Firms compete for single-stock futures trade
February 19, 2002
BY DAVID ROEDER BUSINESS REPORTER
If there's a single-stock future in your investing future, one of two Chicago operations will wind up with most of your business.
The two start-ups are scrambling for position when trading in single-stock futures can start, perhaps this spring. Both bring their own brand-name firepower to the battle for dominance of a new financial marketplace that will exist strictly as a computer network, without a trading floor.
The idea is that once regulators in Washington give their approval, investors will be able to trade contracts based on theoretical future values of a stock, much the way pork bellies or soybeans are traded today. But because it's a new product, a little like a stock option and a little like a futures contract, where it will trade is a matter of hot, Chicago-centered dispute.
The backers of OneChicago LLC think they have the best pedigree. The firm is a joint venture of the three Chicago markets, the Chicago Board Options Exchange, the leader in equity options trading, and the two futures venues, the Chicago Mercantile Exchange and the Chicago Board of Trade.
Its competitor, with its operational base in Chicago, is Nasdaq Liffe Markets LLC, a partnership of the Nasdaq stock market and London's futures exchange, for which LIFFE is the acronym.
Since their creation last year, the rival firms have recruited top managers, met with trading firms to tout the benefits of their respective systems and generally labored to sell money managers on the notion of stock futures. Heads of both operations insist that interest in the product is growing as its launch draws closer.
"The interest that we're seeing from all parts of the [investment] industry is very impressive right now. I'm not sure I could have said that before last Thanksgiving,'' said William Rainer, chairman of OneChicago. He's a former chairman of the Commodity Futures Trading Commission, the federal agency that oversees the futures markets.
Running the Nasdaq Liffe operation is President Robert Fitzsimmons, who formerly ran futures trading for Nomura Securities International. Before that, he traded at the Merc and the Board of Trade. The venture is still seeking a CEO, who will be based with Nasdaq in New York.
Skeptics say stock futures won't take hold because they're too much like options. But Fitzsimmons argues that stock futures are inherently simpler and cheaper to trade. "As popular as options are, there's a whole segment of the trading community that's not comfortable with them'' and their technicalities, he said.
Although backers of the two ventures won't disclose how much they're spending upfront, they're in a high-stakes derby.
At this early stage, OneChicago might have the advantage. Nasdaq Liffe has to sign up trading firms for membership, with Fitzsimmons saying they have about 60 so far. But any firm that belongs to the three Chicago exchanges is automatically a part of OneChicago. Rainer said that gives him a base of perhaps 3,000 firms and individuals.
In both cases, membership is free. The ventures plan to make money from transaction fees.
So far, Nasdaq Liffe has issued a list of 50 widely traded stocks that will become the basis of its first futures. OneChicago has posted an inaugural list of 30 stocks, and Rainer said he plans to announce more next month.
Fitzsimmons said the Liffe computer system is one of his selling points. Orders between Chicago and London already are matched in less than a second, a performance he said the exchanges here cannot top even for orders that travel only across the Loop.
Rainer doesn't dispute that, but he said his system will deliver split-second executions for firms whose computers are equipped for it. What he's selling is the promise of liquidity, the presumed involvement of the heavyweights in Chicago trading. "From day one, you'll see tight quotes with depth in our market,'' he said.
Both are waiting for the CFTC and the Securities and Exchange Commission to issue final rules governing stock futures.
The heads of both agencies have promised to complete that step sometime this spring.
Rainer said trading should start about 60 days after the final rules are issued. |
