The invention of exchange-traded financial futures by commodity exchanges has been justified by Chicagoan financial economics and law and economics on the basis of the unrealistic assumption that trading is costless. Acceptance of this quite circular argument has led to the delegation of extensive powers of self-regulation as public authorities have abnegated their responsibility to evaluate the regulation of derivatives trading, including matters such as the development of new financial products and the governance of exchanges, in welfare-economic terms. Instead of a prejudice toward market �freedom�, there should be stronger public consideration of the optimal public-private mix of regulatory governance structures. This paper proposes criteria for the evaluation of the functional justification of exchange-traded futures as a guide for public policy aimed at reducing the volatility of financial markets.