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Better question is:
WHO suggested that 50% be the default margin for single-stock futures ?
The new instrument will have a hard enough time gaining <any> popularity,
but the above margin req. will just "kill it" IMHO.
margin: chance of success comment
------ ------------------------
30% : maybe
20% : it has a 50-50 chance
10% : now you're talking "winner"
That's right....I want to control $60k of Microsoft for a measley $6k
tie-up.
Effectively: A $1 move = 17% return on margin
Anyone else ?
> -----Original Message-----
> From: I4Lothian@xxxxxxx [mailto:I4Lothian@xxxxxxx]
> Sent: Saturday, February 17, 2001 10:52 PM
> To: omega-list@xxxxxxxxxx
> Subject: Re: stocks suck...electronic futures "rule"
>
>
> As many of you know, I write a daily Industry News e-mail and
> send it out to
> a variety of different people. These two stories were part of my Lead
> Stories section and M.Simms picked up on the significance and the
> juxtaposition of the headlines.
>
> To me it is significant that the e-mini contracts at the CME has
> continued to
> thrive, while volume on the online individual stock side has been
> cut from
> the frothy levels of last year. In fact, there were some interesting
> statistics that came out of several of the stories on my e-mails. The
> average size of an account at Datek was down about half from last
> year and
> several online stock brokers found it hard to make money. Talk about
> industry consolidation is in the air.
>
> On the futures brokerage retail side, some firms' index volume is
> as much as
> 75% of their overall volume. E-mini contracts make up a big part
> of that.
>
> To a certain extent indices have benefited from the huge volatility
> experienced by traders of individual stocks. Futures used to be the Wild
> West of trading and investing. There is tremendous leverage
> involved there
> no doubt, and sometimes the index markets move so fast and so
> badly for some
> traders that you could not have physically burned the cash in the time it
> took for them to get in and out of the markets. However, this is pale in
> comparison to the risk adjusted return of some of the high flyer
> tech stocks
> that we have seen in the last year or so.
>
> There are 4 trends I have seen since stocks have proved they can
> go down too.
> First is the decline in the online trading volumes on the stock side.
> Secondly, is the value of focusing on trading indices, either futures or
> mutual funds. Thirdly, is an increased interest in alternative
> investment
> strategies, i.e., managed futures and hedge funds. See this
> week's Business
> Week for coverage about that. Lastly, I see no talk on the
> securities side
> about Single Stock Futures.
>
> At last week's Managed Futures Association conference there were several
> stories about the dim prospects for Single Stock Futures. Why
> would futures
> traders use to paying 5 - 10 and 20 percent margins want to put up 50%
> margins to trade Single Stock Futures? A better question for me is, "why
> wouldn't stock traders attracted to index futures trade single
> stock futures
> also?"
>
> The list of potential competitors for single stock futures is
> large. ECNs
> are registering as exchanges, some both futures and securities
> exchanges.
> There are ongoing and serious talks to merge the Options Clearing
> Corp. with
> the Chicago Board of Trade Clearing Corp. This would allow for greater
> margining and offset efficiency for options, futures and single
> stock futures
> all at the same clearing house. One of the reasons for the
> success of the
> multiple listing of stock options is that all the exchanges share
> the same
> clearing house. The currency they all deal in is the same.
>
> Single Stock Futures would share this similarity in a couple of senses.
> First, is potential for the trades to clear the same clearing
> organization,
> the OCC/CBOTCC if the merger takes place. Secondly, Single Stock Futures
> would trade in a market that the retail public knows and that the general
> public has cheap and easy access to trade in the cash market.
> There is no
> more simpler commodity to trade or take delivery of than stocks.
> Even blue
> haired old ladies do it. Thus, if you buy a futures contract on some
> exchange, while liquidity is still developing, you may find the
> best way to
> exit the trade is to sell the cash stocks against it. Would there be an
> exchange for physical market to unwind such a position? I think
> there would
> be. Thus, traders will have the ability to trade stocks or
> futures on many
> different venues and not have to worry about the liquidity to unwind the
> trade.
