Improved Financing with Single Stock Futures

I don't know about TradersStudio. Do you know what clearing firm they use. That would narrow the possibility.

CBOEDirect is the electronic matching engine used by the Chicago Board Options Exchange (CBOE).

OneChicago uses the same matching engine.
 
David (G. Downey):

I just want to say that I very much like your products and many of the remarks you have been making. I think that your products will become even more important if and when the volume increases and bid/ask spreads go down even further. Even in the current condition, I think you are putting a wonderful product and I hope that you are not getting too much "bashing" from the stock loan and financing departments. Indeed, no one should go for a margin loan (or forego the rebate) when one can do a lot better with SSFs.

So, I want to say thank you and encourage my fellow traders to use your products. It will be in their benefits to use your products.

I have some questions if you do not mind:

1. I wanted to use SSFs sometime ago for QQQQ and IWM. Do you have them for 100 shares rather than 1000 shares? I like to scale in or out, and one 100 contract would really help.
2. I noticed that you mentioned that they are not good for day trading. Why is that? Is it because of spreads or something else?
If it is the loss that you are alluding to, there is also the other side (the gain), and I also would like to use them in conjunction with options to manage risk even better.
3. You discussed the effect of hard to short stock, how about the effect of dividends and the estimated values of dividend built in SSFs. Sometimes it may appear that a contract is well priced, but it might be because of dividend which informed people know more about that regular folks. If you could expand on the +/- of dividend effects it would be very helpful (at least to me).

I would also like to highlight what you indicated about the name of the game in trading: the cost of financing. I do not think that the general people really appreciate this as they should, but I personally remember the day when I zeroed in on this aspect and it has changed dramatically my costs, the way I trade, and my management of risk and returns. Trading is a business, and financing is critical component of a business.

Best regards,

RFT (sorry I am using only my screen name here. I hope you undestand, but I think we will have a future opportunity where more think can be exchanged).

PS: Could one buy some stock of OneChicago?
 
1. I wanted to use SSFs sometime ago for QQQQ and IWM. Do you have them for 100 shares rather than 1000 shares? I like to scale in or out, and one 100 contract would really help.

Ok I will explain our thought process here. We used the 1000 multiplier because of the benefits that SSFs would have in Portfolio Margining accounts. One of the only perks that Congress gave the SSF market was that they could sit inside of securities accounts for PM purposes. Customers with these accounts could replace index futures currently being used with SSF on the related ETFs and get substantial reduction in margin requirements. The goal was to offer a very attractive product to these customers so that they would put pressure on the brokerages to add the SSF line to their offerings.

We have been discussing listing a 'mini' contract but there are constraints we have to live with having to do with bandwidth for our quotations. It is not a dead issue and we are still considering it.

2. I noticed that you mentioned that they are not good for day trading. Why is that? Is it because of spreads or something else?

They can be used for daytrading but the fact is that the spreads are wider and the trading activity is not the same as in the underlying. In and out traders will not get the same velocity of trading that they currently get in the cash market.

I would really like traders to understand the product from a financing perspective. It is the last cost of trading that really has not come down and I believe it is just a matter of time.

As a means to lower costs of trading it is a very useful tool and should be part of every investor's arsenal of products used. Daytrading is a reality but is not as sensitive to the financing costs as investing is.


3. You discussed the effect of hard to short stock, how about the effect of dividends and the estimated values of dividend built in SSFs. Sometimes it may appear that a contract is well priced, but it might be because of dividend which informed people know more about that regular folks. If you could expand on the +/- of dividend effects it would be very helpful (at least to me).

Dividends are extremely important! You are absolutely correct that dividend streams can be tricky and I know of many professional trading firms that struggle with the complexity. For instance there is public information that company XYZ will pay a dividend on the third friday of June. Accordingly the price of the SSF must take this into account. Yet there have been times that the company doesn't actually pay the dividend until the following Monday which means that the SSF price should not include this. Traders must be very careful as to the information streams used in the pricing.

