The challenge of the IMM was in connecting the values of IMM foreign exchange contracts to the interbank market, which is the prominent means of currency trading in the 1970s. The other aspect was how to allow the IMM to become the best and a free-floating exchange.
To contain these aspects, clearing member-firms were allowed to act as the arbitrageurs between central banks and the IMM to allow orderly markets between the bid and ask spreads.
Later on, the Continental Bank of Chicago was incorporated as a delivery agent for contracts. These initial successes led to fierce competition for new futures products.
The Chicago Board Options Exchange was a competitor. It had received the right to trade US 30-year bond futures while the IMM obtained the official right to trade Eurodollar contracts. The Eurodollars were a 90-day interest rate contract settled in cash and not in any physical delivery.
Eurodollars later became the “Eurocurrency Market,” which were mainly used by the Organization for Petroleum Exporting Countries (OPEC). OPEC required payment for oil in US dollars.
This cash settlement aspect later introduced index futures known as IMM Index. Cash settlements also allowed the IMM to later known as a “cash market” because the trades were interest rate sensitive instruments of short-term.
