John Lothian's Daily Futures & Securities Industry Newsletter
November 16, 2001
Lead
Stories
CBOT
suit to go to trial
http://chicagotribune.com/business/chi-0111160072nov16.story?coll=chi-business-hed
CBOT
Sets Nov. 16 Launch of DJ-AIG Commodity IndexSM Futures - 11.15.2001
The futures
contract on the Dow Jones-AIG Commodity IndexSM (DJ-AIGCI) will be
launched on the CBOT’s electronic trading platform.
http://www.cbot.com/cbot/www/cont_detail/0,1493,10+24+109+5054,00.html
New
record in turnover on November 15, 2001
http://www.eurexchange.com/entrancehall/news_pressreleases_171_en.html
CME
Records Busiest Day In History, Sets Open Interest Record Top 25 Volume Days
All Occurred in 2001 (11/16/01)
Chicago Mercantile Exchange Inc. (CME) recorded the busiest day in its 103-year
history yesterday, Nov. 15.
http://www.cme.com/news/shownews.cfm?NewsItem=000F37BC-4E23-1BF5-9DE080EDBEFB0000
NASD
Regulation Sanctions Seven for Trade or Move Violations
http://www.nasdr.com/news/pr2001/ne_section01_051.html
NASD
Alerts Investors on Terrorism and Anthrax Investment Scams
http://www.nasdr.com/news/pr2001/ne_section01_050.html
Tiger,
Soros alums start fund with aid from XL Capital (Reuters Securities)
Alumni from two of
the world's most storied hedge funds are launching their own fund, vowing to
grow it into an industry giant and turn conventional wisdom that managing a lot
of money is a bad thing on its head.
http://biz.yahoo.com/rf/011115/n15153212_2.html
XL
Capital to invest $500 million in FrontPoint (Reuters Securities)
Insurer XL Capital Ltd. on Thursday said it would invest $500 million and take
a minority stake in Connecticut-based hedge fund FrontPoint Partners LLC.
http://biz.yahoo.com/rf/011115/n15129811_2.html
Exile
on Wall Street (SmartMoney.com)
... activity was up in October at some of the nations' big discount brokerages
like Schwab and Datek Online, but the gains were merely in line with an
expected seasonal spike in trading activity...
http://biz.yahoo.com/smart/011115/200111151stocwatc.html
Exchange News
Temporary
Privilege-Fee Waiver Expirations
http://www.cbot.com/cbot/www/cont_detail/0,1493,10+24+268+5052,00.html
Revised
Holiday Schedule, Thanksgiving - 11.15.2001
The Thanksgiving holiday
schedule is revised to include Dow Jones-AIG Commodity Index futures.
http://www.cbot.com/cbot/www/cont_detail/0,1493,10+24+268+5059,00.html
Program
Trading Averaged 26.8 Percent of NYSE Volume during Oct. 29-Nov. 2, 2001
http://www.nyse.com/press/NT00062166.html
Tel
Aviv Stock Exchange to Launch Euro-Shekel Derivatives (Business Wire)
The Tel-Aviv Stock Exchange announced that it would launch options and futures
contracts on the shekel-euro exchange rate on
Wednesday, November 28.
http://biz.yahoo.com/bw/011115/152444_1.html
Nominations
invited for best websites for Investor Relations
http://www.londonstockexchange.com/press/releases/15-11-01.asp
SGX
AND ASX COMMENCE 'LIVE' BROKER-PILOT TEST FOR CO-TRADING LINK
Regulatory
News
Weekly
Advisory - November 16, 2001
http://www.cftc.gov/opa/adv01/opawa48-01.htm
Companies
Accused of Anthrax Fraud (AP)
... comply with the
orders without admitting to or denying the allegations, the Securities and
Exchange Commission said....... investors to be wary of claims of valuable
products useful in fighting terrorism, as it suspended trading in stock of
another company claiming it is testing a disinfectant for anthrax. The
agency......The Commodity Futures Trading Commission on Tuesday warned
consumers to be wary of investment schemes promising profits...
http://dailynews.yahoo.com/h/ap/20011115/bs/sec_anthrax_scams_2.html
The
SEC News Digest
http://www.sec.gov/news/digest/11-15.txt
SIA
Lauds House Passage Of Bill To Give Investors Improved Access To Professional
Advice
http://www.sia.com/press/html/pr_nest_eggs.html
Reports
Bond
Talk Today's Events
http://www.bondtalk.com/global.cfm?S=todaysevents
Miscellaneous
News
A.B.
