Round-the-clock trading in futures predicted

Press, 30 December 1982, Page 5

Round-the-clock trading in futures predicted

A world futures market with round-the-clock trading is on the way, according to a Chicago futures expert visiting Christchurch. He is Mr Ron Darling, a management - information consultant in commodities for Arthur Andersen, one of the world's biggest accounting firms. At present, world futures trading is based on the big commodities exchanges in Chicago. New York, and London. There are smaller exchanges in other parts of the United States, and in various parts of the world, including Australia and Hong Kong.

“We will see in the next decade a substantial market opening somewhere in the Far East — probably Singapore or Hong Kong,’’ said Mr Darling.

With the time-zone differences there would then be round-the-clock trading in futures.

“There will be the possibility of someone, in say, Oregon. phoning his broker to buy futures, and this will be executed as soon as possible at whichever of the world markets is open, and at which the price is right." Commodities trading, somewhat esoteric to many New Zealanders, arose from forward contracts on the two great Chicago commodities exchanges, the Chicago Mercantile Exchange and the Chicago Board of Trade, late last century. A farmer in the American

Mid-West could sell corn growing in his fields for a contract to supply. Such forward contracts are still widely used in agriculture and by firms using crops as raw products.

Because the contract was between two parties it was not transferable, and the futures contract evolved because of this. It is essentially a transferable forward contract, and thus can be traded and is the basis of the commodities markets.

Now 90 per cent of the transactions are intermediary between the supplier and the receiver.

A committee runs each exchange, policing the market to ensure it is not manipulated. Brokers can be sus-

pended, and the amount of margin paid on each transaction can be varied.

Mr Darling describes the margins as security deposits. They are made to secure the transaction. That is why they are increased for buyers when prices are falling and increased for sellers when they are rising. There are also national controls on commodity exchanges. In the United States this is the Commodities Futures Trading Commission. The attempt by the Hunt brothers to corner the world’s silver in trading on the commodity markets has led to a tightening up of measures against manipulation.

Mr Darling sees futures trading as parallel in many ways to insurance, companies looking after their assets and liabilities in much the same way as they take out insurance on their property.

He puts the users of the futures markets in three classes: • Professional traders for their own accounts.

© The retail market: members of the public trading in futures.

These two groups make up the speculator section of the market. Then there are:

• The hedgers, mostly corporations and big grain cooperatives, who treat futures like insurance. They are trading off the risks in future prices.