Copyright ©2006 OneChicago, LLC. All rights reserved.

Mexico City October 2006

OneChicago is a joint venture of

OneChicago is the market for Single Stock Futures in the U.S.

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ADV of SSF contracts

OneChicago Volume

OneChicago Overview

InnovativeProducts

•Over 425 single stock futures

•ETF futures: DIAMONDS® ,XLE,XLF,XLU,XLV

•1 SSFcontract = 100 shares of underlying stock

•1 ETF Future contract =1000 shares of underlying stock,DIA contract=100 shares

FullyElectronic

•State of the art technology using the CBOEdirect® match engine

•Access to OneChicago from CBOEdirect or GLOBEX®

•CBOEdirect supports FIX and CMi APIs

Structuredfor

Liquidity

•Lead Market Maker System*

•Continuous two-sided markets and fast fills*

•WYSIWYG “What you see is what you get” quotes and execution

Open andTransparent

Markets

•Membership not required to trade

•Bid/Offer transparency and market depth

•Anonymity

•In US, Trade from securities or futures accounts

*For products listed on www.OneChicago.com with an * no LMM will be responsible for making continuous two-side markets

• No uptick rule for short selling – can sell short on a downtick

• Sell XYZ short, run risk of buy-in (lose control of stock and forced to buy back at undetermined price)

• Sell short SSF on XYZ (Oct, Nov, Dec, or Mar) and defer buy-in risk thru expiration date

OrRoll position to further out SSF cycle

Single Stock Futures: Market Innovation Advantages

Financing Benefits of Long SSFs versus Long Stock (Stock borrow) Long 100 shares of stock at $40.00 per share (25% Maintenance Margin / 75% Leverage ) and expected holding period of 60

days. Financing Cost = % Leverage to Finance * stock price * shares * (Broker borrow rate /365 * holding period ).

= 75% * $40.00 * 100 * ( 10% /365 * 60 )= $49.31

Compare to:Long 1 SSF contract (100 shares of stock) at $40.33 per contract (20% Margin long or short) and expected holding period of

60 days.SSF price = stock price * ( 1 + ( implied borrow rate/365 * holding period ) ) – pre-expiry dividend amount

= $40.00 * ( 1 + (5% / 365 * 60 ) ) – 0= $40.33

Implied Financing Cost = ( SSF price – stock price ) * shares ( 1 SSF = 100 shares of stock )

= ( $40.33 - $40.00 ) * 100 = $33.00

However interest is often earned on the SSF marginInterest Earned = ( Margin requirement * SSF price ) * shares * ( Broker Interest/365 * holding period )

= ( 20% * 40.33 ) * 100 * ( 2% / 365 * 60 )= $2.65

  Total SSF Financing Cost = SSF Implied Finance Cost + Interest Earned

= $33.00 - $2.65= $30.35

ThereforeSavings = Stock Financing Cost – SSF Total Finance Cost

= $ 49.31 - $ 30.35= $ 18.96 (a 61% benefit)

   All Transaction costs not included

Financing Benefits of Short SSFs versus Short Stock (stock loan) 

Short 100 shares of stock at $40.00 per share ( 30% Maintenance Margin) and expected holding period of 60 days . Normally most Brokers don’t pay interest on short stock proceeds , however interest is earned on the short stock margin amount. Interest Earned = % Margin * stock price * shares * ( Broker interest / 365 * holding period ) = 30% * $ 40.00 * 100 * ( 2% / 365 * 60 ) = $ 3.95Compare to : Short 1 SSF contract ( 100 shares of stock ) at $ 40.20 per contract ( 20% Margin long or short) and expected holding period of 60 days. SSF price = stock price * ( 1 + ( implied loan rate / 365 * holding period ) ) – pre-expiry dividend amount = $ 40.00 * ( 1 + ( 3% / 365 * 60 ) ) – 0 = $ 40.20Implied loan rate = ( SSF price- stock price ) * shares ( 1 SSF = 100 shares of stock )  = ( $ 40.20 - $ 40.00 ) * 100 = $ 20.00However interest is often earned on the SSF marginInterest Earned = ( Margin requirement * SSF price ) * shares * ( Broker interest / 365 * holding period ) = ( 20% * $ 40.20 ) * 100 * ( 2% / 365 * 60 ) = $ 2.64  Total SSF = SSF implied loan rate + Interest Earned Receipts = $ 20.00 + $ 2.64 = $ 22.64 Therefore:Increased Income = Total SSF Receipts – Stock Interest Earned = $ 22.64 - $ 3.95 = $ 18.69 ( a 573% benefit ) All Transaction costs not included   