>
> This is my optimistic view of the one aspect of the viability of
> Single Stock
> Futures. Some would say I am overly optimistic. I can accept
> that. In my
> Industry News letter I commented about how the Chicago Banks were
> offered the
> opportunity to become members of the CBOT and offered good locations on
> financial trading floor before the introduction of the U.S. Treasury Bond
> futures. The declined, thinking the futures would not important.
> Six months
> later they were pounding on the door to become members and get
> floor space.
>
> I have not heard much out of the online stock trading community
> about Single
> Stock Futures. I don't see much movement there, strategically
> speaking, to
> position them for it. On the otherhand, I see firms like Refco and my
> clearing firm ED&F Man International, Inc. acquiring firms (read
> order flow)
> on the futures side.
>
> Is there a cross pollination of futures firms acquiring online
> stock trading
> brokerage firms coming in the near future? Or, will we see the opposite
> happen? Will a large Wall Street firm decide it needs to get
> back into the
> futures market by buying one of the bid futures FCMs? Only time
> will tell.
>
> The interesting times we in the trading community live in now
> requires paying
> attention to the structure of the industry and the bigger
> picture, because
> there is so much change going on. That was one of the reasons I started
> writing my Industry News e-mails. Certainly it is good marketing
> to get my
> name out in front of a lot of people. That is what I get out of
> it, along
> with the included Good Will. What my readers get is headlines
> and hyperlinks
> to stories about what is going on in the futures and securities
> industries.
> I also include some of my own commentary about what I see
> happening in the
> industry. I include notices and press releases from the exchanges,
> regulators, ECNs, industry associations, brokerage firms and
> stories from key
> word searches of a couple of search engines. There is little to no
> self-serving commercial element in the e-mails. I will occasionally make
> announcements or include references to my own online trading
> operations or
> managed futures offerings, where appropriate, but these are few.
>
> The types of people receiving the e-mails include clients, prospects,
> friendly competitors, exchange members, exchange staff, regulators,
> securities brokerage staff, futures brokerage executives, media, quote
> vendors, ethics trainers, trading software staff, CTAs and other
> individuals
> who I have come across on the Internet or in the industry meetings.
>
> A recent story from the Securities Industry Association said
> online brokers
> need to do a better job of teaching their clients about the
> markets and the
> risks involved in trading. I agree. In a small way I hope my
> e-mails and
> commentary helps recipients to achieve part of that goal. And
> educated and
> informed trading community is a better one for all of us;
> brokers, traders,
> exchanges, regulators.
>
> If you would like to see my e-mails for yourself and be added to my
> distribution list, just send me an e-mail asking to be added.
>
> Regards,
>
> John J. Lothian
>
> Disclosure: Futures trading involves financial risk, lots of it! John J.
> Lothian is the President of the Electronic Trading Division of The Price
> Futures Group, Inc., an Introducing Broker clearing ED&F Man
> International,
> Inc.
>
>
>
>
> In a message dated 2/16/01 12:48:10 PM Central Standard Time,
> prosys@xxxxxxxxxxxxxxxx writes:
>
> << CME E-mini S&P 500, E-mini Nasdaq 100 Futures Set Volume Records
> Feb. 15, 2001—Trading volume in E-mini S&P 500 and E-mini Nasdaq
> 100 futures
> rose to new record levels on Chicago Mercantile Exchange Inc.
> yesterday, as
> 138,187 E-mini S&P 500 futures and 126,045 E-mini Nasdaq 100
> futures changed
> hands.
> The new records surpass those set on Oct. 10, 2000 and Jan. 10,
> 2001, when
> 132,063 E-mini S&P 500 and 117,021 E-mini Nasdaq 100 futures
> contracts were
> traded.
> Both E-mini equity index futures contracts—the fastest growing
> contracts in
> the history of the exchange—are traded electronically on CME’s GLOBEX®2
> trading system and are smaller-sized versions of contracts
> traded actively
> via open outcry on the exchange’s trading floor. E-mini index
> trading occurs
> virtually around the clock from 3:45 p.m. until 3:15 p.m. the
> following day.
> http://www.cme.com/news/01-20volume.html
>
> Schwab Trading Volume Down, May Hit Earnings
>
http://dailynews.yahoo.com/h/nm/20010215/wr/financial_charlesschwab_dc_2.htm
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