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CME Group Extends Equity Derivatives

CME Group is introducing options on its Micro E-mini equity futures, which started trading last year, and have been the derivatives exchange’s most successful new product launch.

Tim McCourt, CME Group global head of equity index and alternative investment products, told Markets Media that there was a clearly articulated customer demand to launch options on its Micro E-mini S&P 500 and Micro E-mini Nasdaq-100 futures contracts.

He said: “The customer demand for Micro E-mini options is palpable and the reaction has been uniformly positive.”

CME launched four Micro E-mini equity futures in May last year.

McCourt explained that when CME launched E-mini equity index futures in the late 90s they had a notional value of about $50,000, but the price of the indexes has since tripled.

“As a result, the risk taken and capital requirements increased so we launched Micro E-mini contracts,” he added. “At one tenth the size they are more approachable and users have more precision.”

When the four Micro E-mini futures started trading in May last year aggregate volume grew to more than one million contracts in less than three full days of trading, which McCourt said exceeded expectations.

In order to increase the velocity of trading CME designed the Micro E-mini contracts so they are similar to the original larger contracts. This means that liquidity providers and market participants can easily trade both contracts side by side and use the same straight-through-processing for settlement.

Tim McCourt, CME Group

“They have been our most successful new product launch as more than 300 million contracts have been traded,” he added. “More than 150,000 customers have used the contracts and about half were new to CME.”

He continued that the Micro E-mini futures have been popular around the globe with 28% traded internationally, compared to an average of 23% for CME’s equity products overall.

CME reported that in the second quarter of this year equity index contracts had an average daily volume of 5.6 million contracts, including a record ADV of 1.9 million for Micro E-mini equity futures.

In June equity index ADV grew 64% from a year ago, with Russell 2000 futures increasing 49% and E-mini S&P 500 futures rising 32%.

McCourt said: “There was a significant spike in the volume of Micro E-mini futures during the increase in volatility in late February and March. Volumes have held up due to intra-day volatility as users react to earnings and other news.”

Adena Friedman, Nasdaq

Nasdaq reported yesterday that combined U.S. equities and options markets set a record for trading volume in the second quarter of  this year.

Adena Friedman, president and chief executive of Nasdaq, said on the results call: “The current backdrop of the pandemic, the economy and the election should support elevated volumes in the second half of this year.”