(Article)

Moser describes the development of modern futures clearing-houses as the culmination of a series of adaptations to credit risk prob-lems.1 Baer, France, and Moser extend this reasoning to show how contract margin requirements reflect the interests of exchange members who jointly minimize their credit risk exposures and their margin-carry costs.2 Common to these papers is their application of a theory of efficient contract design to futures contracts. A contractual perspective on exchange membership is also useful. Viewed this way, exchange rules become terms for contracts of membership. In turn, those rules become subject to the same efficiency concerns as any other contract-design problem. This thought exercise gives insight into the economics that underlie exchange organizations. Just as members continually recontract to control price risks arising from their extant financial positions, they also adjust exchange rules affecting their membership standings. This paper models linkages between exchange decisions affecting con-tract performance and ability to meet customer demand for immediacy