Exchange for Physical EFP

An Exchange for Physical (EFP) is the simultaneous selling of a stock and buying of a Single Stock Future or the buying of a stock and the selling of a Single Stock Future. It allows the swap of a long or short stock position for a Single Stock Future (SSF)


1. You Are Long Stock On Margin And Would Like To Reduce Your Financing Rate

Interactive Brokers is extending a margin loan against your long position and charging you between 0.15% and 1.5% over the LIBOR benchmark rate (5.307% as of 06/14/07), depending on the size of your account. With an EFP transaction you can reduce this financing expense:

2. You Are Short Stock And Would Like To Increase Your Return

The situation is equally compelling if you are carrying a short stock position. On an ordinary short stock position, Interactive Brokers pays you a short rebate which represents interest on the proceeds of your short sale in excess of $100,000. These proceeds may not be withdrawn as they serve as collateral against your obligation to cover the short position, and in addition you must also post margin.

The short interest rebate paid by Interactive Brokers is 1.25% to 0.15% less than the LIBOR benchmark, provided that the stock is freely available to short (If the stock is difficult to borrow, the discount to the benchmark rate is greater and in some cases may exceed the benchmark so that the holder of the short position may have to pay the lender of the stock).

3. You Want to Receive a Greater Return on Excess Cash in Your Account
EFPs involving Single-Stock Futures can also help you simply receive a better return on unused cash sitting in your account.

If you have excess cash in your account, Interactive Brokers will pay you interest on the cash balance over $10,000, at a rate between 0.15% and 0.50% less than the benchmark rate. As of 06/14/07, that would be 5.157% to 4.807%. You could increase your return on this cash through an EFP -- offering to buy a stock and simultaneously selling it forward (using a Single Stock Futures contract) at say 5.21%.

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Liffe is the leading international derivatives business of the NYSE Euronext Group, the transatlantic exchange formed in 2007.

Liffe operates regulated, high-tech markets in Amsterdam, Brussels, Lisbon, London and Paris where every day approximately two trillion euros worth of derivatives business is traded by customers from around the world.

http://www.euronext.com/trader/priceslistsderivatives/derivativespriceslists-2721-EN.html

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Product Highlights
http://www.interactivebrokers.com/en/general/education/highlights.php?p=p

SINGLE STOCK FUTURES
Hong Kong Futures Exchange

STOCK FUTURES
USA * OneChicago


STOCK FUTURES
Germany United Kingdom

* EUREX (DTB)

* London International Futures & Options Exchange
* London International Futures & Options Exchange Universal Stock Futures



FUTURES
Australia Hong Kong

* Sydney Futures Exchange



* Hong Kong Futures Exchange

Japan Singapore

* Osaka Securities Exchange
* Tokyo Stock Exchange



* Singapore Exchange

South Korea

* Korea Stock Exchange
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The difference of $0.1303 at the prevailing dividend of 25 cents a share is more than wiped out by the eventual convergence of the basis to $0.00 on Aug. 14, 2008. The closing basis on July 14, 2008, was 23 cents a share. The net result was a realized basis gain almost 10 cents a share greater than the interest rate differential at no risk.

Some might say 10 cents a share is not worth the effort. Instead, they would rather engage in the old-fashioned macho trade of getting a hunch and betting a bunch. So be it.

But arbitrageurs can and do make money year in and year out by pocketing the small differences available on such trades, and they seldom make the headlines under the "Arbitrageur Loses Billions" category. If you have an opinion on a stock whose dividend is at risk -- may I suggest the entire financial sector in this regard -- trade it with the SSF.
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buy-write (covered equity call strategy)

Single Stock Futures can be easily substituted for stock when using equity options, such as with a buy-write (covered equity call strategy). Investors could be better served using SSFs in place of the stock. For example, an investor who buys stock and sells calls against the long stock position (buy-write) is exposed to both interest rate and dividend risk. Higher (lower) interest rates and lower (higher) dividends increase (decrease) carrying cost on the long stock and cause the price of the short option to rise (fall). SSF prices increase (decrease) with higher (lower) interest rates and lower (higher) dividends, and will therefore offset the negative (and positive) effect of a change in interest rate or dividends. Since SSFs are priced like option combos (long a call and short a put with the same strike price, or vice versa), interest rate and dividend risk can be mitigated using SSFs in place of stock in combined stock/option strategies.
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Trade Volume archieves
http://www.onechicago.com/?page_id=764

Chicago, IL – October 3, 2008 – OneChicago, LLC today reported that 286,709 security
futures contracts traded at the Exchange in September 2008. YTD volume stands at
3,353,373.
Open interest stood at 244,778 contracts in September 2008.
Each single stock futures (SSF) contract is equivalent to 100 shares of the underlying
stock. The top five SSF contracts by volume in September were:
Verizon Communications, Inc. VZ1C 10,035
Research In Motion Limited RIMM1C 9,363
Gilead Sciences Incorporated GILD1C 6,851
QUALCOMM, Inc. QCOM1C 6,383
Freeport-McMoRan
Copper and Gold FCX1C 5,775
About OneChicago:
The Exchange lists 989 futures on single stocks and 36 Exchange Traded Funds.
OneChicago is a joint venture of IB Exchange Corp., the Chicago Board Options Exchange
Incorporated® (CBOE®), and CME Group. All products are electronically traded on the
CBOEdirect® match engine and accessible through the CBOEdirect® and CME Globex®
platforms. Security futures can be traded out of either securities or futures accounts.
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