What are security futures?

Security futures are a hybrid, having components of both securities and futures. Security futures are futures contracts that are based on individual stocks or narrow-based stock indexes.

• A single-stock futures contract is an agreement to buy or sell shares of an individual company, such as Microsoft or General Electric, at some time in the future at an agreed upon price. The purpose of a futures contract is to discover the price the underlying product will trade for at a specific point in the future.



• Narrow-based stock index futures are futures contracts based on narrow-based stock indexes, or sector indexes, including those based on a selection of highly liquid stocks in industries such as pharmaceuticals, automobiles, or airlines.

Security futures: why now?

Congress passed the Commodity Futures Modernization Act (CFMA) at the end of 2000. This legislation repealed the 1981 Shad-Johnson Accord, which had prohibited the sale of futures on single stocks and on narrow based stock indexes in the U.S.

Since security futures have components of both securities and futures, it has two regulators - the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Congress determined that the CFTC and the SEC would jointly regulate the trading of these products and thus would draw up common rules on margins, customer protections, and record keeping and reporting requirements (among other requirements) in order to preserve the financial integrity of the markets trading security futures.

What are the trading benefits of security futures?

There are a number of benefits to trading security futures contracts and these products introduce new ways to implement investment and trading decisions. They can be used for speculation, hedging, index balancing, spreading, short-selling and as an alternative to options. The promoters of this new market anticipate that they will increase the transparency and lower the credit risks in the U.S. equity marketplace as well as enhance the liquidity of other equity-related markets including equity options, equity swaps and the stock loan business.

How can the IFM help you?

Because of our unique experience and independence as a nonprofit educational foundation, the IFM was selected to work with NASD Regulation and the National Futures Association to develop a continuing education program for associated persons and registered representatives who plan to offer and sell security futures products. In addition to this work, the Institute has developed the following new products to firms:

• EDUCATION



• MARKETING
  
  Security futures represent a significant opportunity for both the futures and securities industries. Our Introduction to Security Futures guide is a straightforward explanation of the complexities of these trading instruments. The low single unit cost including postage of the Introduction to Security Futures makes it an ideal marketing and educational tool that can be co-branded for firm distribution to customers and staff.



• DATA
  
  The IFM's Security Futures Factbook is a new comprehensive global research tool that provides Web Access to:
  • Contract specifications on almost 650 equity-based products
  
  
  
  • Single-stock, ETF and narrow-based index futures and options on 44 global exchanges
  
  
  
  • Broad-based index futures and options on 44 worldwide exchanges

  Most importantly, Security Futures Factbook is continuously updated and features a bulletin alert feature to help users easily determine changes to contract specifications or exchange information.
  
  The Security Futures Factbook is essential for Traders, APs, Back-Office and Compliance Staffs, Fund Managers and Clients. The Security Futures Factbook offers a sortable database and search engine that allows users to arrange data fields in nearly any combination.
  
  Available by single-user subscription or multi-user site license, the Security Futures Factbook can be included in firm-wide and/or client access.
  
  The Security Futures Factbook is a companion to the IFM's highly regarded Futures and Options Factbook. For a free demo of the Security Futures Factbook, please click here.