Watley Group Reports October On-line Retail Brokerage Transactions (Business
Wire)
A.B. Watley Group Inc., premier provider of financial services technology,
today announced its monthly trading numbers for October.
http://biz.yahoo.com/bw/011115/152697_1.html
Saudi
Oil Chief Warns of Price War (AP Financial)
... reduce available supplies in the long term and set the stage for sharply
higher prices in the future....... contracts for North Sea Brent crude fell
$1.84 to $17.33 a barrel on the International Petroleum Exchange in
London....... sweet crude for December delivery dropped to $1.99 to $17.75 a
barrel in trading on the New York Mercantile Exchange....
http://biz.yahoo.com/apf/011115/opec_meeting_6.html
NYMEX
crude ends sharply lower on Kuwait $10 oil talk (Reuters Securities)
NYMEX crude and product futures took hefty losses for a second straight session
on Thursday, reacting sharply to remarks by
Kuwait's oil minister expressing opposition to OPEC output cuts without
non-OPEC cooperation.
http://biz.yahoo.com/rf/011115/n15165005_1.html
CSFB/Tremont
Hedge Fund Index is Up 0.4% In October (Business Wire)
..."Managed futures programs outperformed all other strategies for the
second month in a row,......CSFB's businesses include securities underwriting,
sales and trading, investment and merchant banking, financial advisory
services,...... the Investment Advisers Act of 1940 and as a registered
broker/dealer under the Securities Exchange Act of 1934, respectively.......
performance or achievements of the companies to be materially different from
any future results, performance or achievements expressed or implied by such
forward looking statements....
http://biz.yahoo.com/bw/011115/152502_1.html
European
Money Laundering Battle Taken One Step Further As New Rules Are Near Endorsed
Europe is
on its way to combat money laundering in innovative ways which are so
exemplary, that even countries outside the union are copying the rules.
http://www.garp.com//newsfeed.asp?Category=6&MyFile=2001-11-16-4013.html
Fund
Manager Screening Set To Improve As Fitch Links Up With Asset Allocation
Advisors
Rather than
inventing the wheel again, Fitch has agreed to begin a mutual exchange with
multi-manager specialist Asset Allocation Advisors (AAA), the third party fund
selection entity of ABN Amro -- the two companies will jointly put out ratings
on fund management houses.
http://www.garp.com//newsfeed.asp?Category=6&MyFile=2001-11-16-4014.html
Cargill
Sued by Blacks Employees (AP Financial)
A lawsuit was filed against Cargill Inc. Thursday claiming that the food
distribution giant pays black employees less than their white peers.
http://biz.yahoo.com/apf/011115/cargill_race_lawsuit_1.html
Statement
of Cargill Vice Chairman Robert Lumpkins on suit filed against Cargill,
Nov. 15, 2001
http://www.cargill.com/today/releases/01_11_15lblsuit.htm
Statement
of Cargill Corporate Vice President of Human Resources on suit filed against
Cargill, Nov. 15, 2001
http://www.cargill.com/today/releases/01_11_15lnssuit.htm
Further
job cuts at Amex - American Banker, 15-Nov-2001
Planned job cuts at American Express have increased for the second time
since July, according to a report filed with the SEC yesterday, which
reveals that the firm will
exceed the most recent target of 6,100, announced during third-quarter
results.
