OneChicago Closing.....

[JSOP]

even SSF from other countries exchanges have very poor volume.
it is simply an obsolete outdated product.

No it's because they didn't develop it attractive enough for the retail investors and profitable enough for them at the same time. Plus it was in direct competition with the brokers which stood to lose a large chunk of their business in margin lending. Anything that allows us retail traders/investors to gain a bigger piece of the pie always has a hard time of taking off especially at the beginning. So you have to work extra hard to develop the product and then get the word out directly to the average joe to make them understand to get the movement going.

This product is NOT obsolete. It's for the future. It's too far advanced and not well developed yet. In the future, everybody will be trading directly on the exchanges bypassing the brokers just like nobody is using full-service brokers anymore to trade at the retail level.

What a shame.

 

[patrickrooney]

Brokers had no appetite for single stock futures. Brokers bring in a solid stream of revenue by lending securities to those who wish to short a stock. Single stock futures interrupted this model and made shorting individual stocks too easy.

 

[Baron]

They used us for marketing and PR when they first rolled out, but then they backed off once things got going. I've not heard from them in years in terms of them wanting to promote their exchange or any of the products they facilitate trading in, so I'm not sure how they expect for newer traders to even know they exist as an option. Ask the Robinhood generation what One Chicago is, or "What's an SSF?", and you'll probably find that roughly zero people know the answer.

 

[elt894]

The real impetus behind US single stock futures was the more favorable blended capital gains tax treatment.

Unlike other futures, SSFs are taxed similar to stocks. From IRS Pub 550:

A securities futures contract is a contract of sale for future delivery of a single security or of a narrow-based security index.

Gain or loss from the contract will generally be treated in a manner similar to gain or loss from transactions in the underlying security. This means gain or loss from the sale, exchange, or termination of the contract will generally have the same character as gain or loss from transactions in the property to which the contract relates. Any capital gain or loss on a sale, exchange, or termination of a contract to sell property will be considered short term, regardless of how long you hold the contract. These contracts are not section 1256 contracts (unless they are dealer securities futures contracts).

 

[mskl]

lots of good comments here. SSF will be back in the US. They just need the proper support.

It is mainly about financing (not tax) imo. The prime brokers have no interest in having this gain traction for obvious reasons.

Think about all the HTB stocks: Long term investors are buying (and not lending shares - ie paying too much for the equity) and those shorting are risking buy-ins and paying insane fees. Think about all the $$ the brokers are making on these securities. It would all be gone if investors were smart enough to trade SSF's instead but very few brokers allowed access to OneChicago. I feel bad for DD.

Not much you can do when no one wants you to succeed (even OneChicago's ownership group!!). Think about that....

In Canada they introduced SSF's a couple years ago. The number of retail brokers that have access to this market............ZERO

 

[elt894]

The main draw was supposed to be that you could finance at market rates. You would could in theory get much better than the brokers' margin rates, earn interest on short sale proceeds, and get paid to lend out HTB stocks. Of course brokers hate that so only IB offered access to the exchange.

In practice quoting was particularly bad/nonexistent for HTB stocks, which I think is where they could have had the most natural demand.

They were probably also hurt by the low rate environment for pretty much all of their existence. Shorting liquid stocks through SSFs would make a lot of sense if Fed Funds was 5%. At 0% not so much.

 

[bpr]

last I checked IB took partial owner ship of OneChicago ...don't know the percetage ownership...
so did they knowingly let it fail ?
IB wiith its large subscriber base could have easily marketed and made it a success.
Also the product design and brokerage structure was complicated and not user freindly ...
I bet if CME would have been the owner they would have made it biggest volume exchnage in no time
Ths is not the first time a SSF exchnage in US failed.. earlier attemts are also sabotaged ...do your research ...

 

[bone]

Great post, thanks.

http://www.futuresmag.com/2015/07/29/future-single-stock-futures

"The resistance came in the form of a debilitating regulatory structure and powerful competitors in the stock loan business. “It could have succeeded as a futures product alone if the SEC had been willing to give control of it to the CFTC and they used futures-style SPAN margining to allow for offsets,” Simons says."

Unlike other futures, SSFs are taxed similar to stocks. From IRS Pub 550:

 

[elt894]

Great post, thanks.

http://www.futuresmag.com/2015/07/29/future-single-stock-futures

"The resistance came in the form of a debilitating regulatory structure and powerful competitors in the stock loan business. “It could have succeeded as a futures product alone if the SEC had been willing to give control of it to the CFTC and they used futures-style SPAN margining to allow for offsets,” Simons says."

Yep, in addition to SSF exchanges, AQS's stock lending platform also couldn't overcome the industry resistance: https://www.reuters.com/article/us-usa-stocklending-lawsuit-idUSKCN1M72XG

There have been some other discussions of regulatory issues, such as post 11 here. I can't say I understand the issue. Holding SSFs in a securities account with portfolio margin, you get about 2% margin on EFPs and 0.7% on calendar spreads. In a futures account you wouldn't get any offset for stock positions. There must be some aspect for institutions that I'm missing.

 

[bone]

Maybe I can add some color, especially as it pertains to the phrase "...and they used futures-style SPAN margining to allow for offsets"

Many institutions, commercials, HF's, etc. run some variation of a relative value strategy as part of their trading program. When I trade futures, for example, there are SPAN margin offset agreements for inter market spreads between trading exchanges. They are happy to do this, because spread trading is a key component for futures volume. For example, if I spread the Russell 2000 futures contract on ICE versus the S&P 500 futures contract on the CME, I will get a substantial (somewhere around 75% without looking) margin offset from both ICE and the CME. So if the margin for the Russell is, let's say, $5K and the margin for the ES is, let's say, $5300, then my SPAN margin offset credit is 25%. So, my margin to hold the spread overnight is $10,300 x .25 = $2,575. So that is a big deal.

To give another example, if I want to short Two Year Notes and buy Ten Year Notes as a yield curve play - it is much cheaper for me to sell ZT futures and buy ZN futures on the CME than it is for me to buy Two Year Notes and short Ten Year Notes on a cash secondary dealer market (Cantor Fitzgerald, ICAP, Brokertec).

So right now, if AJAX Pension Fund believes that AMZN and GOOGL will substantially outperform the S&P 500, holding huge blocks of AMZN and GOOGl shares and then shorting SPY shares as a weighted relative value play eats up significant investment and carry finance charges. But to be long exchange futures for AMZN and GOOGL and short ES futures as an exchange recognized spread would be amazing.

Yep, in addition to SSF exchanges, AQS's stock lending platform also couldn't overcome the industry resistance: https://www.reuters.com/article/us-usa-stocklending-lawsuit-idUSKCN1M72XG

There have been some other discussions of regulatory issues, such as post 11 here. I can't say I understand the issue. Holding SSFs in a securities account with portfolio margin, you get about 2% margin on EFPs and 0.7% on calendar spreads. In a futures account you wouldn't get any offset for stock positions. There must be some aspect for institutions that I'm missing.