Through the eyes of an inventor of new markets, Good Derivatives: A Story of Financial and Environmental Innovation tells the story of how financial innovation a concept that is misunderstood and under attack - has been a positive force in the last four decades. If properly designed and regulated, these good derivatives can open vast possibilities to address a variety of global problems. Filled with provocative ideas, fascinating stories, and valuable lessons, it will provide both an insightful interpretation of the last forty years in capital and environmental markets and a vision of world finance for the next forty years. As a young economist at the Chicago Board of Trade, Richard Sandor helped create interest rate futures, a development that revolutionized worldwide finance. Later, he pioneered the use of emissions trading to reduce acid rain, one of the most successful environmental programs ever. He will provide unique insights into the process of creating these new financial products. Covering successes and failures, the story describes the tireless process of inventing, educating and creating support for these new inventions in places like Chicago, New York, London, Paris and how it is unfolding today in Mumbai, Shanghai and Beijing. The book will tell the story of the creation of the Chicago Climate Exchange and its affiliated exchanges (European Climate Exchange, Chicago Climate Futures Exchange and Tianjin Climate Exchange, located in China). The lessons learned in these markets can play a critical role in effectively addressing global climate change and other pressing environmental issues. The author argues that market-based trading systems are a far more effective means of reducing pollutants than command-and-control . Environmental markets may ultimately help to find solutions to issues such as rainforest destruction, water problems and biodiversity threats. Written in an engaging, narrative style, Good Derivatives will be of interest to both practitioners and general readers who want to better understand the creative process of financial innovation. In the middle of so much distrust of markets, it is also a recipe of how transparent, well-regulated markets can be a force for good in the environmental, health, and social areas.

Through the eyes of an inventor of new markets, GoodDerivatives: A Story of Financial and Environmental Innovationtells the story of how financial innovation - a concept thatis misunderstood and under attack - has been a positive force inthe last four decades. If properly designed and regulated, these"good derivatives" can open vast possibilities toaddress a variety of global problems. Filled with provocativeideas, fascinating stories, and valuable lessons, it will provideboth an insightful interpretation of the last forty years incapital and environmental markets and a vision of world finance forthe next forty years.As a young economist at the Chicago Board of Trade, RichardSandor helped create interest rate futures, a development thatrevolutionized worldwide finance. Later, he pioneered the use ofemissions trading to reduce acid rain, one of the most successfulenvironmental programs ever. He will provide unique insights intothe process of creating these new financial products. Coveringsuccesses and failures, the story describes the tireless process ofinventing, educating and creating support for these new inventionsin places like Chicago, New York, London, Paris and how it isunfolding today in Mumbai, Shanghai and Beijing.The book will tell the story of the creation of the ChicagoClimate Exchange and its affiliated exchanges (European ClimateExchange, Chicago Climate Futures Exchange and Tianjin ClimateExchange, located in China). The lessons learned in these marketscan play a critical role in effectively addressing global climatechange and other pressing environmental issues. The author arguesthat market-based trading systems are a far more effective means ofreducing pollutants than "command-and-control".Environmental markets may ultimately help to find solutions toissues such as rainforest destruction, water problems andbiodiversity threats.Written in an engaging, narrative style, Good Derivativeswill be of interest to both practitioners and general readers whowant to better understand the creative process of financialinnovation. In the middle of so much distrust of markets, it isalso a recipe of how transparent, well-regulated markets can be aforce for good in the environmental, health, and social areas.

Foreword ixPreface xiiiAcknowledgments xxiChapter 1 The Early Years 1Chapter 2 Trying to Change the World 23Chapter 3 The Berkeley Years 47Chapter 4 The Chicago Board of Trade Years: TheCommodity Futures Contract 65Chapter 5 The Chicago Board of Trade Years: FinancialFutures Contract 89Chapter 6 Educating Users and Building the Market 125Chapter 7 Treasury Bond and Note Futures 139Chapter 8 The Decade of the Eighties 167Chapter 9 Globalizing Chicago Exchanges 191Chapter 10 Environmental Finance 205Chapter 11 Blame It on Rio 223Chapter 12 The Beginning of the Entrepreneurial Years 239Chapter 13 You're Gonna Trade What? 265Chapter 14 From the Pit to the Box 291Chapter 15 Conceiving a New Kind of Exchange 313Chapter 16 The Twenty-First Century Lighthouse 327Chapter 17 CCX Market Architecture 351Chapter 18 Chicago Climate Exchange 375Chapter 19 The Rise of the Chicago Climate Exchange 393Chapter 20 The Fall of the Chicago Climate Exchange 413Chapter 21 The Chicago Climate Futures Exchange 429Chapter 22 The European Climate Exchange 453Chapter 23 India 479Chapter 24 Opening New Markets in China 501Chapter 25 Good Derivatives 533Appendixes 559Acronyms 575Glossary 577Index 593