OneChicago is an equity finance exchange providing a marketplace for trading Security Futures including single stock futures (SSFs). We offer trading in more than 2,000 products covering more than 900 underlying equity issues. We list 3 classes of products, our OCX.Original futures, our newer OCX.NoDivRisk™ products and our Narrow Based Index products. All of these can be traded electronically on a Central Limit Order Book, as block trades or as Exchange Future for Physicals (EFPs). SSFs are a financing tool that allow market participants to carry equity positions at more favorable financing rates due to the competitively derived interest rate which is embedded into the price as described below. Please see this link to a powerpoint presentation of an introduction to OneChicago.
Exchange Future for Physical Trades (EFPs)
Customers who are long or short the cash underlying can frequently lower their financing costs for those positions by executing an EFP that converts the position from an equity position to a corresponding futures position. That is , positions carried in stock margin accounts are subject to interest payments that are higher than the interest component embedded in the SSF. Customers can save on this interest expense component of their trading. The EFP is the economic equivalent of a securities lending, equity swap and equity repo financial transactions. EFPs can be traded on all futures listed at OneChicago. More Information of EFPs, including how to price an EFP, can be found on our website on EFPs.
Our traditional SSF product symbol had the suffix “1C” after the underlying (ie IBM1C). These futures provide the ability for customer to establish long or short exposure to an equity issue at a lower finance cost for that exposure by establishing it in the SSF as opposed to the actual cash equity. Expected dividend streams were priced into the value of the SSF as described below.
The simple theoretical price model for the OCX.Original product is:
F = P · (1 + r) – Div
where F is the single-stock futures contract price, P is the underlying stock price, r is the annualized interest rate (may be negative due to hard to borrow pressure), and Div is the expected dividend.
OCX.NoDivRisk™ “1D” Products
Our innovative OCX.NoDivRisk™ futures have been listed on many of the same underlying equities as our OCX.Original products but they have as a suffix “1D” instead (ie IBM1D). The distinction between the two is how ordinary distributions (dividends, capital gains, etc) are treated. OCX.NoDivRisk products do not have the discounted distribution expectations priced in but the contracts are adjusted for these distributions on the morning of ex_date by the then known value of the distribution. Simply put the process removes the dividend risk from trading SSFs and makes the product a pure cost of carry transaction. A financing transaction. More information on the OCX.NoDivRisk product can be found on our website on OCX.NoDivRisk.
A simple theoretical price model for the OCX.NoDivRisk products is:
F = P · (1 + r)
where F is the single-stock futures contract price, P is the underlying stock price, r is the annualized interest rate (may be negative due to hard to borrow pressure).
Narrow Based Indexes
Narrow Based Indexes (NBIs) are cash settled futures on custom indexes comprised of not more than 9 underlying equity names. The indexes are created at the customer’s request, futures on those indexes can be traded just like any other OneChicago future. More information on NBIs can be found on our website at NBI.
OneChicago is regulated by the Commodity Futures Trading Commission and the Securities and Exchange Commission. More information on our Rules can be found at OneChicago Rules.
All OneChicago futures are cleared at the Options Clearing Corporation. As world financial markets progress, expand and link into a global marketplace and as counter party credit risk multiplies and becomes more complex, Options Clearing Corporation’s (OCC) guarantee function continues to protect clearing members and their customers. OCC has received an ‘AA+’ credit rating from Standard & Poor’s (S&P) because of its ability to fulfill obligations as the counter party for exchange-traded derivatives.
OCC stands behind every cleared trade that has been executed on the markets and exchanges it serves, in addition to stock loan transactions executed through the Stock Loan program. OCC assures performance to selling (lending) and purchasing (borrowing) clearing members, http://theocc.com/clearing/clearing-infomemos/infomemos1.jspong>eliminating counterparty risk. OCC in effect becomes the buyer (borrower) to every clearing member representing a seller (lender) and the seller (lender) to every clearing member representing a buyer (borrower). The substitution of OCC as counter party is achieved through a legally binding novation process that has withstood the test of time. This process supports fungibility for the contracts OCC clears and facilitates a liquid secondary market.
http://theocc.com/clearing/clearing-infomemos/infomemos1.jspong>Getting Started at OneChicago
Interested customers can get started by contacting the firms listed on our website at OneChicago firms. Options Clearing Corporations members can find a getting started roadmap at clearing firm roadmap.