Single-Stock Futures Advance; Regulators Agree to End Ban; Congress Must Approve Investment Tool
Ending a turf battle that has lasted nearly two decades, financial market regulators yesterday reached an agreement that clears the way for investors to buy futures contracts based on single stocks.</br></br>The agreement still faces scrutiny from Congress. But lawmakers have told the Securities and Exchange Commission and the Commodities Futures Trading Commission that if they could settle their dispute, Congress would likely adopt their approach. The deal, in which the two have essentially agreed to share regulatory oversight, paves the way to end an 18-year ban on single-stock futures.</br></br>A futures contract is a promise to deliver or to buy at a set date in the future and at a set price a certain item--pounds of coffee, barrels of oil, or, in this case, stocks or bonds. By law, a futures contract must be traded on an exchange.</br></br>Once the ban on single-stock futures is lifted, investors could, for example, sell a futures contract based on shares of International Business Machines Corp. to hedge against a decline in the price of the company's stock, or buy such a contract instead of buying the actual IBM shares.</br></br>Single-stock futures could lower investors' risk by allowing them to hedge against price changes in stocks and bonds. But because they also carry lower margin requirements, similar to those on options contracts, many experts say they could be riskier for many consumers. Initially institutional investors and businesses are expected to be the biggest customers for these new products.