Single Stock Futures in the US

November 19, 2002


Boston, MA, USA November 19, 2002

In a new report entitled " ," Celent examines the first new instrument in the capital markets since equity options were introduced in the 1970s. Single stock futures are contracts based upon an underlying security, and have begun trading on two exchanges in the US.

Having been available for several years in various international locations, are a new twist, brought into existence with the passage of the Commodities Futures Modernization Act of 2000. These instruments are now dually regulated by the SEC and the CFTC. Two exchanges, Nasdaq LIFFE Markets and OneChicago are now vying for market share among investors.

There are various benefits single stock futures will bring to investors, not the least of which is the ability to gain significant buying power with lower margin levels than most instruments (see above). SSFs will also bring other, specific benefits, such as easing short sales (because stock loan will no longer be necessary and the uptick rule will not apply) and helping to execute trading strategies, including pairs trading and index fund management. Finally, SSFs will facilitate cross-border trading, because exposure to a foreign equity can be had via a domestically purchased single stock future.

According to Fritz McCormick, author of the report, "Single stock futures have the potential to significantly alter the way many segments of the trading community enter the market. However, this potential is grounded by the realities of a depressed equity marketplace as well as a lack of education for investors, especially on the retail side. Single stock futures exchanges have a hard job in front of them, one of convincing a typically skeptical audience that they have a superior product."

A is available online.

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Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

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Table of Contents


Boston, MA, USA November 19, 2002

Return to report Abstract


  Definition 7
  Options and Single Stock Futures 7
  Examples and Characteristics 8
  Pricing 9
  Margin 10
  Fungibility 11
  Clearing and Settlement 12
  Who Will Trade Single Stock Futures? 22
  Short Sale 23
  Other Trading Uses 23
  NASDAQ LIFFE Markets 25
  OneChicago 26
  Others 27

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