Alan Thomson: JSE Securities Exchange

MONEYWEB, Alec Hogg, 08 February 2005

Our new single-stock futures competition. Last year we raised over R30,000 for Noah, the charity that help Aids orphans.

MONEYWEB: Alan Thomson from the JSE is here with quite a lot of exciting news on our single-stock futures competition. Going back a while, our last competition raised over R30,000 for Noah, which is the preferred charity of the JSE. And you taught Moneyweb what great work Noah do for orphans of Aids victims. This time around we hoping for a quantum of this R30,000.

ALAN THOMSON: Well, we’re certainly hoping. We’re very excited about this. Based on the success of the last single-stock futures challenge that we had, we’ve decided to run it – and this time we’re going to run it a little bit bigger and a little bit better. What we’ve got this time, we’re running a 13-week programme, but we’ve got four different traders representing four different banks, and they’re all going to be trading their own portfolio – and the challenge is at the end of the day to make as much money for the orphans or for Noah as possible.

MONEYWEB: They’re working as a team. They’re not actually competing with each other, but just trying to put as much money in the bank as they can.

ALAN THOMSON: Quite right, each trader will be running his own portfolio. We do have certain rules associated with the portfolio. The JSE has set up separate accounts for each trader. If there’s more than a R50,000 loss in the portfolio, we cut the portfolio immediately …

MONEYWEB: Well, that trade has gone?

ALAN THOMSON: Yes, and the JSE will pick up half of the loss and the bank will pick up the other half.

MONEYWEB: And who are the banks?

ALAN THOMSON: We’ve got Investec participating, RMB, Standard Bank, and Nedcor. Arthur Buchner is back again.

MONEYWEB: Quite right. He helped us out of a hole last time, didn’t he just? Well, let’s hope that Arthur in running his own portfolio this time can be a lot more successful. But what we want to do here, Alan, is almost, it’s almost we’ll learn why they hopefully earn.

ALAN THOMSON: That’s exactly what we want to do. Over the 13 weeks, we want to bring across certain things about the single-stock futures, and the first one is their simplicity. I think that a lot of people totally misunderstand – there’s a lot of jargons around it, which is unnecessary. So over the 13 weeks we want to put together a little programme, exactly how single-stock futures work, and the fact that they are so simple to use. And the other one is their flexibility. It’s an incredibly flexible tool. You can do so much with single-stock futures. So, over the 13 weeks while we chatting and we’re discussing, there is going to be somebody from the banks here every Wednesday, and I’ll be talking the odd Tuesday or two, and we’ll be talking about the simplicity and the flexibility – and they are very cost effective efficient instruments to use.

MONEYWEB: Like warrants on steroids, and they’re a lot cheaper.

ALAN THOMSON: Once again, they can be on steroids. I kept on making the point last time, they can be on steroids, or they can be handled just like shares. They are a very flexible instrument.

MONEYWEB: A bit like hedge funds. We heard last night from Simon Peile that hedge funds have got a bad name because of long-term capital management and other spectacular disasters, but they’re actually designed to be low-risk operations rather than high-risk – and I guess single-stock futures you can handle in the same way?

ALAN THOMSON: Exactly the same way. They’re fantastic instruments, but every now and again you get a horror story coming out of somebody who has abused single-stock futures.

MONEYWEB: Been speculating?

ALAN THOMSON: Well, they’ve been speculating, they’ve taken positions which certainly they shouldn’t have been. It’s not abusing the single-stock futures, but perhaps their own positions more than anything else.

MONEYWEB: Speculation is not a bad word. It’s interesting, I’ve heard an Italian friend who sometimes battles with his English, but he mentions quite happily talked “well, I’m speculating on this property and I’m speculating on that”. And it’s just almost a South African Calvinistic instinct which says, oh, don’t speculate, it’s not good.

ALAN THOMSON: Speculators are absolutely essential to any market, because they’re ultimately bear the risk. If a fund, somebody, is wanting to hedge, what they are doing they’re in fact selling that risk off, and they’re quite prepared to wear that risk, or to have it. And without speculators you don’t get liquidity in the market and you don’t get efficient transfer of risk.

MONEYWEB: You must just know what you’re in for.

ALAN THOMSON: You must just know and understand the product – and I keep on coming back, understand the product, and it’s really not that difficult to understand.

MONEYWEB: We’re going to have a lot of fun with single-stock futures. We did the last time, and we’ve got 13 weeks of it coming up now – and I hope that you remember to stay with us Tuesdays and Wednesdays, obviously the whole week, but also Tuesdays and Wednesdays when we’re going to be following the experts in trading the single-stocks futures and hopefully making a multiple of that R30,000-odd that Noah received the last time around.

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