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John,
Great response. I wish more RTers would take this kind of time and effort.
-----Original Message-----
From: I4Lothian@xxxxxxx [mailto:I4Lothian@xxxxxxx]
Sent: Saturday, September 08, 2001 4:56 PM
To: realtraders@xxxxxxxxxxxxxxx
Subject: Re: [RT] Markets: Stock Index Futures and regulation
In a message dated 9/8/01 1:27:12 PM Central Daylight Time, irat@xxxxxxxxx
writes:
<< How will the stock options relate to the futures on those stocks?
***** The five major option exchanges all own and clear the Option Clearing
Corporation, the entity that will clear all of the Single Stock Futures
contracts. Thus, there will be margin breaks for covered positions, spread
from one group of stocks to another, etc.
Will there be separate options on the individual stock futures?
***** Options on SSF are not allowed for two years, as written into the
Commodity Futures Modernization Act.
How will hedges be treated with stock options against the future for that
individual stock?
****** SSF can be hedged with options, shares or other options.
There are a lot of questions as to treatment of arbs of futures against the
stock and the new day trading rules?
***** There are just a plain lot of questions about everything. In my 22
years in the industry I have never been through a new product introduction
as
far reaching as this one.
It appears that one can day trade the future of a stock with no minimum
financial requirement, yet it can't be done with stock.
***** You are incorrect about this. Congress said SSF are futures and they
are securities. Both the SEC and the CFTC have jurisdiction over their
trading. The new day trading rules from the SEC will definitely apply.
Yet the margin on the stock is substantially higher then that on the future
for that same stock.
***** The margin on the futures will have parity with the equivalent risk
position in a short options. That risk level exists today. Synthetic SSF
exist today. We are not creating anything that does not exist today. We are
merely making it more efficient, transparent, capital efficient and
operational efficient.
Are the powers in charge just creating another vehicle to make it easier to
fleece the uninitiated?
***** Ira, sorry, but this is just not true. The powers in charge, the U.S.
Congress did not set this up for people to be fleeced. SSF will be the most
regulated trading product we will have, regulated and covered by the SEC,
CFTC, NADR and NFA. According to numbers I have seen there are 26 million
stock accounts in the U.S. There are 5 million option accounts, for
experience sophisticated traders. There are 750,000 futures accounts, per
the highest estimate I have seen. SSF will largely be a tool for the
futures
and options traders.
That is what this world needs right now is more leverage for the individual,
the banks and the insurance companies.
****** What we have is a more specific risk management tool to help banks
and
insurance companies manage their risk.
The lessons of 1929 are lost for the time being.
****** Perhaps you would like to explain the specific lessons from 1929
which
are being lost?
That good old 10% margin is back and everyone can play the game.
****** The minimum margin will be 20%, same as a short option. Not everyone
can play the game. Perhaps a little review of the new regulations would be
useful.
All the barriers that were put up to stop a financial disaster have been
removed in favor of a so called free market place with increased
competition.
****** ROTFLOL! ROTFLOL! All the barriers? That is just too funny. Alan
Greenspan must be in the looney bin too. The SEC shut down. How about we
have the best regulated markets in the world. We have the best access to
information and regulatory efficiency in history, though regulatory
efficiency does seem like an oxymoron. There are no barriers removed to
stop
a financial disaster. In fact, exchange traded futures contracts will
actually increase the protections to the clients. A stock account is
covered
for what, $100K by the SIPC. Futures accounts are covered 100% by the
reserves, equity of the clearing firms and other protections put in place.
There is already large SSF occurring in the OTC market, essentially. This
will allow this trading to move into a liquid level playing field with
customer protections in place. I don't see barriers coming down, I see the
existing playing field being leveled for the benefit of all the players.
Remember the rail cars, grain silos, and other things created for our
benefit. Here we go again.
***** OK, you lost me with that one.
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.
>>
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