When the Intercontinental Exchange (ICE) wrestled the Russell 2000 index away from CME Group during its battle over the Chicago Board of Trade, it was a big blow for the CME as the 2000 was a vibrant and growing contract. But the deal, at least from the point of view of the index provider, had less to do with the Russell 2000 and more with the Russell 1000.
See the Russell 1000 serves as the benchmark large cap index for a large portion of institutional equity funds. Despite this achievement, few of those professional money managers use the Russell 1000 futures to hedge their cash portfolio. For that, they go to the top dog S&P 500, which is more than 99% correlated with the 1000 and much more liquid.
Russell has always had big plans for its large cap index and has tried many innovative approaches to make the futures contract based off of it more popular. A few years ago Russell decided to license its indexes to as many exchange as would have it to see if that would do the trick. It did not.
Russell grew frustrated with the CME Group that helped make the Russell 2000 a huge success — it is the last new futures contract to hit a home run. The problem was Russell didn’t think the CME was doing all it could to promote the 1000. The 1000 originally was licensed to the New York Board of Trade and then to anyone that wanted it. The CME had the S&P 500 and a longstanding strong and profitable relationship with Standards & Poor’s.
ICE paid a lot of money to Russell for exclusive rights to their indexes in part to improve their position vs. CME as they were battling over the Board of Trade. Russell made the deal because ICE assured them that it would promote all of their products including the 1000.
Last Friday ICE set a volume record of 67,989 contracts in its mini Russell 1000 contract. That more than tripled the previous record of 26,254 made on March 9, 2009.
Ray McKenzie VP of U.S. futures sales for ICE acknowledged that the spike was somewhat of a surprise but noted that they have been working on bringing in buy side customers to the 1000. “We think this is the real deal,” McKenzie says. “We have been focusing on our market makers and tightening the bid/ask spread, not just on the outrights but also on the spreads.”
He pointed out that at one point last Friday the Sept/Dec calendar spread in the mini 1000 had a one tick 10,000 by 20,000 spread.
One day does not make a trend and most days the 1000 contract is lucky to trade as many contracts as components in the index but if it can follow up last week’s performance people will take notice and if they can build market share a pretty interesting battle could ensue.
