OneChicago, the US single stock futures exchange, has struggled since its launch in 2001 with regulatory, tax and competitive hurdles. Recent rumblings however suggest that its day in the sun may be finally coming, the result of a need for CCPs in financing transactions and winning over regulators to get equal tax treatment for its Single Stock Futures with other products. Recent volume figures are starting to support the idea that OneChicago’s day in the sun may finally be arriving.
OneChicago has been hamstrung by adverse regulation. As one example, single stock futures alone of any futures type have not been eligible for preferential tax treatment under IRS Section 1256. This section has stated that earnings on futures contracts will be taxed 40% as short-term capital gains and 60% as long-term capital gains. Although subsection b(1) of Section 1256 clearly states that this tax treatment is applicable for “any regulated futures contract,” SSFs in the US have been specifically excluded.
The tides are turning however with Dodd-Frank and with a new regulatory review of equal tax treatments across different types of US financial products. Dodd-Frank exempts a wide variety of financial contracts from 1256 treatment, including products that look awfully similar to single stock futures. We hear through the grapevine that OneChicago may have finally convinced the IRS that single stock futures look just like many other derivatives and don’t need the 60/40 tax treatment. Meanwhile, separate rules on dividend equivalent payments work in OneChicago’s favor. Single stock futures have also won some recognition under IRS rule 1058. That amounts to a lot of positive tax traction for US single stock futures and hence raises prospects for OneChicago.
OneChicago Announces Trading Volumes for January 2012
– Security futures volume at the exchange in January 2012 was up 82% year-over-year, compared to January 2011
Chicago – February 1, 2012 – OneChicago, LLC (OCX), an equity finance exchange, today announced that a total of 301,804 security futures contracts were traded in the month of January 2012.
January 2012 Highlights
• 262,532 EFPs and blocks were traded. January 2012 EFPs and Blocks activity represented more than $1.6 billion in notional value.
• 34% of January 2012 month-end open interest was in OCX.NoDivRisk™ products. The OCX.NoDivRisk product suite is an innovative equity finance tool which removes dividend risk from the security futures.
• 100,505 January 2012 futures valued at more than $540 million were taken to delivery, emphasizing the use of single stock futures as an equity finance product.
• Open interest stood at 379,950 contracts on the equity finance exchange at the end of January 2012.