Strong Volume Year Expected for Listed Derivatives

Strong Volume Year Expected for Listed Derivatives

Strong Volume Year Expected for Listed Derivatives

Global listed by-product volumes are anticipated to stay sturdy in 2023 after reaching a file final yr in accordance with knowledge tracked by Liquidnet. 

2022 international listed derivatives volumes (excluding single inventory choices) reached 71.1 billion contracts, a rise of 47.7% from the earlier yr in accordance with Liquidnet’s 2022 Listed Derivatives Review. However, choices buying and selling on Indian indices accounted for 20.2 billion contracts of progress, virtually the entire international improve of twenty-two.5 billion contracts exchanged globally final yr. Removing India from the info reduces complete international progress to 7%.

Mike du Plessis, Liquidnet

Mike du Plessis, international head of listed derivatives at Liquidnet, stated: “Last yr was an enormous yr for macro – huge, liquid devices put in huge performances after an extended interval of low rates of interest, flat curves and low volatility. Equities, significantly tech, had successfully develop into an expression of the search for length, so noticed a major turnaround with the shift within the charges regime – it modified the whole lot”.  

He expects this yr to be attention-grabbing as a result of the charges market is presently discounting the tip of the cycle in an setting of ongoing excessive geo-political uncertainty. Historically most of these shock led to emergency stimulus however with the inflation fall-out, central banks have been pressured to use the brakes – partaking in a balancing act with excessive dangers related to a miss-step.

“The market is wanting round two corners with the form of the curve  expressing fairly a exact view on a ahead foundation, however it is rather uncommon that the market will get this precisely proper,” du Plessis added. “As a outcome, we’re going to course appropriate and see some very sturdy bursts of exercise within the yr forward of us.”

Futures volumes and choices volumes behaved otherwise in 2022. Global futures volumes, ex-India, fell 4.2% whereas, in distinction ,choices volumes rose 29.3% from the earlier yr.

Futures costs are a direct illustration of the underlying property;  quantity progress was constrained as volatility elevated. As asset costs elevated merchants may obtain the equal financial publicity utilizing fewer futures contracts. For instance, 2022 was a banner yr for commodities markets. The quantity of ICE Endex Dutch TTF Natural Gas futures fell 5.3% year-on-year. However, Liquidnet’s evaluation discovered that the US greenback worth of these contracts grew by roughly 150% over the identical time interval and the contract entered the Top 50 within the agency’s international rating for the primary time.

In distinction to futures, choices costs are a operate of volatility and permit buyers to acquire an financial publicity, whereas realizing their most loss. Global choices volumes are dominated by the US the place SPY Options reached a file 1.82 billion contracts traded and the quantity of QQQ ETF Options virtually doubled to a file 662 million contracts year-on-year.

“Whilst out-performance by ETF choices factors to the continued robustness of retail exercise in 2022, further proof additionally might be gleaned from the continued success of the CME’s micro futures contracts,” added Liquidnet. 

Fixed revenue 

The developed market central financial institution mountaineering cycle set the stage for a stellar 2022 for short-term rate of interest (STIR) contracts globally the place futures and choices volumes elevated 24.7% to 2.41 billion contracts. 

Last yr the CME 3-Month SOFR contract rose to develop into the most important futures contract on this planet by US greenback notional within the Liquidnet international rankings. However, Liquidnet famous that quantity within the ICE Financials Euribor futures grew 51.4% to an all-time file of 282.7 million and the Euribor choices market quantity additionally jumped 570% year-over-year.

After the monetary disaster in 2008 there have been a sequence of occasions concerning banks manipulating their submissions for setting Libor benchmarks, which led to a insecurity and threatened participation within the associated markets. As a outcome, regulators have elevated their supervision of benchmarks and moved to risk-free reference charges (RFRs) based mostly on transactions, so they’re tougher to govern and extra consultant of the market and the US regulators selected SOFR (Secured Overnight Financing Rate).

Du Plessis stated: “The solely factor you actually wanted to commerce final yr to precise what was in impact a singular international theme was SOFR. Whilst it did nicely, I used to be truly stunned that it didn’t do even higher. It was attention-grabbing that as charge markets lit up, RFR-linked contracts have been considerably outperformed by contracts that referenced credit score delicate, time period benchmarks ”

He highlighted that with diminished “utility”, the RFR-linked STIR contracts may be seeing a discount in actual world utilisation for hedging, suggesting this would possibly harm volumes as soon as central financial institution exercise subsides and their speculative and pure charge hedging worth declines.  

