Single Stock Futures (SSFs) volume on the OneChicago exchange has grown considerably over the past few years. One of the drivers of this growth has been Commodity Trading Advisors (CTAs) and Managed Futures accounts ability to “link” a futures’ bid/offer to that of the underlying equity via a predetermined “basis” or financing spread.
Competing platforms offered by dealers to provide this “link” are imperfect and require brokers to commit capital to facilitate the process. The complexities and limitations of the current programs prohibit competition between brokers and limit such programs to only the “best” customers. In an effort to alleviate these constraints and open the market to more participants, Light Horse MS developed the “SSF Jobber”, a patent-pending trading process that independently sources the two fundamental components of an equity futures price – the underlying equity price and the equity financing basis. This proprietary process effectively narrows futures bid/offer spreads and incorporates a larger community of equity financing market participants. The SSF Jobber process does not require dealer capital commitment or cumbersome legal arrangements. A further advantage of the system is its ability to benefit from true market liquidity if outright futures bids/offers are better than those obtained from the basis providers.
As an example, if a futures trader wanted to buy the near month equity futures contract on the equity XYZ, they would first request a XYZ basis quote – the differential between the underlying equity price and the equity futures price traded as a paired, market neutral package. Once the basis has been established, the futures trader could then execute in the equity futures market expecting its equity futures fills to be “linked” to the offers available in XYZ’s stock. If we assume a $1 basis, the futures trader would expect to receive equity futures fills at $101 or better as long as XYZ equity was offered at $100.
SSF Jobber availability may be limited to larger orders. Changes in implied financing rates during the life of the contract may result in unexpected gains or losses.
For more information on our proprietary process, please contact us at firstname.lastname@example.org or (212) 607-2688.