don bright

You're definitely not "wrong." We have to wait for the liquidity, method of trading, and access issues to be sorted out. It is my understanding that the likes of Hull Trading, Timber Hill, and the rest of the big boys will be the initial players (much like the ISE), and they are all excellent traders and theorists, and won't be letting too many freebies out.

As far as B/D's vs. customers, I can say with a great degree of confidence, that these new vehicles will not be much of a benefit to customers at the beginning. I don't think the brokerages will be "pushing" them, or even allowing them (without tight restrictions) in a retail "day trading" account...at least for a while. Whenever we have new products, it takes a while for the brokers to even understand the valuations (i.e. "how much does one S&P contract cost?" is something that I am asked all the time).

It will be fun, as all new products usually provide.
 
Hi Don,

Add me to the list of many who have been enjoying your posts. I really appreciate your participation here.

As Bright Trading is considering trading SSF's, I'm wondering if you have given thought to including any of the electronically traded index futures contracts, specifically the ES and NQ?

I know that there is some major "arb'ing" going on with the QQQ / NQ, probably the SPY/ES, etc. I've often thought about strategies where traders might do a basket of the "generals" like the top 5 S&P500 stocks and pair those five with the appropriate number of futures contracts. Or perhaps pair the ES with a mid-volume type of stock instead of the leaders.

Just wondering out loud.....
 
We have some people trading the emini's, but to be real honest, we have found that most of the "basket" arb's are not working nearly as well as some of the other strategies. I have found over the years, that we go through cycles of techniques that seem to work for a while, go out of favor, come back, etc. I know that interest rates, access and all the other factors tend to affect the liquidity and the "edge" available from time to time, and we always try to stay tuned to the most profitable strategies (and they aren't always the most "cool"). I am doing an analysis of potential new (and revamped "old") techniques that may apply to the newer products, and will try to keep you all apprised.

Thanks for the good words!! :)
 
For the life of me I have been unable to figure out the economic justification for SSFs. Do you know what it is? Is it just a way for the faultering futures exchanges to get business? What is the margin requirement for a SSF?

Thanks for your reply to my previous post.
 
I think the obvious justification is leverage and the lack of high margins requirements for the speculators. This will bring in a whole new field of players (from the futures "strategists" and "chartists" to the "shooters" and "gamblers").The "macro economic" effect that is expected from the Governing bodies and the Fed will likely be the increased dollar amounts of money being moved around. I have found that when traders and investors have a good grasp on the intricies of the macro economics involved, that they not only become better traders, they become more involved in other economic decisions in their life, and actually become better citizens (Ok, Ok, I know...."get off the soapbox")... When you have guys like Blair (Hull, Hull Trading), and the boys and TimberHill and other major players getting involved in the global markets, you see a lot of "ripples" that extend to employment, banking and interest rates, and even economic growth.

Most people don't want to take the time to understand even the simplest relationships that have an effect on their trading from these levels, and yet those who do take the time, nearly always perform better.

I can go into some examples if anyone wants to muddle through the thoughts that just run from my brain to my keyboard, but I don't want to bore anyone or appear to esoteric. (If I took the time to edit or even read back what I write here, then I would probably edit these posts to death, so please excuse any typos or grammatical/spelling errors).

OK, back to trading...I have a pair coming in to a good closing range. May as well get out for the weekend, (expiration day). :-)
 
Thanks. I like esoteric discussion. It leads to creative thoughts and hopefully profits. Did I understand you that the economic justification is to provide leverage for the speculators who then make money and create jobs or economic ripples? That theory makes sense, but I never heard a government employee or a regulator type think along those lines. I can imagine the thought, "Hey, why don't we find a way for the pros to make some money off the uninformed so they can create jobs?" If you think it through, it could work, but no regulator would risk his job for that bold of a thought. Maybe Mr. Hull will hire me if he makes enough bucks.

