Single Stock Futures

1. Single Stock Futures The SSF Market as a Traders’ Service Centre

2. The perceived benefits of SSFs • More efficient than stock trading • More cost-effective than stock trading • Fewer impediments to trading (e.g. short selling) • Simpler clearing arrangements • Better leverage than stock and option trading …..but are these the real benefits? Alberta Market Solutions 2003

3. Barriers to success • The underlying market may already be efficient enough • Liquidity concerns • Inertia • Vested interests oppose change • SSF competitive advantage, if realized, can be challenged by its competitors But today, the SSF exchanges have one serious advantage over the cash markets…. Alberta Market Solutions 2003

4. New Infrastructure means New Opportunities • All electronic • A natural STP environment • Fast execution • T+1 is already here • Strategies execution already a proven feature of derivatives trading systems …the ISE precedent Alberta Market Solutions 2003

5. A trader-oriented marketplace Innovation: there is a solid tradition of innovation at derivatives exchanges in the U.S., less of a tradition in the securities markets. The new exchanges can capitalize on that tradition and create a Center for Trading Services Alberta Market Solutions 2003

6. Trading Services • Support for strategies • Support for customer/market maker inter-action • Support for on-the-fly basket or strategy creation • Support for ever more sophisticated front office interfaces …OTC flexibility without OTC opaqueness Alberta Market Solutions 2003

7. Strategies • Combination orders to support spreads, pairs, baskets, “others” • Executed on a FOK basis or using implied-in or –out for added liquidity • Eliminate legging risk …the exchange is the enabler, nobody else can deliver this Alberta Market Solutions 2003

8. Customer meets Market Maker • Quote Request functionality • User specific trading strategies • Auto-quote capability – extended to a set of symbols rather than just one at a time …achieved by the exchange working hand in hand with participants Alberta Market Solutions 2003

9. Strategy Creation • The customer’s “product launch” • The FLEX model is a precedent • The success of ETFs indicates that demand exists for multi-symbol exposure – but this goes beyond ETF territory …will require the co-operation of exchanges, regulators and market participants Alberta Market Solutions 2003

10. Role of Front Office Tools • Technology has created this opportunity and will continue to be the key factor in innovation • Front office tools essential in linking the end-customer to the marketplace … but the exchanges should lead the way Alberta Market Solutions 2003

11. A New Standard for Trading • Focal point for portfolio and strategy trading • Targeted at the whole spectrum: hedge funds, institutions,…even retail • OTC levels of flexibility – but accessible to all …but who will make the first move? The SSF exchanges are not the only entities that can bring this about. They are just better positioned than anyone else. Alberta Market Solutions 2003

12. Other Possible Innovations ? The infrastructure is there. All it needs is the will to use it. Alberta Market Solutions 2003