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Earl:
With all due respect, stock "index" futures have been a huge success. I
believe you wish to be skeptical of single stock futures. And given then
attendance and interest shown by the futures and securities industry this
week at a seminar in Chicago by the Futures Industry Association, I beg to
differ with your conclusion.
Single Stock Futures, in my opinion, will be the single largest new product
we have ever seen introduced. There will be three exchanges in the U.S.
offering them, a very aggressive and with it Nasdaq-LIFFE, the yet to be
named but formidable Chicago Joint Venture of the CBOE/CME/CBOT and the just
announced AMEX. What product have we had launched by three exchanges all at
the same time?
Keep in mind that the banks wanted nothing to do with the CBOT when they
launched the bonds. Six months later they were knocking down the doors for
memberships and floor space. Look at the influence of stock volumes from
tine introduction of options trading in the 1970s and stock index futures in
the 1980s. Volume took off and never looked back. Nearly 1/3 of the weekly
NYSE volume comes from program trading alone.
The new single stock futures will offer tremendous capital and operational
efficiencies to some of the largest players in the industry. No more waiting
t+3 for stocks to settle. Same day settlement. Marked to the market at the
same clearing house, the OCC, for all the single stock futures and options
trading. Same clearing house for settlement and delivery of options and
futures contracts.
Take then that the biggest corporate names in the world are U.S. companies
that can be traded as SSF. Take then that the U.S. capital markets are the
best in the world in terms of legal certainty, regulation and fairness.
These are all parts of the equation why single stock futures will work. Will
they take volume from stocks? Yes and no. That same argument was made when
options and indexes were introduced and they only added to the liquidity of
the market. With the movement of time we have been able to introduce better
and better contracts to specifically meet the needs of traders, hedgers and
investors. We no longer need to run into gold or soybeans to hedge our
inflation or deflation risk. These tools will only make what people want to
do, and do, more efficient.
And I for one and going to do my best to make sure they will be successful.
Part of the reason I write my daily industry newsletter is to help people in
the futures and securities industry manage the changes all around us. Just in
the last week I have had a President and CEO of a U.S. exchange sign up for
the letter. A Senior Vice President of one of the Chicago exchanges signed
up. A large division of a clearing FCM will shortly be announcing they are
going to license my letter to offer to their clients and to attract new
clients. They will be offering it at a single stock futures newsletter.
So, all the signs I see say that these new products are going to work. And
as the Nasdaq-LIFFE said, they are going to "make" them work. I have never
seen an exchange so confident, so focused on the good of the customer, so
focused on offering a level playing field for all participants as the
Nasdaq-LIFFE. And I believe them.
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 Man Financial Inc.
In a message dated 9/8/01 7:17:41 AM Central Daylight Time, eadamy@xxxxxxxxxx
writes:
<< I doubt that stock index futures are going to get very far off the ground.
Essentially, stock index futures (low margin and high leverage) are the last
nail in the coffin of post-29 market regulation. I believe that we are in
the early stages of a major cyclical bear market and I expect to see stock
market volumes diminish to levels not seen in decades as a byproduct of
severe price declines ... the pendulum always swings from one extreme to the
other. I further expect that liquidity in the futures and options markets
will suffer.
I find it especially ironic that the post-29 market and banking regulations
were removed just as the markets moved to such excess. The fact that these
regulations were seen to be inhibiting the upward move of the markets should
have been a warning rather than a reason to remove the regulations.
Earl >>
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