Equity futures volume down as traders hunt volatility

Discussion in 'Wall St. News' started by just21, Nov 17, 2006.

  1. just21


    CME, CBOT see drop in stock index futures volume

    By Jesse Thomas
    Last Update: 6:15 PM ET Nov 3, 2006

    CHICAGO (MarketWatch) -- Chicago's futures exchanges last month saw a volume dip in stock index futures, previously an area of growth, amid a steady stock market rally that has reduced the need to hedge against a market downturn.
    Overall volume growth remains strong at the Chicago Mercantile Exchange and its planned merger partner, the Chicago Board of Trade, amid a continued upswing in electronic trading. But both exchanges this week reported a slide among equity index products, which are commonly used to hedge against or profit from moves in underlying stock-market indexes.
    A lack of stock-market volatility "has the tendency to reduce volume on the futures side, because volatility is off and there's less need for using the futures as a hedging vehicle," said Steve Leuer, a floor trader in the CME's S&P pit for X-FA Trading.
    The fade in equity index futures may also be connected to new electronic-trading offerings - for a host of products - that are competing for traders' attention, market participants said.
    Chicago Mercantile Exchange Holdings Inc. (CME) unit CME said average daily volume in its e-mini equity indexes fell 4% in October from a year ago, with 1.6 million contracts traded. CBOT Holdings Inc. (CBOT) unit CBOT, meanwhile, reported a 29% year-over-year volume decline in its equity index complex.
    The stock market has been climbing recently amid signs the economy is resisting a broad-based slowdown. Though down Friday, the Dow Jones Industrial Average rose nearly 3% between the beginning of October and the close of trading Thursday. The market also hit an all-time, intra-day high of 12,236.10 on Oct. 26.
    The Standard & Poor's 500 Index rose 2.7% in the same timeframe.
    Without much volatility, "you're not threatened" to the downside, said Frank Lesh, futures broker and analyst at Futurepath Trading. In the current scenario you "buy the dips, hold on and make money," Lesh said.
    Despite futures declines, equity volume for options products at other exchanges has remained strong. The Chicago Board Options Exchange, which lists options on major stock-market indexes, saw its equity index options post a 13% volume gain in October over the previous year.
    The International Securities Exchange, which is the largest equity options exchange, saw average daily volume of 2.5 million contracts on equity and index options in October, a 10% gain over the previous year.
    The options products allow a vast array of strategies that make them useful tools even during a period of low stock market volatility.
    Electronic Competition
    For traders looking for volatile markets with strong participation, rather than specific products, new product offerings on CBOT's electronic platform have pulled volume away from equity futures at the exchange, market participants said.
    The CBOT has seen record volume growth - up 130% year-over-year in October - in its agricultural complex since launching electronic trading of the products in August on its e-CBOT system. This is a new arena for agricultural products, which are mainly traded on the CBOT floor.
    The metals complex at CBOT has also seen substantial growth recently. Volume on the CBOT's gold futures in October was up tenfold compared with the previous year.
    "Equities are being cannibalized by these other contracts," said John Carter, CEO of tradethemarkets.com.
    Some traders "always just traded stock index futures and never would have considered anything else, and now they're trading gold," Carter added. He trades stock index futures at CME and CBOT.
    Market participants are mixed on whether equity futures volume will continue to slide at the Chicago exchanges. Although other products may continue to draw new attention, participants don't expect the lack of stock market volatility to continue unchecked.
    The equity futures products traded at the Chicago exchanges are contracts that track the most popular cash market stock indexes. At CME, the e-mini futures contract on the S&P 500 Index accounts for half the e-mini volume. E-minis are one-fifth the value of a regular S&P 500 futures contract, aimed at appealing to retail investors.
    At CBOT, participants can trade futures on the DJIA Index if they're looking to profit or hedge themselves against the underlying indexes moves in the cash market.
    CME plans to acquire CBOT for about $8 billion in cash and stock. The deal is seen closing in mid-2007 pending regulatory approval.
  2. S2007S


    interesing, is the run over for these stocks or does CME go to 1000....