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he innovation of new production processes and the development of new T products has long been recognized as a key ingredient to improvements in economic welfare. Economists have analyzed the research and development process from the firm's perspective to isolate the forces generating successful innovations. Legislators and regulators have also studied new product designs with a view toward encouraging beneficial innovations from society's viewpoint. While there are differences between financial and technological innovation, there are sufficient similarities to warrant parallel treatment.This paper focuses on innovations in futures contracts. Our main concern is the development of competitive futures contracts and the consequences of such contract proliferation for the individual exchange and for economic welfare. We are less interested in the economic characteristics of goods that lead to de novo futures trading and concentrate instead on the competitive development and refinement of futures contracts. To the extent that these processes are interrelated, there will be joint treatment of some issues.Three specific topics have been identified as focal points of the analysis: (1) the role of competition as a force for innovation; (2) costs and benefits of new contract design; and (3) the role of regulation. We approach each of these topics from both theoretical and empirical vantage points. A brief description of the approach and subtopics now follows.The following section examines the role of competition as a force for innovation from the industry standpoint. The main analytical structure is rivalry in an oligopolistic industry as a source of innovation. Empirical evidence is presented on the historical experience in futures markets during the 1960-1980 period.