David Downey’s Important Call: ForecastEx to Revolutionize Event Contracts with CFTC Green Light

A person wearing glasses and a plaid shirt smiling in front of a bookshelf. To the left, a logo with the letters "JLN" is visible. In the top right, an illustration of a stock trader is shown.
John Lothian

John Lothian

Executive Chairman and CEO

David Downey does not call me very often, but when he does, it is important. He called me on June 25. Unfortunately, I was in London and missed the call.

There is also this strange thing that happens when someone calls me from the Cboe and their caller-ID has the general Cboe number on it, the same one I still have in my phone for the work phone for Downey from his days at OneChicago. Downey appears to be calling me. Thus, sometimes when I get a call from a Cboe PR person, it comes up on my phone as Downey.

But on Monday, the real David Downey called with something important. Back on June 24, the CFTC had approved the registrations of a project he has been working on, ForecastEx, LLC. The CFTC approved both the DCM and DCO applications for this privately held company owned by Interactive Brokers Group, LLC. 

So this is a little different spin on a big issue that has confronted the industry and the CFTC over the last couple of years. You might recall that FTX wanted to disintermediate the FCM business and MIAX went out and bought Dorman Trading, a small Chicago FCM. ForecastEx, owned by FCM giant Interactive Brokers, has registered a startup DCM and DCO, or market and clearinghouse. And ForecastEx is clearly embracing the FCM model in their own model, even though the contracts are fully collateralized. 

The biggest innovation ForecastEx is bringing to its market model is to turn the whole concept of a market of buyers and sellers on its head. At ForecastEx, there are only bidders. There are no market makers or sellers of any kind. The contracts are event contracts that ForecastEx calls Forecasts, and a trader can bid for a Yes contract or a No contract to an event. 

A contract is not formed until the Yes bids and the No bids equal $1.01, at which time the contract is sent to clearing. At the event contract’s resolution time, the contract is settled and $1.00 is paid out to the winning Yes or No bidder, minus their initial investment.

Even though there is no selling, you can still get out of a contract before resolution by buying the opposite contract. So if you own the Yes on an event contract, buy the No contract and you will have offset your position. 

Another feature of the forecast contracts is that Downey said the exchange expects to pay out interest to the FCMs who have introduced business with the exchange. This is a little different; rather than being disintermediated, the exchange is paying FCMs a return on their excess clearing funds. 

Some of the contracts listed on the exchange, which is expected to launch on July 8, include US Initial Jobless Claims, US Unemployment Rate, US Retail Sales Monthly, US Building Permits, US Payroll Employment, US Consumer Price Index, US Consumer Sentiment, US Fed Funds Target Rate, US Housing Starts, US Real GDP, US Corporate Profits, US National Debt, Global Temperature, US Temperature and Atmospheric Carbon Dioxide.

Besides the backing of Interactive Brokers Group, LLC and Thomas Peterffy and Downey, there are some other industry luminaries involved in the project, including Bernie Dan and FIA Hall of Famer Steve Staszak on the board of directors.

In a CNBC interview on June 27, Peterffy told the network that these contracts give people the opportunity to “put their money where their mouth is on controversial issues.”

Pity Hedge Funds That Lost in Electricity Chaos — No, Really

Pity Hedge Funds That Lost in Electricity Chaos — No, Really

First Read Hits & Takes John Lothian & JLN Staff Rep. Jennifer Wexton (D-Va.), who has been battling a degenerative disease that has severely weakened her voice, recently introduced a new, AI-generated version of her speaking voice to her constituents, The...

We visit more than 100 financial news websites daily (Would YOU do that?)

Options Discovery

Now Read This

Vermiculus Chairman Envisions Future of Exchange Tech: Microservices and AI Lead the Way

Vermiculus Chairman Envisions Future of Exchange Tech: Microservices and AI Lead the Way

In a recent interview at London’s Park Plaza Westminster Hotel during the FIA’s International Derivatives Week, Nils-Robert Persson, Chairman of the Swedish technology firm Vermiculus, shared insights into the company’s innovative approach to financial technology and its vision for the future of exchange systems.

Persson highlighted the evolving landscape of exchange functionality, predicting a significant expansion in offerings to members and customers over the next five years. He emphasized the growing importance of real-time risk calculation, made possible by new technology that doesn’t compromise on latency – a crucial factor for market participants.

Celebrating Independence and Competition: A Fourth of July Reflection

Celebrating Independence and Competition: A Fourth of July Reflection

We just celebrated the Fourth of July holiday and JLN continued its annual tradition of publishing the Declaration of Independence. I have always loved the beginning of the second paragraph:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. 

As a writer who advocates for market-based solutions, I believe certain market principles to be self-evident. I hold that markets should be open, transparent, and fair. These were the values that the open outcry futures markets I grew up with strived for every day, in every session and trade. These values produced the critical concept of price, which was the most powerful news imaginable. They gave the markets and their prices integrity, instilling in traders a way of life that transcended the action of the trading pit. From this openness, transparency, fairness, and integrity came a greatness that spread throughout the world as different financial communities embraced derivatives trading.

Clear Street’s Bold Move: Former Cboe Chairman & CEO Ed Tilly Joins Fintech to Revolutionize Clearing and Custody Systems

Clear Street’s Bold Move: Former Cboe Chairman & CEO Ed Tilly Joins Fintech to Revolutionize Clearing and Custody Systems

Clear Street, a fintech startup founded in 2018, is making waves in the financial services industry with its ambitious plan to revolutionize clearing and custody infrastructure and its big-name hiring of former Cboe Global Markets Chairman and CEO Ed Tilly. In an interview with John Lothian News, CEO Chris Pento and President-Designate Tilly outlined the company’s vision and progress.

The New York-based firm has set out to tackle a problem that has long plagued Wall Street and its LaSalle Street sibling: outdated clearing systems. “We started with the belief that the infrastructure operating most brokerages across the street was running on old, archaic infrastructure,” Pento said. 

John Lothian: Week in Review (July 1-5, 2024)

John Lothian: Week in Review (July 1-5, 2024)

JLN PRESS ROOM PICK OF THE WEEK

John Lothian Reflects on Physical Challenges and Biden’s Debate Performance

Williams Bay, WI (JLN) – Describing Joe Biden’s debate performance last week, New Yorker Editor David Remnick quoted Mark Twain, writing, “It is sad to go to pieces like this, but we all have to do it.”

I can identify with that quote. Some of my physical health issues are like those of President Biden, and last week the degradation of my physical abilities caused me to miss my connection between London and Chicago.

The health issues I share with President Biden include obstructive sleep apnea, gastroesophageal reflux, seasonal allergies, spinal arthritis and peripheral neuropathy in the feet.

Pin It on Pinterest

Share This Story