Smaller contract means more flexibility

There are anywhere from 50,000 to 200,000 active retail users of futures. Meanwhile, there are some 13 million retail accounts trading other parts of the market that do not trade futures.

CME Group wants to increase what the existing futures user base can trade while also addressing those 13 million other active retailers. The proposed solution? The launch of Micro E-Mini Equity Index Futures – contracts linked to the S&P 500, Nasdaq 100, Russell 2000 and Dow Jones Industrial Average that are 1/10 the size of the exchange’s flagship E-Mini products.

“We were forcing people to choose between trading futures and other parts of the ecosystem where our goal for these sophisticated active individual traders is that they should be trading all parts of the equity ecosystem,” CME Group’s Global Head of Equity Products Tim McCourt said.

There has been renewed focus on smaller notional contracts since the announcement that the folks behind thinkorswim and tastyworks were launching the fittingly named Small Exchange, a futures exchange featuring smaller contracts that draws in part on the legacy of the MidAmerica Commodity Exchange.

While the Micro launch certainly helps fend off any potential concerns from the upstart competition, McCourt said the idea for a Micro contract has been floating around ever since he arrived at CME six years ago, and design began roughly 18 months ago.

Part of the thinking is simple bull market math. When the E-Mini S&P 500 contract was launched, its notional value was $50,000. Now, it’s roughly $140,000 and requires some $7,000 of margin.

Edited by Sarah Rudolph