Banks' Interest in Municipal Futures Contract Growing

Article excerpt

WASHINGTON -- Banks are showing "an enormous amount of interest" in the propsoed municipal futures contract, according to David Ganis, president of the Northern Trust Co.'s futures brokerage subsidiary.

"The big banks are interested" in using the futures contract, Mr. Ganis, a member of the Futures Industry Association executive committee, said at an association press briefing here. The contract is based on the Bond Buyer Municipal Bond Index.

Banks' interest in the contract is fueled not only by their traditional participation in the bond market but also by their growing acceptance and familiarity with the futures market, Mr. Ganis said.

The Chicago-based Northern Trust's Futures brokerage subsidiary, the Northern Futures Corp., he said, is putting together a program to enable other banks to trade the municipal futures and other contracts.

Banks are relative newcomers to the commodities markets but they are considered important participants in the proposed market for municipal futures. The prospect for bank participation was heightened last summer, when the Federal Reserve Board said the contract "has the potential to be a better hedging vehicle for municipal securities positions [of banks] than any of the existing interest rate futures contracts." Long-Term Municipal Market

Futures contracts allow purchase and sale of commodities, or the cash value of indexes, for future delivery. The Bond Buyer Municipal Bond Index is designed to reflect trends in the long-term municipal market and will be the basis for the value of municipal future contracts as they come due. The index uses the prices of 50 bonds, but the Chicago Board of Trade, which is sponsoring the contract, plans to reduce that number to 40.

Quotes in the index, which was initiated one year ago, are supplied by five municipal bond dealer-to-dealer brokers: Cantor, Fitzgerald Municipal Brokers Inc. …