Merrill
Lynch appoints new Asia Pacific co-chairman (Reuters Securities)
Merrill Lynch's Hong Kong unit said on Friday it has promoted Check Low, head
of equities for Asia Pacific, Japan and Australia, as its Asia Pacific
co-chairman and added further appointments are in store.
http://biz.yahoo.com/rf/011116/hkg72110_1.html
FEATURE-Building
struggles as symbol of New York revival (Reuters Securities)
...The Nasdaq,
which sublets two floors from the NASD, was forced to midtown after the attacks
and is considering moving there permanently to be...
http://biz.yahoo.com/rf/011115/n15300174_2.html
Yahoo!
To Cut Workforce 10 Percent (NewsFactor)
...Some of the job losses come as Yahoo! abandons its online
business-to-business (B2B) exchange and a service targeting small
businesses....
http://dailynews.yahoo.com/h/nf/20011115/tc/14823_1.html
Societe
Gen to withdraw from Japan online trading (Reuters Securities)
Societe Generale Securities said on Friday it would fold its online stock
trading business in Japan on December 27, joining a line of high-profile
foreign banks and brokerages pulling out of the slumping Japanese market.
http://biz.yahoo.com/rf/011115/t37315_2.html
Exodus
of foreign stockbrokers from Japan goes on (Reuters Securities)
The exodus of foreign firms from retail stockbroking in Japan continued on
Friday, with Societe Generale Securities closing its online business against a
background of weak stocks and low investor appetite for risk.
http://biz.yahoo.com/rf/011116/t138402_2.html
SunGard
completes acquisition of Comdisco assets for $825 mln (Reuters Securities)
SunGard Data Systems Inc. said on Thursday it completed its acquisition of
certain assets of bankrupt Comdisco Inc. for $825 million in cash.
http://biz.yahoo.com/rf/011115/n1544116_1.html
Other
Voices
Here is a
story from the talented Kate Gibson of FWN about reaction to the OneChicago
name of the new Single Stock Futures exchange in Chicago. I am putting it
under other voices because it is opinion after opinion on the new name from
people around the industry.
Thursday, November
15, 2001 -- [FWN] OneChicago; divided
reaction
By
Kate Gibson
Chicago,
Nov. 15 (FWN) - In picking the name OneChicago, the three exchanges that
make up the single-stock futures joint venture were perhaps looking to
present a unified front, either in the wake of Sept. 11 or their own
contentious pasts. "The name was chosen to reflect the
fact that the three largest Chicago
exchanges were coming together as one," said Lynne Howard-Reed, speaking
on behalf of William Rainer, chairman and chief executive of the
six-month-old
entity, named yesterday.
The
choice, however, is drawing a divided reaction, between those
with something nice to say and those who spoke on condition they would not
be identified.
"It
is a great name... Chicago is talked about as one exchange. If a customer is in
Kuala Lumpur, they only know what product is traded, they don't differentiate
between the Chicago Mercantile Exchange and the Board of Trade," said John
M. Damgard, president of the Futures Industry Association.
"Chicago is long associated as being the center of international finance
and derivatives trading," said Steve Greenberg, president of Alaron, a
futures commission merchant.
"OneChicago LLC has a big job ahead of it to build brand recognition for
what is a rather plain name," said the Price Futures Group Inc.'s John
Lothian in his daily news and commentary, which is emailed to hundreds of
industry colleagues.
"I
think OneChicago is fine, actually. It encapsulates the same sort of core
concept as my own original 'Chicago United' moniker," said Patrick L.
Young, chief executive officer of erivatives.com. And, while
some suggested that Chicago-based BankOne might view the choice as
infringing on its turf, the bank had a different spin. "We love to see the
'One' name wherever it appears," said Stan Lata, a bank spokesman.
Others were less than impressed: "I was surprised by it - they kept it
such a secret for so long," said one FCM executive, who was disappointed
that the name did not reflect the venture's business or product.
"All this time and this is what they come up with?" remarked
another industry executive. "We didn't need the symbolism jammed down
our throat," said the executive, the principal of a large
Chicago-based trading firm, who found the name more befitting of a new
restaurant than a financial
exchange. "They could have make it a business name - the Chicago
Derivatives Exchange, or CD for short," the executive added.
