UPDATE: NYSE Euronext Plans New MSCI Futures, Fee Incentives
September 08 2009 - 3:52PM
Dow Jones News
NYSE Euronext (NYX) will expand its nascent stable of equity
index futures to include Europe- and Asia-focused products in the
coming months, according to the top executive of its U.S. futures
unit.
NYSE Liffe US, which on Tuesday launched its first futures based
on MSCI Inc. (MXB) indexes, will also offer new fee incentives to
draw investors already trading exchange-traded funds on those
indexes.
"This is the tool to bring in new participants," said Tom
Callahan, chief executive of NYSE Liffe US, in an interview.
Callahan described day-one volume as "modest" in the initial
three equity index futures, based on MSCI's USA, Emerging Markets
and Europe Australia Far East stock indexes.
The exchange's licensing agreement with MSCI covers 41 stock
indexes, and Callahan said new contracts focused on Europe, Asia
and BRIC nations will follow, with two to three new contracts
rolling out each quarter.
To build liquidity in the new contracts, NYSE Liffe US is
counting on some of the $3 trillion tracking MSCI's family of
indexes globally.
In particular, the exchange seeks to tap the strength of
corresponding exchange-traded funds. Two of the five largest ETFs
in the U.S., with more than $60 billion in combined assets under
management, are benchmarked to MSCI's emerging markets and EAFA
indexes.
Combined turnover in the major ETFs tracking MSCI indexes has
topped $600 billion so far this year, and Callahan said NYSE's
electronic Arca platform is a prime trading venue for the
products.
"There's very high demand in the cash form for [ETFs] that track
these indexes, so there should be strong demand for futures as
well," Callahan said. "If you're a market maker in these ETFs, you
can buy and sell futures to hedge your positions."
The exchange is in the final stages of developing the NYSE Liffe
Routing System, which will let investors trade futures and ETFs
side-by-side on the same screen.
Callahan targeted an October launch for the new service.
NYSE Euronext continues to seek equity investors for its U.S.
futures platform, where major Wall Street banks could help drive
trading activity as stakeholders.
Discussions are in progress, Callahan said, but were delayed as
the exchange entered into an agreement earlier this summer with the
Depository Trust and Clearing Corp. to create a new clearinghouse
for interest rate-linked derivatives.
The venture, slated for a mid-2010 launch and dubbed New York
Portfolio Clearing, will enable side-by-side clearing of
derivatives and cash Treasurys.
Callahan said he has kept a close watch on Washington this
summer as a raft of reforms target the derivatives industry,
including tighter position limits on speculative commodity
traders.
While executives at CME Group Inc. (CME) and
IntercontinentalExchange Inc. (ICE) have argued against such
limits, Callahan said he supported the idea.
"Historically, when sensibly applied, they've proven to be a
good mechanism for reining in excessive volatility or other
untoward behavior in futures markets," he said.
-By Jacob Bunge, Dow Jones Newswires; 312-750-4117;
jacob.bunge@dowjones.com