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.
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 This legislation repealed the 1981 Shad-Johnson Accord, which had prohibited the sale of futures on single stocks and on narrow based stock indexes in the U.S.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:
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