Are the SSF's going to be settled in cash or kind? If kind, and I have to deliver, and the stock is impossible to borrow, won't there be a huge buy-in that day (expiration) that will squeeze the SSF shorts and cause a rally. Seems like a potential play. Look for large open interest in SSFs near expiration that the underlying is impossible to borrow. Does that make any sense Don?

Don, I appreciate the trading discussions and the bigger picture thoughts. Too often these boards turn into a gripe session about being wronged. I learned to take responsibility for the situations I find myself in. It makes it easier to get out of them and to learn from them. When I place blame or attack others, it distracts from my trading focus. I made the mistake of trying to correct a misstatement about my former firm (ETG) and getting bogged down in personal attacks. This thread is much better. Thanks.
 
newatthis,
this may be a bit off topic but thought i'd add my two cents...
The future exchanges are not faultering. Maybe open outcry is doomed but look around the world, volume has been rising in the derivative markets. New products usually do not evolve w/o consultation with the members and commitments from market makers (electronic platforms/specialist type systems) or local pit traders (open outcry). I don't think most businesses or exchanges say - hey, let's do something new because it will add to the economy. They go into a project if the ecomomics justify it. If there were no additional benefits to the economy when someone earns money, capitalism would not work. With that said, many successful firms don't hesitate to give back to community via charities and other means.

As for SSF's. With all the competition between the exchanges, it was only natural for the futures exchanges to add the products. The SSF's have been largely unsuccessful overseas before they were launched in Europe. The main obstacle has been that brokers have been reluctant to offer them to clients due to lower commissions and fear of canibalizing from their cash offerings if they were to become liquid. In Europe demand has come from the consumer - note the large stamp taxes and commissions on shares in London as an example. In the states, taxes and commissions are not as much of an issue. The stock exchanges are waking up to the fact that they exist to serve the consumer and not the brokers and are improving their offerings (albeit at the same time trying to push through regulatory hurdles in their favor). I do not know if it is a no brainer as to whether or not the SSF's will succeed in the states. IMO, it comes down to how much demand will come from the retail side of the spectrum. Traders will trade any product that will offer liquidity. There will be so many people and computers looking for arb opportunities in the SSF's which should keep prices well in line. As for settlement, the SSF's I am familiar with in europe and asia are cash settled.

another aside: you say "Maybe Mr. Hull will hire me if he makes enough bucks". Well, he did get bought out by Goldman for 500+ million.

and don, thanks for the kind words about Timber Hill. We really do try to make fair markets and are one of the firms that actually honor our prices.
 
Thanks. I was thinking about some of the futures exchanges as individual exchanges such as the Board of Trade. They put so much into the 30 year and now that whole builkding project seems a waste. I was wondering not about the economics to the exchanges. I was wondering about the economic purpose for the public. I thought the CFTC would have to be convinced of the need for this product before they would approve it. I don't think they (the exchanges) would say to the CFTC we need this product so the public can have lower margin (maybe more risk) and avoid the short sale. I mean, I think, "Is the public any worse off economically without the product?" I understand things like SPY's that allow the public to bundle stocks in one transaction. Do you think the retail brokerages (Merrill) are behind the product? Will they make it easy or hard?
 
You had the same response that I was going to post about Blair Hull. He has been a real pioneer in the field, and when he and my brother first met, and started discussing professional blackjack (before option strategies), I realized that this guy was really sharp.

Regarding SSF's, my people tell me that the controversy continues at the CME about whether to go "european" or "american" on settlements. I would guess that we will convert to cash to negate the possibility of early "exercise" (ala option strategies).

I am researching an article for TASC about SSF's, and would like to hear from anyone who has good scoop!
 
You had the same response that I was going to post about Blair Hull. He has been a real pioneer in the field, and when he and my brother first met, and started discussing professional blackjack (before option strategies), I realized that this guy was really sharp.

Regarding SSF's, my people tell me that the controversy continues at the CME about whether to go "european" or "american" on settlements. I would guess that we will convert to cash to negate the possibility of early "exercise" (ala option strategies).

I am researching an article for TASC about SSF's, and would like to hear from anyone who has good scoop!
 
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