Exposure to indices without associated costs
Universal Stock Futures are quite simply futures contracts on a global range of company shares. They are unique compared to other single stock futures offerings in that they are a global range facilitating cost effective and efficient cross-border trading on a single trading platform. They are also cleared and settled through a single regulatory regime. Since their launch in January 2001, Universal Stock Futures have gone from strength to strength and continued growth is expected. Interest in the single stock futures market as a whole has grown significantly over the past 12 to 18 months, with single stock futures now being listed by approximately 15 exchanges globally. Their appeal lies predominantly in the new trading opportunities they offer, including the ability to short stocks, and in their use as a risk management tool. Trading Universal Stock Futures have seen strong trading volumes and open interest throughout the first two quarters of 2002. On June 6, open interest reached an all-time high of 606,049 contracts, and to date over E15bn in volume has traded. On the back of this strong trading activity in Universal Stock Futures, a further five contracts have been launched. These contracts have been added to meet customer demand and to bring the coverage of the Dow Jones Eurostoxx 50 Index up to 100 per cent. Universal Stock Futures can be used as a proxy for tradeable indices such as the FTSE Eurotop 100 or Dow Jones Eurostoxx 50. They allow investors to gain exposure to movements in indices without the hefty costs associated with investing in the component companies of the indices themselves. Market The market has been waiting with bated breath for the launch of single stock futures in the US. The Shad Johnson Accord – which banned single stock futures in the US – has recently been repealed, effectively opening up the largest equity market in the world to the trading of single stock futures in the fourth quarter of this year. The exchanges Liffe and Nasdaq have formed a partnership, called NQLX, to take single stock futures to the US investor and capitalise on the opportunities the opening up of this market presents, as soon as trading is permitted.
The Road Ahead Many market authorities are predicting that the single stock futures market will be the one to watch. The potential for the market as a whole is enormous. As investors become increasingly educated on the benefits of single stock futures, further trading volumes will flow from many sectors of the market and not least private investors. Dr Richard Sandor, regarded by many as one of the founding fathers of financial futures, believes that equity products will be to the 21st century what debt instruments were to the 20th century.
