displayed various characteristics of organised derivatives markets. Derivatives exchanges came later, but once established, trading of derivatives mainly occurred on their premises. The trend only reversed in the early 1990s. The Cradle of Derivatives “If any one owe a debt for a loan, and a storm prostrates the grain, or the harvest fail, or the grain does not grow for lack of water; in that year he need not give his creditor any grain, he washes his debt-tablet in water and pays no rent for the year.” This text is the 48 th law out of 282 contained in the Code of Hammurabi. Hammurabi was a king of Babylon who reigned, according to some sources, from around 1792 to 1750 BC. Hammurabi engraved the eponymous code on stone steles. This code counts among the oldest written body of laws known today and covers almost all the aspects of civil as well as
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