Trade in Single-Stock Futures May Be Delayed

The Securities and Exchange Commission is narrowly defining which institutions will initially be able to trade futures based on individual stocks, throwing yet another question mark over whether U.S. trading of the products will start this month as scheduled.

Congress last year ended a two-decades-old U.S. ban on single-stock futures, allowing them to be jointly overseen by the SEC and the Commodity Futures Trading Commission and listed on both stock and futures exchanges.

But the agencies, which had warred over the issue for years, have since found it difficult to hammer out the rules defining their respective jurisdictions in the fledgling market, calling into question whether institutional, or “principal to principal” trading can begin, as intended, on Tuesday.

Full retail trading is supposed to start on Dec. 21.

Futures contracts on individual stocks would give investors another way to make big bets on the direction of share prices with relatively little money down.

A futures contract is an agreement to buy or sell an investment at a set price by a set date. Commodities are commonly traded via futures.

Responding to a call from a key lawmaker to speed up the process for introducing the stock futures contracts, the SEC said in a letter released Wednesday it was “committed to ensuring that investors enjoy the benefits of securities futures products without undue delay.”

But, in a footnote, the agency also said it would interpret “principal to principal” trades to be only those between members of a futures exchange who are also members of the exchange’s clearinghouse, a step industry sources said would limit initial trading in the products to the largest investors.

That’s a very small pool of people,” said one source, who asked not to be identified. “And those people, frankly, can already do ‘swap’ transactions over the counter, so they don’t even need to come to an exchange to do these.”

The letter was released by House Financial Services Committee Chairman Michael G. Oxley (R-Ohio), who earlier this month pointedly requested the CFTC and SEC update him by this week on their progress.