"That's
probably about how many contracts it will trade too," joked a manager
at the Chicago Mercantile Exchange, which holds a 45% stake in
OneChicago.
Another
industry player joked that with the CME and Chicago Options Board Exchange
holding a combined 90% stake, the venture opted to let Chicago Board
of Trade executives pick the name to make up for the fact that the CBT owns
just 10% of the joint venture. Those executives include CBT Chief Executive
Officer David Vitale, who formerly worked at BankOne predecessor FirstChicago.
"When
they finally merge the CBT into the Merc into the CBOE, they will have a very
nice generic bland name that will offend everybody," predicted another
executive.
*******
Breaking my own rules again, here is a response to my story about
the CBOT member fined and the manner that information is communicated from an
unnamed former CBOT member who receives these emails:
Hi John:
That was a nice story on the fine of the CBOT trader. A bit of a
correction though, these types of notices are posted on the third
floor by the down escalators if you are coming from the fourth floor. News
reporters do not need floor access in order to read these stories, as a matter of fact, the general public can read
them by following
the same escalators down from the visitors gallery overlooking the
Grain room on the fifth floor.
I agree
with you that the exchange should update the manner of which these issues are
disclosed. (snip)
****** I
stand corrected on the location and accessibility of the notices.
********
And while I
am being corrected on things, here comes a comment from a former ISV employee
about my PATS enhancements and OM comments:
2
notes:
Those
PATS enhancements are both TT knock-offs. TT has had the get flat feature for
over a year, just as they have had the LTQ feature.
Don't
count too much on BTEC having it easy because they have an OM system. I
have been told that each OM exchange is unique and not much can be carried
over
from exchange to exchange.
****** The
ISV industry is the epitome of the comment that imitation is the sincerest form
of flattery.
John's Comments
Today is
the launch of the new Dow Jones IAG index contracts at the CBOT. We will
see if the CBOT can build on their successful launch of the 10-year Swaps
contracts and get this new commodity index contract off to a good start.
I have less confidence in the CBOT's ability to get the contract after this one
off to a roaring start, despite my belief it has some very unique and
innovative features that if structured the right way could be a huge
success. I am talking about the X-Funds futures contracts set for launch
in February.
Let me try
to explain the contracts, as I currently understand them, and explain my misgivings
about it success. X-Funds are cash settled baskets of four futures
contracts in an index that settle every two weeks. There are index
managers who select new components for the X-Funds every two weeks. The
URL for the specifications can be found here: http://www.cbot.com/cbot/www/prod_detail/0,1499,14+58+139+107,00.html
First, the
originator of the X-Funds concept claims the funds can be managed so
that 90% of the time it goes up in value from expiration to expiration. I
sat in a seminar for CBOT members where this question was asked repeatedly and
I never heard an answer that I would feel confident repeating to a prospect,
let alone a compliance officer or regulator. And quite frankly, this 90%
issue is unimportant. It is possible that the index value goes up every
cycle but traders who went long lost money on it every time. It is
theoretically possible that the X-Fund contracts components could gap from
their previous closes and produce a high water mark for the X-Fund that is
never seen again during its cycle. It is possible the price of the X-Fund
only goes down from the opening, leaving anyone who bought it with a loss at
the cash settled expiration, but the index is still higher than the previous
settlement price. And, without the ability to be long over time, as the
index moves higher in value, there is no way to profit from a long term move up
in the index value.
There are
some other features that I am not sure will appeal to the retail trader, an
essential element to any successful contract to my way of thinking. The
first is the $100 tick value. The contract starts at $100,000. One
tenth of a point is equal to $100, the tick value. While I can grasp some
of the underlying economic theory for why the tick value needs to be so large,
I am not sure a more than tripling of the next highest minimum tick value
(Tbonds at $31.25) is going to be accepted by the public trader.
Designing new contracts is a very difficult thing to do and I am not sure it is
more art or science, and my opinion is based on neither.
