10.31.2014
By Terry Flanagan

Futures Activity Picks Up

Futures exchanges are reporting record volumes in interest-rate futures and swap futures, driven by a spike in volatility and investor interest in exchange-traded alternatives to OTC swaps.

“We’re increasingly seeing participants in the U.S. dollar Libor swap market looking for electronic trading alternatives and trading more standardized products,” Neal Brady, chief executive of Eris Exchange, told Markets Media.

Traders are trading Eris Exchange’s standardized swap futures products in central limit order books and spreading these products against other related futures and cash products, such as CME futures and Treasuries.

“It’s a clear trend we’ve seen at Eris Exchange since early September and we expect this to accelerate through the end of this year and pick up even more steam heading into 2015,” Brady said.

The interest rate futures and swap futures markets have experienced a noticeable increase in volume, due largely to the spike in volatility that’s occurred in recent weeks.

CME Group reached a record high in single-day volume with 40 million contracts traded across all asset classes on October 15, shattering the previous record of 26,947,300 contracts set on May 29, 2013. Eurodollar futures reached nearly 12 million contracts that day, surpassing the previous record of 6.9 million set on Sept. 17, 2014.

Terry Duffy, CME Group

Terry Duffy, CME Group

“October is on track to have the highest monthly volume in our history,” CME Group executive chairman and president Terry Duffy said in a release announcing CME’s third-quarter earnings. “In particular, on October 15 we set an all-time daily record with volume approaching 40 million contracts. This reflects the significant client demand during a more volatile period, supported by the company’s unmatched liquidity, tight bid-ask spreads, system reliability and capital efficiency.”

Third-quarter 2014 average daily volume was 13.5 million contracts, up 12 percent from third-quarter 2013. Clearing and transaction fee revenues were $641.8 million, up 7 percent compared with third-quarter 2013. Third-quarter 2014 total average rate per contract was 72.5 cents, down from 74.9 cents in second-quarter 2014, driven primarily by the 7 percent growth in total volume made up of a higher proportion of lower priced financial products.

Eris Exchange has also set recent records in both volume and open interest. It has posted eight consecutive quarters of swap futures open interest records, recently topping 138,000 contracts equating to 637% growth over the period.

“We’re seeing steady volumes in OTC swaps, but if you look at interest rate future volumes, you see a huge up-tick,” said Brady. “With volatility picking up, and with dramatic capital charges and reporting requirements hitting the banks in early 2015, we’re increasingly seeing firms switch out of OTC swaps and trade standardized swap futures contracts instead.”

CQG, a provider of trade routing, global market data, and advanced technical analysis, is connecting to Eris Exchange, providing a gateway for its futures commission merchants clients to access electronically traded interest rate swap futures.

CQG’s core strengths in aggregation and spreading functions address the demands of the companies’ expanding mutual client bases, according to Brady.

“They have server-side spreading, meaning that the heavy processing occurs on a server so it can be lightning fast even though it’s delivered cost effectively over the cloud,” he said. “People use CQG to spread our swap future against CME’s strips of Eurodollars or against treasury futures, and against cash treasuries. We’re seeing a lot of that activity already. It’s one of the reasons for the significant pick up in our activity in September and October.”

CQG will roll-out access to Eris Exchange through all of its platforms and APIs, facilitating both outright and spread trading.

“We are excited to offer our customers a gateway into the innovative swap futures market through Eris Exchange,” said Mike Glista, director of order routing at CQG, in a release. “We have been focusing on further expanding our coverage and global footprint, which now includes more than 60 exchanges, to continue to meet the evolving needs of our clients.”

Featured image via bloomua/Dollar Photo Club

Related articles

  1. Algorithms have become more prevalent in the spot FX market.

  2. Congress Unlikely to Act on HFT

    QB’s Algo Suite for futures market trade execution is also being co-located to HKEX.

  3. Breaking data silos is key to deploying automation beyond 'nuisance' orders.

  4. They can be used on quantum hardware expected to be available in 5 to 10 years.

  5. Regulation and Liquidity Top Concerns in Fixed income

    Streaming blocks change the basis of matching and price discovery so institutions can find new liquidity.