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>Date: Sun, 18 Feb 2001 23:07:31 -0600
>To: <prosys@xxxxxxxxxxxxxxxx>
>From: robert.cummings@xxxxxxxxxxxxxxxx
>Subject: RE: stocks suck...electronic futures "rule"-margin requirements
>Cc: <I4Lothian@xxxxxxx>, "Omega-List" <omega-list@xxxxxxxxxx>
>
>I wondered about the validity of the a 50% margin requirement statement.
>I assumed it was an error.
>The poster must have gotten confused with sec rules regarding securities.
>Of course this instrument is not a security but a futures contract. But
>anything is possible if the sec wants to be apart of the regulatory body
>overseeing it. I agree if a 50% margin turns out to be the requirement
>then why have it? The ability to sell it without an uptick or borrow the
>stock would be the only advantage. The foreign futures exchanges have
>futures contracts written on a select number of US stocks now. I don't
>know if trading has commenced yet nor what margins they have in place for
>them. Only US citizens can not trade them.
>
>Robert
>
>
>
>At 04:56 PM 2/18/01 -0500, M. Simms wrote:
>>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
>> l >>
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