Again please think of trading in interest rates. When you buy a stock you are borrowing from either yourself or an external source and foregoing opportunity. This represents a cost which can be expressed as an interest rate. When you sell you receive a return (in some cases) on the credit balance which is expressed as an interest rate. If the stock pays a dividend then this also represents a return which can be expressed as an interest rate.

You see all trading is an interest rate and you should view it as such.

BE VERY CAREFUL about dividends especially when utilizing the Exchange Future for Physical (EFP) process as the dividend's effect on the price is substantial. When time to expiration is collapsing the effect is magnified. Do your homework. It will be worth it.

PS: Could one buy some stock of OneChicago?

OneChicago is a privately held institution owned by the IB Exchange Corp, Chicago Mercantile Exchange and the Chicago Board Options Exchange.

Accordingly there is no method to buy into the exchange at this time.
 
Quote from SuperCruz:

Can we trade single stock futures with TradersStudio?
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Yes, CSI has the single stock futures data. You can develop a system and trade a basket of them using TradersStudio portfiolo capablities.
 
I am sorry but I don't know who "they"are. The performance bond requirement (margin in the futures world) remains at 20% for Single Stock Futures OR Risk based margin if the calculations indicate potential moves that would necessitate a higher minimum.

Of course it is well within the rights of the individual brokerage house to require a minimum performance bond that exceeds the 20% mentioned above.

Single Stock Futures offer an alternative to the trading world in terms of improve financing rates, leverage and the mitigation of counterparty risk exposure.

In addition there are some Hard To Borrow names where the forward contract (SSF) is trading at a discount to the cash price. This means customers who are buying these certain names are able to purchase them at a discount to the cash and reap the associated benefit when they expire into a long stock position. The reason for this has to do with the money the brokerages make by loaning these HTB names out to short sellers. Selling the future under parity allows them to buy the underlying and then loan it out making the profits from the rebate charged to the short sellers.

It might not be attractive to all but buying a highly correlated instrument that will turn into the CUSIP upon expiration of the SSF contract is wonderful way to get long a position at a discount to the underlying cash price.

Best.
 
OC,

on the hard to borrow stocks, isnt there an arbitrage opportunity in case you have easy access to the shares to buy the SSF and short the stock and collect the spread at expiration?MBI had some massive discounts, I assume somebody friendly to the management or in a firm with good access to shares can make a killing on risk free profits.
also why you mention t-bill rates on ssfs?It its my impression that libor is priced on this things and not treasury rates
 
Quote from OneChicago:

I am sorry but I don't know who "they"are. .............................
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Stock brokerage firms are no longer allowed to give more than 4-1 leverage to the average small account trader. They were earlier allowed to give intra-day much higher leverage and some dishonest firms as well as the trading mills allowed this.

However, I have read this somewhere on ET, that this has changed and is no longer allowed.
 
Daal:
The performance bond requirement for the SSF can be met with T-bills. LIBOR transactions are not. T-Bills posted as performance bond continue to earn interest on behalf of the SSF trader. Accordingly they represent an income on the trade. Performance bond can be met with other instruments as well but T-bills are easy.

Traders who have access to inventory at preferable rates should be attempting to create the arbed position of purchasing the SSF at a price that combined with the cost of shorting the stock and holding the two-legged position until expiry ( where it will turn into a flat position as the stock is delivered to the SSF obligation) will produce a profit.

Best
 
Quote from OneChicago:

Daal:
The performance bond requirement for the SSF can be met with T-bills. LIBOR transactions are not. T-Bills posted as performance bond continue to earn interest on behalf of the SSF trader. Accordingly they represent an income on the trade. Performance bond can be met with other instruments as well but T-bills are easy.
Best
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I was talking about the implied interest rate on the SSF price but its good to know that you can use treasuries as collateral thks
 
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