The Chicago Board Options Exchange (CBOE) and Chicago Mercantile Exchange (CME) have signed a letter of intent to create a joint venture to introduce single-stock futures. The Chicago Board of Trade (CBOT) says it will take a limited stake in the new company.
Legislation signed into law in December will allow the introduction of single-stock futures by US financial exchanges later this year, after an 18-year prohibition on the products. Single-stock futures are expected to bring new efficiencies to securities trading, securities lending and corporate hedging activities. Nasdaq has already teamed up with London's International Financial Futures Exchange to introduce products over the Liffe Connect platform.
The CBOE/CME joint venture will be a for-profit company, which will have its own management and board, and will be separately organised as a regulated exchange. Single-stock futures will be traded electronically, and orders may be entered through both the new CBOEdirect electronic platform and CME's Globex2 trading system. The CBOT is also understood to be negotiating with Germany's Eurex about providing access through the a/c/e electronic system.
CME and CBOE officials say they are engaged in negotiations with the Options Clearing Corporation (OCC), which clears all CBOE transactions, to clear the new products. Jim McNulty, CME president and chief executive officer, says the negotiations contemplate CME becoming a special clearing member of OCC.
CME and CBOE officials say they also expect to develop rules that would accommodate block trading and exchange-for-physicals (EFPs).