Word: merced
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Perhaps the hottest battlefront in the New York-Chicago conflict is between the New York Stock Exchange and the Chicago Merc, which trades the controversial S&P 500 index futures. Each side in the standoff is unwilling to make any major procedural changes for fear of losing turf. The New York exchange, which was slow in setting up its own financial-futures market, controls 10% of worldwide trading in such contracts; the Chicago exchanges' share is about 80%. Contends John Sandner, chairman of the Chicago Merc: "We were so successful that it caused everyone to want to take our success...
...York will have to play by similar rules. The commission's central recommendation is that one agency -- preferably the Federal Reserve -- coordinate the activities of all U.S. financial markets. Currently, the Securities and Exchange Commission regulates the stock exchanges and the Commodity Futures Trading Commission oversees the Chicago Merc and other exchanges that deal in stock-index futures...
...corporation, which can be held for the long term. The person who buys or sells a stock-index future, in contrast, is making a short-term bet on which direction the overall market is going to go in the near future, usually a month or less. Thus the Chicago Merc is used primarily by brokerage firms and speculators seeking quick profits, and by money managers who want to hedge their portfolios against losses in the stock market. The rules of the two games are wildly disparate. In the stock market, the margin requirement -- the percentage of down payment that...
...responsible for a big part of last Friday's plunge. The Brady report suggested that such volatility might be curbed if the 12% margin needed for buying a stock-index future were brought more into line with the 50% required for stocks. That might dampen speculation at the Chicago Merc. Critics of this idea, however, point out that the big institutions that play the index arbitrage game generally pay cash for their contracts...
Melamed contends, with much justification, that crash investigators should look not at the trading pits of the Merc but at the specialist posts on the floor of the Big Board. The specialists are supposed to moderate price swings by "making a market" in particular stocks -- buying, if necessary, when no one else wants to. But on Black Monday the system virtually collapsed. Many of the 450 specialists were unable or unwilling to spend enough money to keep their stocks from going into free fall. Several specialist firms exhausted their capital and went out of business or were absorbed by bigger...