09.06.2011

August Volatility Boosts Volumes

09.06.2011
Terry Flanagan

The spike in volatility last month was a boon for exchanges.

CME Group, CBOE, the Intercontinental Exchange and the International Securities Exchange have each reported big gains in trading volume for August, largely driven by the surge in volatility.

“There was extraordinary volatility at the end of July, and into first days of August, and really that was the driver for much of the record volumes we’ve seen in derivatives markets,” said Andy Nybo, principal and head of the derivatives practice at Tabb Group. “The debt talks uncertainty, the economic and financial environment around world, (the debt concerns) with small European Union members, all had a huge impact on investor sentiment resulting in spiking volatility and record volumes,” Nybo added.

CBOE, one of the largest options U.S. options exchange by market share, saw some of the biggest gains of the month, with an 88 percent increase in average daily volume year-over-year in options contracts traded, with 6.6 million. Its CBOE Options, CBOE Futures and C2 exchanges each established new individual monthly volume records. Its index and exchange traded funds options, as well as its Volatility Index, or VIX, also reached all-time monthly trading volume highs.

ISE also saw big gains, with 4.1 million contracts traded in August, a 75.2 percent bump. Total options volume for the month was at 94.8 million. It was the third largest in market share for the month at 18.9 percent.

The Chicago Mercantile Exchange recorded an all-time record 17.1 million contracts traded per day in August, an increase of 46 percent from 2010 and of 35 percent from July. Metals volume reached a record 521,000 contracts per day, an increase of 131 percent, as investors flocked to the safety of gold. Equity and interest rate options were also up 83 percent and 47 percent, respectively.

“While customers rely on liquidity during all market conditions, it becomes increasingly crucial during times of high market volatility,” said CME executive chairman Terry Duffy in a release.  “The market turbulence in August reinforced the need for deep liquidity across time zones, allowing for the decisive action necessary to manage risk in an uncertain environment.”

The IntercontinentalExchange also experienced a substantial boost, with a 37 percent increase in overall daily futures volume. The bump was larger in Europe, at 41 percent, compared to 29 percent in the U.S.

Although it will be difficult for the markets to maintain such a high level of volatility and volume over the long terms, Nybo expects to see elevated activity continue through the near future.

“There will be a heightened level of volatility that will persist through the fall,” Nybo said. “But that is due to the world financial situation, the potential for a double dip recession, and the banking crisis in the European Union. The economic instability will effectively result in a much more volatile environment.”

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