Discussion in 'Financial Futures' started by savage, Apr 30, 2002.
AAA, do you foresee the slow demise of equities as a daytrading vehicle?
AAA (or anyone else that knows),
I have to show my ignorance here. How is the stock loaning business lucrative? I can see why a trader would want to sell a future instead of short the stock, but I don't understand how the big boys make money loaning stock. Thanks for any explanation.
By Christopher Faille, Reporter
Wednesday, May 22, 2002
WASHINGTON (HedgeWorld.com)âThe Commodity Futures Trading Commission and the Securities Exchange Commission announced their final rules concerning certain aspects of the trading of securities futures products, i.e. single-stock futures and narrowly based indexes.
Specifically, the rules announced Monday, which take effect in 30 days; establish requirements for the cash settlement of securities futures trades, and for regulatory halts.
The new rules ârequire that the final settlement price for each cash-settled securities futures product fairly reflect the opening price of the underlying security or securities, and that trading in any security futures product halt when a regulatory halt is instituted with respect to a security or securities underlying the security futures productâ¦â
âThis is not the big thing weâve been waiting for,â though, said Lynne Howard, a spokeswoman for the Chicago Board Options Exchange. The big rule still in the works concerns margin requirements. Brokerage firms, and other industry participants, have to see all the rules before they can begin training, and theyâll have to develop a critical mass of already-trained personnel before they will feel comfortable making use of the new instruments.
With such concerns in mind, Peter Borish, senior managing director of business development of OneChicago LLC, the security futures joint venture of the three Chicago derivatives exchanges, said Monday that OneChicago âis not going to be ready to launch security futures until the firms themselves are ready.â
CTFC Chairman James E. Newsome hopes that the âwhole packageâ including margin rules will be finished in a matter of days, a spokesman for the CFTC said.
Also on Monday, the CFTC and SEC issued an interpretation of the statutory requirement under the Commodity Exchange Act and the Securities Exchange Act of 1934 that procedures be put in place for coordinated surveillance among the markets trading security futures products and any market trading of the underlying security, to protect against insider trading or market manipulation.
The Comment Letters
After the two commissions proposed (essentially) these rules in September, they received eight comment letters.
One of those letters observed that settlement prices based upon the opening price of the underlying security might create difficulties because the openings of all securities do not occur simultaneously, so an index would have to be calculated by employing non-synchronous settlement prices. The CFTC noted in response that they have not mandated any particular method of calculating indexes. An exchange could adopt the procedure it finds best, provided that the result âfairly reflectsâ the opening prices.
Another commenter pointed out that the Chicago Board Options Exchange, in its option on the S&P 100 index (OEX) still employs closing price settlement. (The CBOE believes that such a procedure is appropriate for OEX because these options are used âprimarily by retail investors andâ¦not actively used in the types of index arbitrage unwinding programs that had strained the liquidity of the security markets at the close on expiration.â) That commenter called on the SEC and CFTC to require that the settlement procedures for OEX conform to the more usual procedure of employing opening prices, the procedure now mandated for security futures. The two commissions declined this invitation. They âdo not believe it is necessary or appropriate at this time to mandate opening settlement procedures for all options and futures.â
But the commissions did make some minor concessions to such criticism. They modified the definition of âopening priceâ in the final rule by clarifying that, if a security is not listed on a national securities exchange or a national securities association, the âopening priceâ shall be that on the primary market for that security (which may, of course, be a foreign market or exchange.)
Generally, there are two kinds of halts employed in the equity and options markets: news pending halts, or circuit breakers. A news pending halt takes place when an exchange has determined âthat there are matters relating to the security or issuer that have not been adequately disclosed to the public.â A circuit breaker halt occurs under rules designed to allow for orderly, pre-planned halts in the place of the ad hoc and destabilizing halts that can occur during a significant market decline.
In September, the commissions proposed that trading on a future in a single security be halted at any time that either sort of halt has been instituted by the listing market for the underlying security. They also proposed that trading be halted on a narrow-based security index when either sort of halt was instituted for one or more of the underlying securities that constitute 30% or more of the market capitalization of the index.
One commenter objected in writing that there are circumstances when the listing market is not the principle-trading venue for the underlying security. In such a case, the commenter contended, a trading halt by the listing market does not justify a halt in the same securityâs future, because the halt would not reflect current market conditions.
The commissions, though, have stuck with this rule as originally written. In reply to that objection, they said that âthe listing market is in the best position to be informed promptly by the issuer that pending news would require the imposition of a trading halt,â due to the contractual relation between the two parties. Accordingly, requiring that trading stop in the futures when the listing market has halted trading in the underlying security furthers the purposes of the relevant statutes: the trading of security futures products must not become a tool for the circumvention of either sort of regulatory halt.
But the commissions have modified their original proposal as to trading halts of narrow based indexes. The final rules specify that only after a halt or halts have been instituted for one or more of the underlying securities that constitute at least 50% of the market capitalization of the index is the halt of the index itself required.
They have also provided that they will have the authority to exempt an exchange from the trading halt requirement âeither unconditionally or on specified terms and conditions [if they determine] that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors.â
Some commenters have expressed concern about the potential difficulty of calculating the percentage of market capitalization involved in a halt. The commissions were unmoved by this contention.
On the issue of intermarket coordination, the commissions said that exchanges trading security futures products could satisfy this requirement by entering into bilateral surveillance agreements with each exchange, market, or association on which their underlying products are traded to detect manipulation or insider trading. In the alternative, they might fulfill the same requirement by becoming members of the Intermarket Surveillance Group.
After Dec.21, 2003, the CFTC and SEC may decide to allow trading of puts, calls, straddles, options, or privileges on security futures.
A friend of mine was escorted by someone from the cbot on a tour of the trading floor last week. She was now 'hoping' for a fall launch off ssf's.
With the red tape and bs we've seen up to this point, I'm not holding my breath.
on what stocks will the ssf's applied to?
Will the uptick rule be not applicable for these stocks?
No uptick rule (for SSF's).
Thank you tom_p
I was actually interested on the repeal of the the uptick rule for the participating stocks. The articles indicate no uptick for the SSF's but no mention for the corresponding stocks.
If anyone has a referring link it would be much appreciated.
Editing a post doesn't place it up on the display list.
I was speaking with a few people from the NFA and they have stated that SSF's will be out 4th quarter at the soonest...
just came back from a NQLX SSF seminar held at Bloomberg
they are hopeful they can rollout their list of SSF's
in 35 days - 45 days
I guess if they meant trading days that would be sometime
Also ... I think prop firm traders would need to pass a test
showing trading proficiency in futures to be allowed to trade these products ...
I might have misunderstood the NFA / CFTC rules as explained
here .... I know as an independent trader I do not have to worry about tests but perhaps when they talked about those with series 7 and 3 exams needing to pass this new test it referred
only to those who would try to sell the SSF idea to customers.
Also ... for some of you this might be of interest
Initially no market data fee
no fee to give liquidity
30 cents to take liquidity
Separate names with a comma.