Single-Stock Futures Trading May Start Soon

The Securities and Exchange Commission and the Commodities Futures Trading Commission are working to allow trading of single-stock futures by early in the second quarter of 2002, the agencies said Wednesday.

In a joint news release, the SEC and the CFTC pledged to seek prompt adoption of rules that must be in place before the trading can begin. The rules address margin requirements and the protection of customer funds.

SEC Chairman Harvey Pitt and CFTC Chairman James E. Newsome “expressed confidence that they would promptly achieve consensus on remaining issues to allow security futures products to trade in a fair and competitive manner at the earliest possible date,” the release said.

Single-stock futures are contracts to purchase or sell shares of a stock at a specific price, by a specific date. Congress voted last year to end a two-decades-old moratorium on trading such futures.

Because futures can be purchased with relatively little money down, the contracts could be attractive to speculators and to investors wanting to hedge portfolio bets. Some investors may prefer to use futures rather than stock “put” and “call” option contracts, which serve a similar purpose for speculators and hedgers.

Congress had expected full-scale trading of single-stock futures to begin by Dec. 21. Because of September’s terrorist attacks, however, regulators decided to give the public more time to comment on the proposed rules enacting the legislation. The rules would also permit trading of futures based on narrow stock indexes.

The rules include a joint SEC and CFTC proposal to set at 20% the amount of cash or securities a client must deposit with a broker when buying on margin, or borrowing, to buy single-stock futures.