The Information Exchange

WHY LIQUIDITY IN INDEX FUTURES IS ON THE RISE

The first quarter of 2016 saw a year-over-year increase of 66% across the MSCI® index futures complex. Here’s a look at the world events that drove those numbers.

Increased Demand for Access, Exposure and Risk Management

Headline economic news items are often the catalysts that cause volatile market conditions. In today’s increasingly interconnected global markets, breaking news, which may at first glance look to be local in nature, can and often does have global impact as both adverse and positive news in equal measure reverberate around the globe. The resulting market movements create the trading opportunities that trading market participants thrive upon.

Emerging Markets

The first quarter of 2016 witnessed a volatile start to the year. Crude oil prices falling and then making back some ground, concerns over slowing growth and a number of stock market halts in China, as well as a slump in commodity prices, fueled strong trading volumes in the ICE Mini MSCI Emerging Market index future, which recorded the highest quarterly trading volumes since inception.

Mini MSCI Emerging Markets Index Futures quarterly volume and open interest

Developed Markets

ICE’s Mini MSCI EAFE index futures contract also hit record volume levels in the first quarter of 2016. “EAFE” denotes Europe, Australasia and Far East and is an equity index benchmark for developed markets. Following European and Far East central bank policy changes, increased market volatility led to record trading volumes for the quarter. The markets were reacting to the European Central Bank’s (ECB) January meeting, where Mario Draghi hinted that continued quantitative easing and a downward interest rate move might be on its way. Then, in late January, we witnessed the Bank of Japan move interest rates into negative territory, which resulted in some higher equity markets and stronger futures trading volumes. In March, the ECB announced its signaled stimulus package that included a cut in rates to 0% as well as a further move into negative territory for the deposit rate – a package that reignited the volatile markets.

Mini MSCI EAFE Index Futures quarterly volume and open interest

“We have seen increased activity in the ICE index futures complex, following the volatile market conditions we saw in the first quarter,” says Ade Cordell, ICE’s Global Head of Equity Derivatives. “Today’s asset management and trading firms are increasingly looking towards liquid index futures markets that provide an efficient and cost effective means of gaining exposure to the world’s emerging and developed markets.”

View the contract specs