Product Development In The Age Of Indexing


By John Prestbo, Editor and Executive Director of Dow Jones Indexes
07 Oct 2008 at 12:09 PM GMT-04:00

Revolutionary changes have occurred throughout the futures and derivatives industry. One important aspect has been in product development generally and indexiing in particular.

CHICAGO (FuturesMag) — It is hard to believe, but equity indexes (and futures and options based on them) became a commonly used investment tool only 25 or so years ago. As more and more investors began to apply indexes to their strategies, the demand grew for more indexed products. Exchanges and index providers obliged by creating hundreds of new ones, and thousands of variations on them.Now that indexes are widely used to create derivatives, it’s useful to recall how they came about. The main factors in this story are innovation, perseverance and success breeding success.

By 1997, when Dow Jones Indexes became a business unit of Dow Jones & Co., other index providers already were established in derivatives. But Dow had the best-known index in the world, the Dow Jones Industrial Average. Dow signed three licenses that year, one for futures on the Chicago Board of Trade, one for options on Chicago Board Options Exchange and an exchange-traded fund on the American Stock Exchange. With this “can’t miss” strategy, Dow waited for success to roll in.

And waited…and waited.

You know the famous Thomas Edison quote about success being “1% inspiration and 99% perspiration?” Well, try waiting out a “can’t lose” formula to the sound of silence. There was a lot of “99%” around the shop.

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