Organized futures contracting

Futures markets play an important role in shifting risk and facilitating exchange. Yet despite their growing importance economists do not yet possess a satisfactory theory of the evolution and growth of futures markets.¹ In the law-and-economics literature there is an assumption that parties will seek to specify their obligations completely or else rely on the terms implied by contract law.² The idea that institutions will develop to deal with contractual problems (including the inefficiencies of contract law) has only recently been explored.³ Futures contracts are contracts designed to separate one aspect of exchange that is particularly susceptible to enforcement problems-price volatility. It does this in a way that allows little scope for the intervention of the formal legal rules of contract law since trading in and the resolution of disputes concerning futures contracts are governed by the rules of the exchange. In fact, many futures contracts, especially the newer varieties, may well be deemed wagering contracts and hence null and void under the usual rules of contract law.⁴In this article the structure of organized futures contracting will be examined to see how it deals with the enforcement problems that arise when exchange is subject to the risk of price volatility.⁵