Single Stock Futures - 2 Wochen nach der Einführung

DJ. Investors Still Just Dabbling In Single-Stock Futures

By Kristina Zurla
Of DOW JONES NEWSWIRES

CHICAGO (Dow Jones)-Single-stock futures have been up and running for two
weeks at both OneChicago LLC and Nasdaq Liffe Markets LLC, and at this early
stage, professional traders are still just dabbling in the market and testing
out the product without much retail or institutional participation.

But volume has been slowly building. On Friday, volume was the best ever, at
10,012 contracts for the combined exchanges.

The educational process is ongoing, with high hopes the first quarter of the
year will see single-stock futures start to reach their full potential for use
in various hedging and investment strategies among a broader base of
participants.

In the second week of trade on both exchanges, the Options Clearing Corp.
reported market makers made up 84% of the trading volume. Market makers are
firms that are required to maintain a firm bid and offer price in a given
security and stand ready to buy or sell at its publicly quoted prices. In
essence, the majority of the activity in single-stock futures thus far is
coming from market insiders.

"Right now, we have sort of what I'd call line-testing by various people,"
said Howard Simons, clinical professor at the Illinois Institute of Technology
and special academic advisor at NQLX. "We have this hybrid product that crosses
equities and futures, and many people don't have experience in both and are in
the learning stage," he said.

In the past few weeks, Simons has been giving presentations to potential
institutional users including mutual funds, pension funds, state endowments and
banks. He said these groups say they are getting ready to do some "substantial
stuff" with single-stock futures in the first quarter of 2003, using
sophisticated strategies such as equity total return swaps, index deletion,
stock lending and pairs trading.

But for now, these folks are simply protecting whatever profits they have
this year and are a little hesitant to jump in to something new at this point,
particularly since so many equity market participants have been shell-shocked
by another bearish year.

Single-stock futures traders initially gravitated to futures on Microsoft
(MSFT), which had been the most actively traded issue at both exchanges nearly
every day in the first week and a half. It garnered interest for the simple
fact that the stock is so well-known and highly capitalized and a natural to
attract liquidity.

But what's interesting is that while Microsoft appears to be seeing mostly
day trading, there are some other issues that have seen less volume but greater
growth in open interest, or open positions, for a different reason.

Simons said one early strategy that seems to be taking place is dividend
capture. Investors have been holding long positions in the back months (2003
contracts) in stock futures such as Exxon Mobil Corp. (XOM), Ford Motor Co. (F)
and ChevronTexaco Corp. (CHV), to look for additional yield.

"Microsoft has been a speculative favorite, but investors are hoping to
capture some long-term capital gains in other issues," he said.

Both OneChicago and NQLX have expanded their listings since the initial
launch on Nov. 8, and said they will continue to gradually add more issues to
trade.

Currently at OneChicago, 43 futures on stocks are available to trade plus
futures on one exchange-traded fund, Diamonds.

Exchange-Traded Funds See Brisk Activity

Some potential customers of single-stock futures have said they feel
exchange-traded funds are going to be the hottest area in the future, and if
Friday's activity with the addition of the Diamond - which tracks the Dow Jones
Industrial Average - is any indication, it appears to be a good prophecy.
OneChicago saw its best trading day ever on Friday at 6,554 contracts, with
more than 1,100 Diamonds traded.

At NQLX, there are 20 single-stock futures offered and five exchange-traded
funds.

The two exchanges both operate on fully electronic platforms and have some of
stock listings in common, but they are not fungible - that is, they must be
traded separately on one exchange or the other. So far, volume on the two
competing exchanges is running neck and neck.

It could take about three to six months for the "nonprofessional crowd" to
jump aboard and really pump up the volume, said John Najarian, founder of
Mercury Trading, a market maker at OneChicago. He said he's seeing a number of
former equity day traders among the first to play in this market, because
margin and position rule changes at both the New York Stock Exchange and Nasdaq
made it more difficult for them to trade without large amounts of capital.

Futures trading offers the advantage of greater leverage, and the ability to
control a large underlying position value with less upfront capital. A 20%
minimum margin is required for single-stock futures, while 50% in the cash
market, so there can be a more efficient use of capital with security futures.
Futures also aren't subject to the "uptick" rule - unlike in the cash market,
an individual can take a short position in futures whether the security is
going up or down.

Najarian said there are all sorts of strategies investors have to discover
using stocks, options, and single-stock futures in combinations that have the
potential to create some very attractive returns.

"When institutions and other customers start smelling the coffee here, they
are going to really wake up," he said.

One single-stock future represents 100 shares of underlying cash stock, and
represents a contract to buy or sell at a stated price at a later date.
Single-stock futures were banned from trading in the U.S. until the Commodity
Futures Modernization Act of 2000 gave the green-light for their development.

-By Kristina Zurla, Dow Jones Newswires; 312-750-4132;
kristina.zurla@dowjones.com

(END) Dow Jones Newswires 25-11-02

2010GMT

DJ info:
N/DJCS,N/DJWI,N/CNW,N/DJOS,N/DJXx,N/DRV,N/MKT,N/PET,N/SIF,N/WEI,N/XCH
Copyright 2002 OsterDowJones Commodity News (ODJ). All rights reserved.

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2002-11-25 20:10:14 UTC
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