OneChicago eyes 'narrow-narrow' indexes

Speaking at the annual joint forum of the Chicago Board of Trade, Chicago Board Options Exchange and Chicago Mercantile Exchange, Rainer predicted that 'narrow-narrow' indexes, which he defined as being made up from the futures of between three and five stocks, would become a very popular tool with investors. OneChicago is a joint venture between these three Chicago exchanges.

“If, for example, an investor wanted to get exposure to the technology market, one could buy a narrow-narrow index of IBM, Dell, Gateway and Hewlett Packard. It will be a very efficient way to get exposure to that market.”

Rainer also speculated about the potential volume of trading that the new exchange will be able to attract. He said the initial 30 stocks that will be listed on OneChicago have 900 million trades daily in the cash market. Rainer suggested that if the exchange attracted just 10% of the activity of the underlying stock in the cash market, the exchange will be a success.

Rainer added that the exchange was considering listing e-jumbo contracts – a futures contract worth 1,000 shares of each stock. “Liquidity is obviously the most important factor determining the level of success of the exchange,” said Rainer. “We will make the decision about whether to list e-jumbos after deciding whether we think the large contract will fracture liquidity.”

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