Volatility Continues to Boost Volume

Terry Flanagan

Exchange operators continue to see trading volume growth as volatility remains high.

Although trading volume has dropped off from the record highs experienced in early August, they have continued to remain elevated as uncertainty surrounding the macroeconomic concerns linger.

“Trading volumes across all venues were significantly higher year-over-year, but mostly declined sequentially from unseasonally strong levels in August 2011, which were driven by heightened market volatility in the U.S. and Europe,” said NYSE Euronext in a statement.

NYSE Euronext for September saw a 23.2 percent increase in global derivatives average daily volume, at 9.5 million contracts, but down 8.4 percent month-over-month. European cash equities were up 34.6 percent in Europe and up12.3% in the U.S. year-over-year.

Thanks to the flight of investors to the safety of gold in recent months, CME Group experienced record quarterly metals trading volume, up 77 percent from 2010. In September alone, there was an 84 percent bump. As a whole, CME averaged 14 million contracts per day, up 16 percent year-over-year. Total volume was 294 million contracts, of which 85 percent was traded electronically.

For the month of September, CBOE Holding’s aggregate contracts traded totaled 104.2 million contracts. Average daily volume reached 5 million contracts, up 31 percent from the 3.8 million seen in 2010.

Its main CBOE platform averaged 4.7 million contracts daily, up 25 percent. The most gains were seen in the trading of exchange-traded fund options (79 percent increase) and index options (up 42 percent). CBOE’s Futures Exchange trading also saw substantial gains, up 154 percent year-over-year. Its VIX futures volume was up 154 percent to 46,784 contracts ADV, or 982,462 total for the month. Total futures volume for the third quarter was just under 4 million contracts.

The IntercontinentalExchange’s futures ADV increased 23 percent in the third quarter of 2011 over the prior year, and grew 17 percent for the month of September 2011 compared to September 2010.

The Options Industry Council announced that total options trading volume for September was 391.2 million contracts, 29.5 percent higher than the 302.1 million seen a year earlier. Average daily volume stood at 18.6 million contracts, from 14.4 in 2010, also up 29.5 percent.

The CBOE Volatility Index (VIX), also known as Wall Street’s “fear gauge,” reached a high of 48 on Aug. 8, as the markets reacted to the debt ceiling situation and the Standard & Poor’s downgrade of U.S. debt. It has since fluctuated through the low 30s until most recently spiking up to above 40 again in recent days.

Market observers note that during times of volatility, traders that use high frequency practices are the ones that thrive and feed off of wild market swings, while retail and even institutional investors to an extent, sit on the sidelines and wait for things to settle down.

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