New Game in Town

After the inaugural speeches ended, the computers started flashing in the fancy new trading room off Wall Street, and the voices of a hundred traders rose in a din. Thus last week the New York Futures Exchange opened for business as Manhattan's entry into the hottest form of commodity investment to come along in years: financial futures.

The N.Y.F.E. (pronounced knife), which is located adjacent to its parent, the New York Stock Exchange, is the first major diversification in the N.Y.S.E.'s 188-year history. The new exchange aims to become an important international center for trading in financial futures, which have been pioneered by the Chicago Board of Trade and the Chicago Mercantile Exchange's International Monetary Market. Essentially, financial futures are contracts to buy or sell Treasury securities, Government-backed mortgages, or foreign currencies at a preset price at a specified future date. Says N.Y.F.E. Chairman John Phelan: "Few commodities have as much potential for profit or loss."

An investor who buys a financial future is betting that interest rates will decline or that a foreign currency's value will rise before his contract matures, thereby increasing the dollar value of the securities or currency that he has agreed to purchase. Margin requirements are low: a buyer may put up as little as $1,500 to buy a three-month contract for $1 million worth of Treasury bills, for example. Under a complicated formula, such a buyer might make a $2,500 profit if the interest rate was 8% when he bought the contract and 7% when it came due. Conversely, he would lose money if the rate went up. Similarly, an investor holding a one-month contract to buy 125,000 German marks at 56-c- would reap a $1,250 profit if the value of marks rose to 57-c-; he would lose if marks fell below 56-c-.

The Chicago exchanges, which have been at odds with Government regulators in the past, charge that Washington wants to promote the N.Y.F.E. at their expense. Indeed, the Commodity Futures Trading Commission, which is charged with maintaining order in all such markets, went to court last month in an unsuccessful attempt to block the Chicago exchanges from expanding their listings to compete with the N.Y.F.E. The Federal Reserve Bank of New York and the Treasury Department have both expressed concern that financial futures trading might some day disrupt the Government securities market. That nearly happened last June, when at one point it looked as though futures owners might demand delivery of more Treasury bills than there were in existence. The N.Y.F.E. has chosen delivery dates for contracts that will give its investors access to a greater supply of Treasury bills. Also, its computerized trading system, which the Chicago exchanges do not have, should provide early warning when demand for contracts might exceed the T-bill supply.

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