Dictionary of Finance and Investment Terms: basket
basket
- unit of 15 or more stocks used in program trading.
- program trading vehicles offered by the new york stock exchange (called Exchange Stock Portfolio or ESP) and the Chicago Board Options Exchange (called Market Basket) to institutional investors and index arbitrageurs. Both baskets permit the purchase in one trade of all the stocks making up the standard & poor's 500 composite index. ESP's design requires a minimum trade of approximately $5 million, and Market Basket's, around $1.7 million. The baskets were introduced in late 1989 to solve problems revealed when institutions tried to negotiate large block trades on black monday and to head off an exodus of program trading business to overseas exchanges. Subsequently, trading in these instruments ceased due to lack of trading volume.
- informal name for index participations (also called cash index participations or CIPS), a controversial financial instrument introduced and then withdrawn by the American and Philadelphia stock exchanges in 1989. The product allowed small investors to buy a portfolio position (in the Standard & Poor's index of 500 stocks and in a 25-stock index that has historically correlated with the Dow Jones Industrial Average) without buying individual stocks. It retained advantages of stock ownership by having no expiration date (like a future or an option) and providing for quarterly dividend payments. Originally approved by the Securities and Exchange Commission as a security, the instrument was challenged by the Commodity Futures Trading Commission, which claimed it was a futures contract. When a federal court ruled against the EC, the exchanges stopped trading the product.
