Island Seeks To Join Crowded Single Stock Futures Field
By Mary Haffenberg
Of DOW JONES NEWSWIRES
CHICAGO (Dow Jones)--Island Futures Exchange LLC, part of the Island ECN Inc.or electronic communications network, has filed with the Commodity Futures
Trading Commission to list security futures products.
Island, which is best known as an electronic market place for matching stock and exchange-traded fund bids and offers, filed on Nov. 29 to become a CFTC-regulated fully registered contract market.
Chris Conannon, vice president of business development for Island, said the ECN has 700 broker dealers who are "very interested in securities futures." Conannon said he envisions active trading firms, day traders, online brokers and hedge funds stepping up to the plate ahead of retail traders and traditional firms when the products, both single stock futures and futures on narrowly based indexes, are launched likely this spring.
A major attraction seen for stock futures is the ability to short the futures contract of the underlying stock without having to borrow the stock. Furthermore, in the cash market, rules only allow for the short sale of a stock on an uptick in that market. "You can get around the lending process using the futures in a short sale,"
Conannon said.
The single stock futures margins, which are expected to be about 20% or 25%, also are more attractive than the 50% required for stock trading.
Island last popped up in terms of single stock futures this summer, when it was rumored to be in discussions with the New York Mercantile Exchange and the Philadelphia Stock Exchange to list single stock futures together.
An Island spokesman refused to comment on the rumors and said Island's application is a solo venture. Sources said PHLX and Nymex are still talking. "We'll be in the single stock futures business and we'll be announcing that we're going to do it at the beginning of next year," Meyer "Sandy" Frucher, chairman and chief executive officer of PHLX, told Dow Jones Newswires. Frucher refused to reveal with whom it would list the products or if PHLX would go it alone. A spokeswoman for Nymex said the exchange is "watching" the product developments, "but it's not on our short-term horizon," she said. Sources also said Nymex and the International Securities Exchange, an all-electronic equities options exchange launched in 2000, also are in discussions.
And there is talk that another ECN, Archipelago, also is contemplating joining the fray. Island joins OneChicago, which is a joint venture between the Chicago Board
Options Exchange, Chicago Mercantile Exchange Inc. and the Chicago Board of Trade, Nasdaq/Liffe Markets and the American Stock Exchange. All three have
said they would like to list the new products in the first or second quarter of 2002. AMEX is the only exchange so far that intends to electronically route
orders to its open outcry trading floors. "Our options liquidity providers can be our single stock futures liquidity providers," said Michael Bickford, senior vice president for options at the AMEX.
The AMEX must get regulatory approval to list equity options and single stock futures in the same sightline on the trading floor, Bickford said. Now that multiple exchanges have expressed interest in listing the new products, it is still unclear when they will actually trade. The Commodity Futures Modernization Act of 2000 lifted the 19-year ban on the trading of futures on individual stocks and narrowly based securities indexes.
The CFTC and the Securities and Exchange Commission must still determine what the margins will be for the new products, a competitive issue that some believe could make or break the product. Margins are how much money investors have to put up and maintain before trading the products. The law states everyone can start trading single stock futures Dec. 21. But as a practical matter, they can't trade without margin rules. The public comment period for the proposed margin rules closed Dec. 5. An SEC spokesman said that so far the commission has received 18 comments on the proposed margin rules. A CFTC spokesman said they are still allowing for comments received via the postal mail service.
-By Mary Haffenberg, Dow Jones Newswires; 312-750-4072;
mary.haffenberg@dowjones.com |
