New Trading Rule Empowers Internet Exchange

The Australians, British, Canadians and Germans are coming, and U.S. securities exchanges have been freed to compete with them by marketing a new securities instrument that may make it easier to short stocks.

The new products are futures on individual stocks that have been banned since 1982, but will now be permitted by legislation signed by President Bill Clinton in December 2000. The law overhauls the regulation of the commodities markets, including lifting the ban on stock futures on U.S. stocks, which had been sought by exchanges fearful they would lose business to foreign exchanges.

The new rules permit equities exchanges regulated by the Securities and Exchange Commission, and commodities exchanges under the authority of the Commodities and Futures Trading Commission, to begin trading the futures later this year for institutions and in 2002 for retail customers.

The change is good news for OnExchange, which was approved in January to become a derivative exchange and clearinghouse. The Waltham, Mass., company will compete with the Chicago Board of Trade, the Chicago Mercantile Exchange and other exchanges by offering similar services online.

OnExchange will begin trading the new instrument when regulations and rules are set down by the SEC and the CFTC, said Ed Cuoco, president of OnExchange.

Exodus Communications is hosting OnExchanges system, which runs an Oracle8i database management system on Windows NT servers with Bea Systems WebLogic application servers.

A futures contract obligates a buyer to purchase a commodity or financial instrument — in this case, a stock — at some future date at an agreed on price. An investor wanting to short a stock can do so without the restrictions placed on short selling, such as not selling a stock on a downtick.