Single-Stock Futures Okayed by CBOE
By Oliver R. Witte, Managing Editor
03/02/2001 10:39:22 AM ET
Chicago (HedgeWorld.com)—Plans to trade single-stock futures were approved Wednesday by the board of directors of the Chicago Board Options Exchange. William J. Brodsky, CBOE’s chairman and chief executive officer, made the announcement Thursday at a luncheon of the Investment Analysts Society of Chicago.
Congress late last year authorized trading in single-stock futures. Principal-to-principal trading could begin in August, and public trading could begin in December. Single-stock futures have been trading on the London International Financial Futures Exchange since January.
Mr. Brodsky said he expected that the CBOE would dominate trading in single-stock futures, although he acknowledged that the Chicago Mercantile Exchange, the Chicago Board of Trade and others also expect to get involved.
“It has been said that single-stock futures are the next new frontier in investment products,” Mr. Brodsky told the investment analysts. “This is as new a development as we’ve had in a long, long time. It will touch everyone, regardless of whether they trade them or not.”
Benefits include lower trading costs and an increased ability to trade. Negotiations on regulatory issues should result in a level playing field for futures and options in margin requirements, taxation and federal transaction fees, he said.
Unlike synthetic futures, which involve a two-step process of buying a call and selling a put, single-stock futures will accomplish the same purpose with a single transaction. Margins will be more attractive and a stock can be effectively sold short without waiting for its price to increase—a prospect that probably will result in changes to the Uptick Rule, he said.
Mr. Brodsky said he anticipated that single-stock futures would be primarily an institutional product. He said he doubted they would have much appeal to retail investors.
“Unlike an option, with a single-stock future, you can have a margin call every day,” he said.
OWitte@HedgeWorld.com |
