Exchanges Buoyed by Volatility

Terry Flanagan

Despite a slight decline over the past few days, trading volume is still at levels well above the year’s daily averages, as volatility remains near year-to-date highs. Two Chicago derivatives exchanges in particular have been among those that benefitted.

CME Group and the Chicago Board Options Exchange have each announced within the past few days that they have reached all-time high single-day trading volumes. CME Group in particular saw trading volume of 25.7 million contracts traded across all asset classes on Aug. 9, which was enough to surpass the volume seen during the ‘flash crash’ of May 6, 2010. CME also saw record volume for gold futures and options, with 504,368 contracts traded, as investors flocked toward the safety of bullions. Gold closed at a record high of about $1,800 an ounce on Wednesday.

CBOE, in part because of its Volatility Index offerings, also saw record high contracts traded, with 10.9 million on Aug. 8, the first trading day after Standard & Poor’s downgraded the U.S.’ debt rating. Three of the top six most active trading days in CBOE’s 38-year history have all occurred within the past week. From about 16 in early July, the VIX skyrocketed nearly 200 percent in the following month, until settling down slightly to about 40 as of Aug. 11.

Spokespeople from CME and CBOE each declined to comment on the volume numbers any further than what was publically announced.

“The last two days (CME) volume was extraordinary and will stay quite elevated until the market is comfortable with the various and sundry amounts of randomness in the market,” said Larry Shover, senior advisor with Efficient Capital Management. “I believe exchange volumes will resume back to (historic) normal levels once direction in the markets are clear.”

Unlike equities, derivatives have been outpacing the rest of the markets throughout the first half of 2011, as investors flocked to options and futures to hedge the risk associated with the underlying security. Options trading volume has remained strong, with industry estimates pegging an increase of as much as 26 percent in July. Equity trading volume has been estimated to be down as much as 30 percent compared last year.

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