There is
another issue that may not be popular with the trading public
and that is the cost of trading X-Funds.
The recommendation of the originator of the contract was
suggesting a $15 per contract, which in part would compensate the X-Fund
managers who pick the contracts every two weeks and a healthy profit to
the exchange. This is almost like a sales load for the contract to
compensate the managers. I don't know that $15 is to much, but
rather it is the perception and comparison that is
important. The new exchange fees for electronically traded futures
contracts at the CBOT is proposed at $1.25 per side for non-member
clients. This fee would be more than 10 times higher. Both would
only be charged when transactions occurred. Given
the downward pressure on commissions and other fees, I am just not
sure this is going to fly with the trading public, no matter how economically
justified it may be.
The
expectation presented in the seminar I sat in was that there would be a
$300 difference between the bid and the offer, equal to an amount that would
allow CBOT members to execute the arbitrage in the underlying contracts
and still take out a small profit after accounting for any
slippage. This $300 bid and offer difference would be the equivalent
to a fairly active S&P 500 market, not something that a lot of
retail traders find rewarding.
Now I think
the X-Funds concept has a lot of merit and could be the huge success that its
originator and supporters within the CBOT believe it could be. For
example, should the CBOT get it to work with their own contracts they
could branch out and start to include the futures contracts of other exchanges
in the indices. That could mean the CBOT could be trading a basket
of Cocoa, Coffee, Sugar and Cotton, which could offer boosts
in volume to both the CBOT and the NYBOT. Such a product could also
lead to increased electronic links between the CBOT and the other futures
exchanges either at the electronic matching engine level, order routing
level or ISV front end level.
Given the
importance of exchange member arbitrage to provide liquidity in these contracts
by having instant access to the underlying contracts in multiple pits and
possibly multiple venues, those links would be essential to the success of
these contracts. The index contracts could also potentially include electronically
traded contracts such as Single Stock Futures, which could have multiple
venues of execution. Thus, electronic execution and order routing
capabilities would be of the essence of making these contracts work.
As I was
sitting in the seminar listening and thinking of the possibilities for the
contract, I kept thinking how many PATS Systems H-Traders could be sold to
exchange members trading on the floor, or CrossFire handhelds from Futures
Dynamics. The technology is there to make X-Funds work, or
important parts of it. There is still much work to do though to deploy it
and train people.
My
suggestion for the X-Funds is to make the tick size smaller and let the
market determine the bid and offer difference. I would consider
a smaller exchange fee and perhaps some sort of additional
fee for those contracts that are cash settled rather than offset in
the pit. And I would drop the 90% thing. As anyone knows, past
performance is not necessarily indicative of future results, even if you
can change the portfolio mix every 2 weeks.
I am very
willing to be wrong in my criticism of the X-Fund contracts. I see
more good and industry transforming potential than I see bad,
but it is important to get the contract as right as possible out of the gate.
I had
expressed some interest in being one of the X-Fund Managers, but after I found
out about the 90% thing and that I would not get to meet Gillian Anderson I
decided to drop the idea. :-)
Regards,
John J.
Lothian
The Price
Futures Group, Inc.
Electronic
Trading Division
Chicago
Board of Trade Building
141 West
Jackson Boulevard, Suite 1340A
Chicago, IL
60604
Phone:
1-800-713-0215 or 312-648-2426
Fax:
312-902-6437
Web site: www.pricegroupetd.com
E-Mail: JLothian@pricegroup.com
Disclaimer:
This letter is strictly the opinion of its writer, and not necessarily those of
The Price Group and its management, and is
intended solely for informative purposes and is not to be construed, under any
circumstances, by implication or otherwise, as an
offer to sell or a solicitation to buy or trade in any commodities or
securities herein named. Information is obtained from sources
believed to be reliable, but is in no way guaranteed. No guarantee
of any kind is implied or possible where projections of future
conditions are attempted.
Futures and
options trading involves risk. Past results are no indication of future
performance.