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Alternative Market Briefing

New futures products seek to shrink settlement timelines

Friday, August 08, 2014

Bailey McCann, Opalesque New York:

Traditionally in the futures markets products are settled on a T+3 timeline. A simplified definition of T+3 is to say they are settled within three days. A new group of futures products is offering a T+1, or one day settlement option and the products are catching the attention of hedge funds.

"We created this product to meet the need of the equity finance marketplace to establish or reestablish stock positions within 5 business days after substituting a stock position for a legally binding contract. Over that period of time, the securities owner receives payment of all interest, dividends and other distributions while maintaining both the risk of loss and opportunity for gain," explains David Downey, CEO of OneChicago in an interview with Opalesque. "T+1 settlements offer more efficiency than what we have now.

OneChicago is a US equity finance exchange for trading security futures and the related EFP. Downey says that the business case for these products is well established, but the changes in operational workflow for prime brokers and technology providers has slowed their creation.

Right now, OneChicago offers 11 of these T+1 products and plans to offer hundreds more. The company is building its own matching engines to get around the technological challenges.

"We already have market makers making markets in these products," Downey says. "The buyside interest is strong but they're facing access limits from their pr......................

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