Monday, February 28, 2005

HedgeStreet


Seems quite akin to gambling, and i bet at the moment there is quite a bit of a liquidity problem. One can open an account with as little as $500, but does someone like that really need to be trading derivatives?

Unlike options traded on other futures exchanges, these options will be “binary,” meaning that the option can have one of only two values at expiration—zero or a fixed amount. The options will be sold in bundles containing one put and one call option, with each bundle costing $10. A member who has purchased a contract bundle may sell either or both of the component options in the secondary market through the HedgeStreet system. A member also may redeem complete bundles with HedgeStreet for $10. HedgeStreet will be the only writer of options. In addition, there will be no leverage. All contracts must be fully paid up front and cannot be margined.

According to documents filed with the CFTC, trading will not be intermediated. Instead, customers who register as members of the exchange will interact directly with the trading facility. To become a member, customers will be required to deposit $500, show proof of U.S. residence, and have a U.S. bank account. Members will have no ownership, governance or voting rights in HedgeStreet. Trading will be conducted over the Internet and all trades will be matched through a price/ time priority algorithm. With respect to clearing, HedgeStreet will act as a DCO only in the sense of settling contracts between members. It will not offer novation or other credit enhancement, according to a statement from the company.

In effect, HedgeStreet will be similar to what are sometimes known as “event markets,” according to a CFTC staff memorandum. Only one other event market has been authorized by the CFTC to date—Iowa Electronic Markets—but several event markets in the U.K. have been successful. (See “Event Markets Campaign for Respect” in the January/February issue of Futures Industry). HedgeStreet has stated that it intends to list only contracts that have a legitimate economic purpose and does not intend to list contracts based on terrorist or gambling activities, such as the outcome of sporting events, according to the CFTC.
read
hedgestreet: read
Posted by Hello

20 Comments:

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7:28 AM  
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