Doing your homework on individual equity futures

摘要

Exchange and regulatory developments are revealing more about the makeup of individual equity futures. While we wait for the parties involved to get the contracts off the ground, here's a fundamental primer on these products from a trader's perspective. It took 18 years, but individual equity futures are here and are about to change the financial landscape of the markets we trade. Individual equity futures are contracts for the future delivery (or cash settlement) of a basket of one company's stock or a narrow index of stocks. At present, the only futures in the U.S. equity world are based on broad indexes such as the S&P 500 or the Nasdaq 100. Individual equity futures, like other traditional futures contracts, will be standardized in all aspects except price. The first equity index future, the Value Line contract created in 1982 at the Kansas City Board of Trade, crossed the regulatory dividing line between equities and commodities. The respective chairmen of the Securities & Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), John Shad and Philip McBride Johnson, agreed that index futures would be regulated by the CFTC, that the SEC would regulate equity options and that futures on single stocks would be forbidden. In 2000, Congress passed the Commodities Futures Modernization Act (CFMA), legalizing individual equity futures. This change was spurred in part by the trade in individual equity futures on American stocks by non-U.S. futures exchanges.