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John - this reminds me of the WWWF's contract with NBC.....
all pomp and circumstance in an attempt to mask a pretty bad offering....
it worked for a while....a very short while.
> -----Original Message-----
> From: I4Lothian@xxxxxxx [mailto:I4Lothian@xxxxxxx]
> Sent: Monday, May 14, 2001 7:17 PM
> To: omega-list@xxxxxxxxxx
> Subject: CME & CBOE Sign Single Stock Futures Agreement
>
>
> ***** This was a special report I wrote for my Industry News recipients
> today, based on my attending a press conference announcing this new joint
> venture among three Chicago exchanges. I thought I would share
> it with the
> list.
>
> On neutral ground, high up on the top of the Sears Tower in the
> Chicago Loop,
> leaders of the CME and the CBOE announced that their boards had
> just signed a
> letter of intent to form a new joint venture to electronically
> trade single
> stock futures. The CBOT will also participate in the joint venture in a
> limited stake it was announced at the press conference I attended today.
>
> The CBOE and CME will each have a 45% stake in the yet to be
> named separate
> exchange and the CBOT will own 10% in this for-profit entity.
> The CBOE and
> CME are negotiating with the Options Clearing Corp, which clears all CBOE
> transactions, to clear the new products, the press release and exchange
> leaders said. The new futures laws allow the OCC to clear both
> securities
> exchanges SSFs and futures exchanges SSFs.
>
> This new exchange will be separate from the CBOE, CME and CBOT
> and have its
> own management and board. The CBOT will have at least one
> representative on
> the board, though the size of the board was depicted as undermined, but
> probably small.
>
> Single stock futures ("SSF") will be traded electronically on Globex2 and
> CBOE Direct. The a/c/e partners, the CBOT and Eurex will discuss
> possible
> inclusion of the a/c/e platform in the new venture, according to David
> Vitale, the CBOT CEO who sat in the front row of press during the press
> conference.
>
> My intuition tells me that the CBOT was a late addition to this joint
> venture. I don't know if it was the fact the CBOT was not
> represented at the
> dais, the big CBOE-CME sign behind the dais, or the way the press release
> only mentions the CBOE and the CME at the end of it. But
> something smacks of
> last minute change and there was much to gain in terms of good will and
> liquidity by adding the CBOT members to the new effort.
>
> Certainly it would not sit well for the CBOT to be excluded from such a
> important new collaborative effort. The rationale for the CBOT's small
> percentage could be made by simply looking at the percentages of
> the equity
> trading at the various exchanges, with the CBOT having the
> smallest equity
> volume. And I am sure there are other reasons, specifically the
> tight CBOT
> balance sheet. However, it does not matter in the long run. The CBOT
> members will have equal access and opportunity to CBOE and CME
> members and it
> is the opportunity that is important.
>
> The agreement to form the joint venture does prevent all three
> exchanges from
> offering their own open outcry version of single stock futures.
>
> CME Chairman Scott Gordon and CBOE President Bill Brodsky both said their
> exchanges polled their existing clients and asked what those
> clients would
> need to trade such an instrument. The answer the clients gave was
> cooperation and collaboration among the Chicago exchanges was
> necessary to
> form the right combination of operational, margin efficiencies and deep
> liquidity pools to encourage them to use them.
>
> Single stock futures offer new efficiencies to securities
> trading, securities
> lending and corporate hedging activities. It is expected the new
> exchange
> will develop rules that would allow block trading and exchange
> for physicals
> ('EFP").
>
> None of the representatives from the CBOE and CME would comment on the
> specifics of any of the contracts. Brodsky at another event I
> had attended
> where he spoke on single stock futures had noted the success of the MEFF
> exchange in Spain with physical delivery of the stocks versus the cash
> settled LIFFE Universal Security Futures. Brodsky also noted that while
> Nasdaq had to go across the ocean to enter a multi-exchange SSF
> with LIFFE,
> the three Chicago exchanges did a deal "right here in Chicago."
> If I had to
> guess, I would say the SSF would have a physical delivery,
> matching those of
> individual options. Exchange Traded Funds, also part of the new
> law, were
> not mentioned at the press conference.
>
> The new exchange will be able to trade any stock that is
> available to trade
> options on, according the Commodity Futures Modernization Act of
> 2000. That
> means the joint venture could trade SSFs on both U.S. and International
> stocks.
>
> This announcement today begins a new era of Chicago exchange
> cooperation and
> could lead to greater efficiencies being realized in the future. It
> certainly bodes well for the tone of any CBOT/CBOE takes about the CBOT
> exercise rights.
>
> A clean slate and new exchange was the best way to avoid the
> expected fights
> from the various membership interests at the three exchanges. A
> separate
> culture and funding and management is also a good move.
>
> Jim McNulty, President of the CME, said there were no plans for
> any public
> offering in the new exchange at this time. His answer was very
> direct and
> seemed to indicate to me that no IPO hype was going to be
> injected into this
> endeavor.
>
> He also said SSF would offer a perfect hedge for equity options
> and that the
> capital efficiencies for SSF would be an advantage over OTC traded
> instruments, which are really just SSFs under different names. Price
> transparency and the lack of stock lending and borrowing were
> also mentioned
> as efficiencies by McNulty.
>
> CBOE traders will be able to access SSF on the trading floor with
> hand held
> computers, which will access the yet to be tried CBOE Direct. CME floor
> traders will be able to access Globex2 from their Globex2 terminals.
> Certainly this will be a boon to the Independent Software Vendors
> like PATS
> Systems, Trading Technologies and others who offer multiple exchange
> electronic access while utilizing the latest exchange APIs.
>
> This was just about the best news for single stock futures
> potential success
> that I can imagine at this point. A unified Chicago exchange community,
> working together, forming a new venture with separate management
> and board,
> that is a good start. Certainly working together on a growing
> and successful
> new project could prompt exchange leadership and members to look
> for greater
> efficiencies in common clearing or even mergers. First the CBOE
> and the CBOT
> need to be for profit to match the CME. But that is a story for
> another day.
>
> Regards,
>
> John J. Lothian
>
> The Price Futures Group, Inc.
> Electronic Trading Division
> www.pricegroupetd.com
> Disclosure: Futures and options trading involves substantial risk. Past
> performance is not necessarily indicative of future results.
>
> Disclaimer: This letter is strictly the opinion of its writer and
> is intended
> solely for informative purposes and is not to be construed, under any
> circumstances, by implication or otherwise, as an offer to sell or a
> solicitation to buy or trade in any commodities or securities
> herein named.
> Information is obtained from sources believed to be reliable, but
> is in no
> way guaranteed. No guarantee
> of any kind is implied or possible where projections of future
> conditions are
> attempted.
>
> Futures and options trading involves risk. Past results are no
> indication of
> future performance.
>
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