Source: Liquidnet.

“The RFR-linked futures market may even see some impression such that volumes develop into extra periodic. We have seen this for years within the CME Group’s Fed Funds Futures market which may transfer from tremendous lively to near-dormant and again once more with the ebb and move of Fed cycles” stated du Plessis.

Liquidnet has been writing concerning the impression of the LIBOR transition on liquidity and the execution course of from its early levels. Du Plessis stated:  “The analysis course of is vital to us; we wish to guarantee that our execution instruments and algorithms are designed in such a method that they adapt seamlessly in response to altering liquidity states in order that our members can transition quickly between digital and voice-supported execution in an clever method.”


Three derivatives exchanges, CME Group, ICE and Deutsche Börse’s Eurex dominate listed derivatives volumes. Du Plessis stated: “It was a yr for huge exchanges with huge merchandise.”

The trio’s contracts took 36 of the highest 50 locations in Liquidnet’s international rankings and 89% of the traded notional within the high 50. The report stated: “Liquidnet estimates that, at roughly $906 trillion, 81.5% of your entire worth of worldwide exchanged US greenback notional equal in 2022 was concentrated into these three trade teams.”

Du Plessis expects exchanges to proceed to attempt to convey retail liquidity, significantly in equities, onto their venues in a quest for progress and liquidity consolidation. For instance, in January 2023 CME introduced an growth of its suite of weekly choices expiries for its Micro E-mini Nasdaq-100 and S&P 500 futures, pending regulatory evaluate. Micro E-mini Equity Index futures and choices have develop into among the many most actively traded fairness index merchandise at CME Group, attaining a mixed file quantity improve in 2022 of greater than 50% year-over-year.

“A good thing about bringing retail into the exchanges’ liquidity pool is that giant asset managers can entry it with a diminished degree of intermediation versus the extra conventional routes by which this retail element ultimately finds its method again to the bigger sized index futures contracts,” added du Plessis.

In commodities markets the Shanghai International Energy Exchange’s Crude Oil futures had quantity progress of 25.6% in 2022 – notable as a result of it’s an institutionally sized, Yuan denominated, bodily delivered oil contract. 

Liquidnet stated: ““These volumes equated to an 85% leap within the USD equal notional worth exchanged, boosting the contract 18 locations in our international rankings estimate—enough to present the benchmark Chinese Crude Futures contract a primary Top 50 look. This achievement is all of the extra outstanding on condition that the Shanghai Crude contract was solely launched in April 2018.”


Another potential progress space is institutional exercise in crypto markets, regardless of the chapter submitting of crypto trade FTX. Liquidnet pointed to  prospects for the “benchmark” CME Bitcoin Futures Contract, and the trade reported that common each day quantity for its cryptocurrency contracts rose 82% in 2022. 

Source: Liquidnet.

TP ICAP Digital Assets highlighted vital options of the contract which level to its progress prospects amongst establishments; an ongoing decline in volatility, continued progress in Bitcoin futures volumes, sooner progress than the retail-sized CME Micro Bitcoin Futures and the growing proportion of quantity transacted utilizing trade blocks. 

“The irony that what is typically described as trust-less cash turned sufferer of miss-placed belief within the type of FTX has not been misplaced on institutional shoppers” stated du Plessis. “I feel we’re going to see a extra easy method which entails going via identified and trusted intermediaries.”

He continued that the majority massive establishments are within the technique of constructing, or have already constructed, the flexibility to commerce crypto, not least as a result of it represents an actual world sandbox for the acquisition of institutional information within the managing of the elemental parts of a digital asset. Learning the way to purchase, promote, retailer, lend, safe, transmit, hedge, leverage, threat handle, compliance monitor and financially account for a ledger based mostly asset will show a crucial train.  

Environmental, social and governance (ESG) contracts have been promoted as one other potential progress space however in 2022 ESG index futures volumes had decrease progress than broader indices at simply 4.8%.

“Screening methodologies in ESG got here below some scrutiny within the information via the course of 2022 and might not be fairly proper at this stage which means progress appeared lacklustre final yr,” du Plessis stated. “From an general quantity perspective, ESG remains to be very small certainly.”

Liquidnet’s newest Listed Derivatives report might be read here.