The Chicago Way

Aug 18, 2011

In Chicago we don’t believe in short selling bans.  If you want to go short, you just walk into the trading pit and put your hands up in the air facing out and yell “SELL 4 at 6,” or something like that.  If you want to sell some futures electronically, you just hit sell on your screen, or lean on the keyboard in the right way.  Or is it the wrong way?

We believe short selling is an important part of the market price discovery process.  As I repeat all too often, futures are abut two things: price discovery and risk transfer.  We don’t believe in price discovery processes that involves keeping one arm tied behind our backs.

Back when the CBOE was born from the womb of the CBOT in 1973, the exchange was only allowed to trade calls because of a bias by regulators against short selling as represented by puts.  Such was the naivete of the times.  Luckily, we learned and puts were later approved and began trading.

In Chicago commodity futures, we used to get blamed for low prices and short sellers were fingered as the culprits.  It was never excessive supply, or expectations of reduced demand.  It was never government programs that encouraged production to feed the world without delivering the demand.

Of course, today in commodity futures we have the opposite problem.  We have high prices, and the passive long investors or evil long speculators are being fingered as the culprits.

There always has to be a culprit, a scapegoat, someone to blame.  “Short sellers, long investors, evil speculators are all to blame,” goes the logic of those who don’t understand the markets and how they work.  What they do understand is they don’t like the price information provided by the markets.

Four European nations have issued short selling bans in stocks, derivatives and even futures that are too bizarre to even explain.  The London office of one big brokerage firm was so perplexed on how to communicate the intricacies of the short selling ban that they just told clients not to short the markets during the ban, according to sources.

Newedge has issued a very nice “Notice To Clients” that gave very specific information about the short selling bans, but also included the hedge not to consider the information to be definitive or consider it legal advice.  You should consult your own attorney.  It would seem the big London brokerage office had the right idea.  Just say no to shorting.

Of course in Chicago, we do things our way.  In fact, OneChicago, the securities futures exchange has today listed 4 MSCI following futures on the ETFs covering Belgium, Italy, Spain and France respectively.  If you want short exposure to the share prices of those countries, here are some exchange traded derivatives listed just for you.

While stupidity and panic may reign in Belgium, Spain, Italy and France concerning the short selling ban, opportunism and solid understanding and respect for the markets and their purpose is stalwart in Chicago.

There are no short sale restrictions for selling futures at OneChicago.  Interested market participants can trade the OneChicago ETF futures to achieve their desired exposure to those markets.

Effective 8/18/11, OneChicago will list the following futures on the ETFs covering Belgium, Italy, Spain and France respectively.

OneChicago Symbol Underlying Symbol Underlying Name
EWK1D EWK MSCI Belgium Investable Market Index Fund
EWK1C    
EWI1D EWI MSCI Italy Index Fund
EWI1C    
EWP1D EWP MSCI Spain Index Fund
EWP1C    
EWQ1D EWQ MSCI France Index Fund
EWQ1C    

So there you have the Chicago way: two-sided markets, where buyers and sellers have the same rights and liquidity is the king.  While European regulators impose short selling bans and political leaders think up other liquidity killing ideas like a financial transaction tax, Chicago is ready, willing and able to innovate and compete.

Underlying Descriptions of the Above Products

EWK1D: The iShares MSCI Belgium Investable Market Index Fund seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly traded securities in the Belgian market, as measured by the MSCI Belgium Investable Market Index.

EWI1D: The iShares MSCI Italy Index Fund seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly traded securities in the Italian market, as measured by the MSCI Italy Index.

EWP1D: The iShares MSCI Spain Index Fund seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly traded securities in the Spanish market, as measured by the MSCI Spain Index.

EWQ1D: The iShares MSCI France Index Fund seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly traded securities in the French market, as measured by the MSCI France Index.

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