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Liquidity holds the key in the race for SSF supremacy

Equity derivatives

The imminent introduction of single stock futures (SSFs) in the US is set to shake up the world of equity derivatives, but the emergence of five exchanges preparing to launch the product will make things interesting as they vie to become the market leader. Futures contracts on individual stocks were pioneered in Sweden by the OM Group in the 1980s and have been available on 14 other exchanges around the world for some time. The product has, however, largely failed to take off.

In the US, development was prohibited by law, as the Securities&Exchange Commission and Commodity Futures Trading Commission argued over which body should be responsible for the product's regulation. Now that the two regulators are amending their laws to allow trading in SSFs to begin under joint regulation, investors, traders and exchanges are just waiting for the final details regarding margins in order to begin.

Jerome Kemp, European managing director of futures and options at JPMorgan, does not consider the disappointing history of SSFs in Europe to be relevant to the product's chances in the US. He notes that the exclusion of US-based investors from the markets in SSFs has been a major factor in the product's disappointing performance.

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