Allan Thomson: JSE

MONEYWEB, Alec Hogg, 05 April 2005

Single-stock futures. The banks have been treading water for about three weeks.

MONEYWEB: Allan Thomson from the JSE is here, as you always are when we can wrap up what’s happened in our challenge over the month. Just by way of background, we’ve got a few banks who are trying to make money for the Aids orphans.

ALLAN THOMSON: Correct, Alec. We’ve got four banks participating, they are working together and we’ve got certain rules that we’ve drawn up for the banks – and they are in the process of trading single-stock futures. Any profit goes to Noah, the Aids orphanage, and any losses are borne by the banks and the JSE on a combined basis.

MONEYWEB: I remember last year when we had Arthur Buchner helping us on his own after I’d kind of made a bit of a disaster on the single-stock futures trading. We still ended up with R35,000 that went to Noah.

ALLAN THOMSON: That’s right.

MONEYWEB: How are we standing at this point this year?

ALLAN THOMSON: Well, these last sort of three weeks we’ve been treading water. We are standing at the moment – this is in fact last night’s figures – R55,537. So we have been around the R50,000 mark for about the last three weeks.

MONEYWEB: Why, what’s happened there?

ALLAN THOMSON: You know, I think the markets have become a little bit spongy. I just had a look, there haven’t been many, many trades. There have been very few trades. Now I know that in certain circumstances some of the traders are away on holiday, closed off the positions, and there has certainly been less activity. There’s been very little activity from two of the banks, purely related I think to holidays. Business as usual for the other two of the banks and, interestingly enough, the positions over the previous month or so were always on the long side. We are seeing now sort of a trend …

MONEYWEB: You were expecting share prices to go up?

ALLAN THOMSON: Expecting share prices to go up. We are seeing generally across the board the longs have been cut and the positions are entered into mainly on the short side, not on the long side.

MONEYWEB: Hmm, so they turned negative. Piet Viljoen, have you ever played the single-stock futures?

PIET VILJOEN: No, I think trading in single-stock futures is a mug’s game, that’s my opinion. [Laughter.] Any money you make for the orphans is great money, because that’s a difficult thing to do.

MONEYWEB: Well, that’s nice, you’re just crossed as a sponsor now – thanks, you needn’t come back next week. [Laughter.]

ALLAN THOMSON: Yes, I’ll have to withdraw the sponsorship after that. [Laughter.]

PIET VILJOEN: But then the banks are doing what they do best, colluding to set prices – they are sure to make money. [Laughter.]

MONEYWEB: Well, they say in broadcasting, never ask a question that you don’t know the answer to, but I had a pretty good idea Piet was going to say that – and that is a popular perception amongst some people, that single-stock futures trading is a mug’s game.

ALLAN THOMSON: Yes, you know, it’s part of the education that we’ve been going through. There’s no difference to trading single-stock futures than there is to trading shares. Well, the big difference is your costs are massively lower. We’ve got a number, a huge – and we’ve just had our figures for this month, it’s the best month Safex has ever had, it’s all due to single-stock futures and it’s massive retail participation.

MONEYWEB: So small guys are actually getting involved, then?

ALLAN THOMSON: Small guys and, in fact, there’s massive retail participation. But I must emphasise that the bulk of the value is wholesale, the biggest growth is coming from the wholesale and from the fund managers, where cost is also an issue. We’ve got more and more guys participating and of course they’re flexible – we keep on saying, they’re cheap, they’re easy and they’re flexible.

MONEYWEB: But you must realise, for Piet short-term is something like three years, whereas for the single-stock futures short term is 30 seconds, isn’t it?

ALLAN THOMSON: Well I think 30 seconds is pushing a little bit, but, yes, short term can be anything …

MONEYWEB: Arthur said long term was about an hour and a half on this programme once.

ALLAN THOMSON: Yes, I know. I think the dealers kind of tend to exaggerate a little bit on that side, but it’s possible. Because your trading transactions are so low, you can go in and out very, very quickly. And certainly for a busy bank, they are in and out on a second basis. But for a retail trader, they are probably in for a few days, a week, maybe a month or two.

MONEYWEB: And it’s easy enough to get in and out, there’s plenty of liquidity?

ALLAN THOMSON: We keep on saying the liquidity is as good as the underlying. If you can trade the underlying share, you will be able to trade the single-stock future.

MONEYWEB: Allan Thomson is from the JSE and we look at single-stock futures every week at this time, because we’ve got a group of banks, as he was saying earlier, who are working together to try and make profits for the Aids orphans, for the Noah charity, which is the JSE’s preferred charity and has become our preferred charity here at Moneyweb as well.

Posted in Market commentary

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