OneChicago, NQLX battle for marketshare. (And They're Off!).

While it is too early to make tortoise and hate comparisons, OneChicago has recently surpassed Nasdaq Life Markets (NQLX) in open interest and caught up in trading volume in security futures, which include futures on individual stocks and exchange-traded funds (ETF). However, in just single

OneChicago had the advantage of listing more single stock futures, though NQLX actually listed more contracts by offering five quarterly months compared with two for OneChicago. Both have added additional contracts since launch.

Officials from both exchanges say volume has been what they have expected it to be and note that a better test will come in January when more traders are expected to have completed proficiency training.

"As with all derivatives products based on securities, volume will begin slowly," says Tom Ascher, chairman and CEO of NQLX.

The only surprise OneChicago Senior Managing Director Peter Borish reports is the strong early volume in Diamond ETF futures, which were launched on Nov. 22 but already have over a third of the overall open interest at OneChicago.

"That the Dow Jones ETF is trading so well is really fantastic," Borish says. "The [overall] volume numbers are indicative that you must have the customers hooked up and ready to go before there is significant ability to trade on a day-to-day consistent basis."

Ascher compares the launch of security futures to the launch of ETFs, noting that most people think ETFs have been around for six months to a year, though they actually started trading about 13 years ago.

Both exchanges are pleased with the performance of their technology, reporting only minor glitches in the first month. Some are not as pleased with the efforts of the National Association of Security Dealers (NASD) at getting the broker/dealer community proficiency training in these products. NASD has not been as promotionally motivated as the National Futures Association (NFA), Borish says. One electronic exchange official says he has accounts with Fidelity, Merrill Lynch and Charles Schwab, none through which he is able to trade security futures products.

While NQLX offered futures on several ETFs from day one and OneChicago added Diamonds soon after, the narrow-base indexes that were such a focus for OneChicago during planning still are not available. Borish calls the delay a strategic decision.

"Those are designed for CTAs, hedge funds -- larger type traders. Because of the larger notional value and that [narrow-based indexes] are more complicated from a market-maker perspective as index products, it makes sense to hold off," Borish says. "Your risk in the singles is less, so I want to see a better pool of potential liquidity built up. I want to have them rolled out as close to the New Year as possible, but logistically I could see it [taking] until after January expiration."

In the meantime, OneChicago is looking at different ideas for ETF futures, Borish says. While not committing to challenging NQLX in futures on the QQQ, he notes that the agreement between Nasdaq and NQLX is nonexclusive and adds that the Chicago Mercantile Exchange (CME), which is a significant partner in OneChicago and trades futures on the Nasdaq cash index, does not see efforts to add related products as threatening.

"Nobody who trades the Nasdaq [100 futures] on the CME would want to trade a similar product as a security futures because it has higher margin and potentially higher tax rates," Borish says.

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