Final single stock story
FT.com site; Jul 02, 2002
By Jeremy Grant in Chicago
Trading in single stock futures in the US moved a step closer to reality on Tuesday when one of two key regulators studying the instruments approved their use. Single stock futures - which allow traders to buy and sell futures on specific stocks - have been banned in the US for the past 20 years. But two years ago Congress gave the US Commodity Futures Trading Commission and the Securities and Exchange Commission clearance to come up with a regulatory framework that would allow them to be re-introduced.
The CFTC said it had voted unanimously to approve customer margins rules for single stock futures. It also approved new rules for customer protection. SEC approval is still needed before trading can start. But James Newsome, CFTC chairman, said he believed this was possible by mid-July. That would mean trading could start by the end of August once certain technical formalities had been completed, he told the Financial Times.
The development will be welcomed by futures exchanges in Europe and the US as a way of helping them diversify their product and customer case at a time when demand for risk-management and hedging products is growing fast.
A handful of exchanges around the world has been approved to trade single stock futures, although there is some concern in the industry over whether sufficient demand exists for the products to justify such numbers.
Mr Newsome said: "Some market participants are really excited and think volumes could become substantial, others are less excited. I think that given the volatility that we see in today's securities markets this indicates a need to manage risk. I think the timing [of the introduction of single stock futures] could actually be pretty good."
The CFTC approved minimum initial and maintenance margin levels for outright positions in security futures at 20 per cent of "current market value".
Margin is the deposit required by a securities or futures broker when an investor borrows from the broker to buy securities or futures contracts.
However, the rules do not allow "portfolio margining", a system of determining margin requirements based on risk that the futures industry uses and one the CFTC said it wanted to adopt, because the options market does not use it yet.
OneChicago, a joint venture between Chicago's three futures and options exchanges, is close to finalising the technical platform on which its single stock futures will trade. Officials say they could go "live" with single stock futures trading in a matter of weeks of SEC approval.
At launch, OneChicago would offer 75-80 contracts on US-listed stocks such as IBM and Cisco Systems, as well as contracts on European shares that are listed as American Depository Receipts in the US. However, it is expected to face stiff competition from a similar joint venture between Nasdaq and Liffe, the London-based exchange. |