Rho

Interest Rate Risk Equity Options

Options Strategies with stock as a hedge,who controls the Rate on your

Stock part of the Strategy? What happens when Rate changes occur?

Single Stock Futures ,Single Interest Rate for the Fixed term of that

expiration Cycle.

SSFs Advantages          SSFs provide additional leverage and are a more capital efficient hedge

than OTC positions• Allowable SSF offsets reduce margins to 5% - 10% versus collateral of 10%-15% for swaps 

         SSFs provide access to interest rates determined by the market, not the broker

• The SSF price has a built in interest rate – effectively making the same interest rate available to all market participants. In the cash equity world, brokers set individual rates for each trader which are usually higher than those implied by our SSF market.

 

         SSFs make it easier to short• Don’t need to wait for an uptick.• Don’t need to wait for stock to be located (Reg SHO).• Enter Market at your price

SSFs Advantages         SSF EFPs provide an opportunity for “Yield Enhancement Trades”• Exposure to dividend and interest rate risk provide a better argument to the “arms length”

status of the trade than fully notional swaps.• Yield Enhancement of Dividend with relation to withholding tax per tax treaties.

        SSFs are a useful tool for managing P&L distribution• A cash equity trade can get segmented into P&L and dividend income while a SSFs

trade is purely P&L.

        AAA (OCC & CME ) Clearing significantly reduces counter-party related risk

• For Smaller/lower credit traders it may mean the removal of counter-party credit caps and the opportunity to trade more

• For larger firms, Default becomes less of an issue, opportunity to manage expectations of exposure     

        AAA (OCC & CME ) Clearing is more operationally efficient than OTC position management

• Don’t need to negotiate ISDAs for each counter-party and position• Don’t need to perform ongoing credit analysis and collateral management

OTC to On- Exchange all but eliminate counter-party risk Leverage, reducing or eliminating capital charge for stock holdings Reduce margin requirements (vs. 50%-100% Reg. T margin requirement for stock collateral) Ability to collateralize SSF margin with other than cash (like OTC swaps) Opportunity for improved financing Opportunity for competitive pricing in hard-to-borrow market Eliminate potential error or financial loss of unwind of

hedge in swap Diversify yield enhancement (dividend) strategies, like OTC market

SSFs (EFPs) v. OTC Swaps

Dividend Analysis : SSFs (dividend discounted) versus Long Stock (dividend income) Long 10,000 shares of stock XYZ at $ 35.00 Dividend ex- date mm/dd/yyDividend amount $ .38 quarterly At Dividend ex-date: Stock price = $ 35.00 - $ .38 (Dividend amount) = $ 34.62Stock P/ L : Loss = 10,000 shares * $ .38

= $ 3,800.00 Dividend Income : + = 10,000 shares * $ .38

= $ 3,800.00Withholding Tax = Dividend Amount * Applicable Tax Rate

= $ 3800.00 * 15%= $ 570.00 

Net Dividend Income : = $ 3,800.00 - $ 570.00= $ 3,230.00

Compare to :Long 100 SSFs ( 1 contract = 100 shares of stock) , expiration date mm/dd/yyDividend ex- date mm/dd/yyDividend amount $ .38 quarterlyExample trade period : 17 days to SSF expiration , 5% interest rate ,1 day to dividend ex-dateSSF price = Stock price * ( 1 + ( annualized interest rate * days to expiry /

