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In a message dated 2/18/01 11:10:52 PM Central Standard Time,
robert.cummings@xxxxxxxxxxxxxxxx writes:
<< I wondered about the validity of the a 50% margin requirement statement.
I
assumed it was an error.
***** Everything I have read says the futures community agreed to let the
margins be set by the Fed, as it is with stocks. I believe that rate is
currently 50%. That is not to say that it can't be lowered in the future,
especially if the U.S. sees trading volume move to overseas venues.
The poster must have gotten confused with sec rules regarding securities.
Of course this instrument is not a security but a futures contract.
***** The reauthorization law for the CFTC included an agreement between the
CFTC and SEC to jointly regulate single stock futures. Thus, the SEC will be
involved.
But anything is possible if the sec wants to be apart of the regulatory
body
overseeing it.
***** The SEC would like to take over the CFTC. But this is not about what
the SEC wants. It is what the securities industry wants relative to what the
futures industry wants in context to the competition they both face,
especially from abroad.
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.
***** Why do futures need a margin advantage to be viable. I think there are
several features which make them viable. First is I believe single stock
futures will be a leading indicator. Yes, ECNS give fast fills. They are
essentially futures matching engines in the making. But the movement in
stocks is towards a single central order book. The Supermontage proposal is
supposed to facilitate that. However, which will be faster, an order routed
to an ECN, then the Supermontage, or an order sent to one central order book
at the futures exchange. Just like eminis became a leading indicator to the
S&P pit, I think single stock futures could become a leading indicator to
stocks. Secondly, single stock futures pose a risk to the specialists on the
NYSE. It has always amazed me that part of what the specialists do is legal
in the securities industry, but in the futures industry will get you sent to
jail. Single stock futures will go a long way towards leveling the playing
field for stock traders, just like ECNs have done to a certain extent.
Thirdly, there is no payment for order flow. Tell me the one again about how
the firm being paid for you orders has your best interests at heart.
Fourthly, stocks are universally settled. Thus a trade in a single stock
futures ultimately leads to delivery of the stock, if you want. So it really
does no matter where you trade, you can ultimately offset the trade easily.
Why were the options exchanges able to make multiple listing of stock options
work? For one, they all offset at the same clearing organization, the OCC.
If you don't have to worry about the ongoing liquidity in the market you made
the trade, because you can offset it elsewhere at the best available price
then, then more people will be willing to take a chance on an illiquid market
presenting them an opportunity now.
There are lots more reasons, but don't get me really started. :-) Of
course, all of this is a rhetorical question at this point, as they don't yet
exist in the U.S. There will be lots of ways for the U.S. exchanges and
regulators to screw this up yet.
Regards,
John J. Lothian
Disclosure: Futures trading involves financial risk, lots of it!
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
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