FYI

No. 94
Tuesday May 15, 2001 Page A-17
ISSN 1523-567X
Regulation, Law & Economics

Futures Trading
Exchanges Note Plans for Launch
Of E-Based Single Stock Futures Market

CHICAGO--The leaders of Chicago's two futures exchanges and the world's
largest options exchange unveiled plans May 14 to launch an electronic
single-stock futures exchange.
Senior executives of the Chicago Mercantile Exchange Inc., the Chicago Board
of Trade, and the Chicago Board Options Exchange said they signed a letter of
intent to develop the first domestic single-stock futures exchange. The
Nasdaq and the London International Financial Futures and Options Exchange
announced a single-stock futures venture in March.

Ban Lifted on Single-Stock Trading

Plans for the exchange come six months after futures laws were reformed to
permit U.S. exchanges to trade single-stock futures. Last December, the
Commodity Futures Modernization Act of 2000 was enacted, lifting a
prohibition on such transactions for the first time in more than 18 years.
During a briefing with reporters, exchange executives said the CME and CBOE
would be the two primary partners in the joint venture. Each of the exchanges
would own 45 percent of the new entity. The CBT would own the remaining 10
percent of the exchange. By their coming together in an unusual spirit of
cooperation, the exchange officials said, they hoped the as yet unnamed
venture would restore Chicago's position as the world leader in futures
trading.
"This exciting new initiative combines the best of securities and futures
trading," said William Brodsky, CBOE chairman and chief executive officer.
"Our willingness to work together on this venture will ensure that Chicago
remains the world's center in derivatives trading and risk management."

Approval of Boards, Regulators Needed

The exchanges said the new entity would be structured as a for-profit company
with its own management and board of directors. The company would be
organized separately from the three Chicago exchanges. The proposal still
must gain the approval of the boards of directors of the three exchanges and
federal regulators. Exchange officials said they were still uncertain whether
the Securities and Exchange Commission or the Commodity Futures Trading
Commission would be the primary regulator of the new exchange.
Exchange officials stressed that the trading activity would be available only
on an electronic basis. Market participants would be able to access the
trading via the CME's Globex2 and CBOE's CBOEdirect electronic trading
platforms. Exchange officials said they hope to offer principal-to-principal
trading by Aug. 21 and retail trading by Dec. 21.

By Michael Bologna

Copyright , 2001 by The Bureau of National Affairs, Inc., Washington D.C.