365 ) ) – pre-expiry dividend amount= $ 35.00 * ( 1 + ( 5% * 17 / 365 ) ) - $ .38= $ 34.70 

At Dividend ex- date : Stock price = $ 35.00 - $ .38 ( Dividend amount ) 16 days to expiry = $ 34.62SSF price = $ 34.62 * ( 1 + ( 5% * 16 / 365 ) ) – 0

= $ 34.70

SSF P / L = 0Dividend Income = 0 Withholding Tax = 0

High Yield Dividends EFP StrategyShift Dividend Income to Position P/L

Merck (MRK): $35.00Ex-dividend: 3/01/06

Payout: $0.38 quarterlyYield: 4.34

Trade date: Feb. 28, 2006

OneChicago SSF MRK1C MAR06: $34.70SSF price = cash price + cost to carry – dividend

$34.70=$35.00 +.*08– $0.38By selling the stock position at $35.00 and buying the SSF MAR06

position at $34.70 via EFP trade, the dividend is now in the P/L of the position (stock and/or SSFs) *.08=

$35.00 *(5% /365 * 17)

Trading Strategies

Index Arbitrage- Long Stocks / Short Indexes (S&P 500)Banks & Associated trading arms

-Capital Requirements (Haircut)

-Dividends (Withholding)

-Tax Treatments (Countries taxation treaties)

-Deductions (Corporate structure)

-Stock lending (Swap or Stock loan)

-Collateral ( Currency & or Bonds)

-OTC to On-Exchange

OneChicago Quote Vendors

Belzberg Technologies Inc.(HYTS)BloombergComStockCQG, Inc.Data Transmission Network (DTN)eSignalFutureSource

• Delayed snapshot quotes and daily market summaries are available on OneChicago’s Web site at www.OneChicago.com/04000_trading/oc_040401.html

• For real-time quotes, traders should inquire directly with their current vendor for subscription information, or contact one of the vendors listed below.

Moneyline TelerateReutersThomson Financial – ILXTownsend AnalyticsTrackDataTrade Station Technologies

Subject to change. For complete list see OneChicago Web site

Security futures trading involves the risk of loss, including the possibility of loss greater than your initial investment.

Security futures may not be suitable for all investors. Consult your broker or financial advisor before trading.

All investors will be required to review risk disclosure materials and meet suitability requirements established by

their brokers.

You should carefully review all disclosure statements and ensure you understand the risks of trading security futures.

©2006 OneChicago LLC. All rights reserved

The information in this presentation has been compiled by OneChicago, LLC for general information purposes only. Although every attempt has been made to ensure the accuracy of the information, OneChicago assumes no responsibility for any errors or omissions. Examples herein are hypothetical situations used for explanation purposes only and should not be considered investment advice. All matters pertaining to rules and specification herein are made subject to and are superceded by the official OneChicago rules.

“Dow Jones, “The Dow, “Dow Jones Industrial Average”, “Dow Jones Industrials”, “DJIA” and “DIAMONDS” are service marks of Dow Jones & Company, Inc. and have been licensed for use for certain purposes by OneChicago, LLC. OneChicago’s DIAMONDS futures are not sponsored, endorsed, sold or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of investing in such products.

The Exchange for Single Stock FuturesSM is a service mark of OneChicago, LLC. GLOBEX® and Chicago Mercantile Exchange® are registered trademarks of Chicago Mercantile Exchange, Inc. CBOE® and The Chicago Board Options Exchange® are registered trademarks of The Chicago Board Options Exchange, Incorporated. CBOEdirect and HYTS are registered trademarks of The Chicago Board Options Exchange, Incorporated. CBOT® is a registered trademark of the Board of Trade and the City of Chicago, Inc. Other names, logos, designs, titles, words or phrases may constitute trademarks, service marks or trade names of OneChicago or other entities and which may be registered in certain jurisdictions.

Customer Inquiries:312-424-8500Info@OneChicago.com312-424-8527 Mark A. Esposito

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