The Chicago Board of Trade recently announced plans to launch a new stock index futures contract based on the Dow Jones U.S. Real Estate Index. The electronically-traded Dow Jones U.S. Real Estate Index futures contract, to be launched during the first quarter of 2007, will allow market participants to capitalize on changes in the real estate sector of the stock market, and better manage commercial real estate exposure.
The new contract will be launched under a licensing agreement between the CBOT and Dow Jones, and will settle to the value of the Dow Jones U.S. Real Estate Index, an index comprised primarily of Real Estate Investment Trusts (REITs). According to the CBOT, REIT securities serve as an accurate proxy for the underlying U.S. commercial real estate market because lease rates, vacancies, development costs and property transaction values are all reflected in REIT share prices. “Commercial real estate remains one of the largest classes of tradable assets not currently served by an exchange-traded futures instrument,” said Robert Ray, senior vice president at the CBOT. “We developed this contract after researching the U.S. commercial real estate market and conducting various conversations with real estate portfolio managers and pension funds who seek new avenues for managing the risks associated with property ownership. Moreover, since the underlying instrument is an equity index, it also provides investors with an efficient means to express their views on movements in the real estate market, with the added advantages of transparency, leverage, liquidity and the ability to more efficiently short the market.” According to Michael A. Petronella, President, Dow Jones Indexes, “The Dow Jones U.S. Real Estate Index is a transparent and rules-based tool to measure the performance of a U.S.-based real estate equity portfolio. As a benchmark recognized by commercial real estate owners and foreign investors seeking exposure to U.S. real estate markets, this index is an ideal underlying for a futures contract.” The new DJUSRE Index futures contract will trade on the CBOT electronic trading platform. The contract, which will be settled in cash, has a value equal to $100 multiplied by the value of the DJUSRE Index. The CBOT is also creating a market maker program for the new DJUSRE Index futures contract to ensure a two-sided market will be available to market participants.