JLN Special Report: January 2012 Volumes Down

Feb 2, 2012

On Your Calendar
A little over a month ago, I asked an exchange executive about falling volumes in the options space, to which he said. “January is going to tell us a lot.”

January’s message to the options industry wasn’t kind. Most exchanges are reporting lower volumes for the month. Some may call it an off month, but given a host of events that have hit the financial markets – futures, options, stocks and currencies – January may be a harbinger for a rough 2012.

CNBC’s Bob Pisani wrote a good story about equity market volume drops and its causes. He pointed out that too much Eurozone uncertainty, less proprietary volume and lower volatility were to blame. In the futures industry, there are three elements to point fingers at as well – Eurozone uncertainty which is like an oft repeated bad joke, regulatory uncertainty and its ongoing saga of Dodd-Frank rules and finally and arguably the biggest buzz kill of them all – the collapse of MF Global and subsequent mess it has created for the futures industry.

Lest you think this is just a futures or securities issue, the currency market isn’t all that great lately either. Doug Ashburn, editor-at-large here at John Lothian News, pointed out this week in the JLN FX newsletter that OTC forex volumes have been sliding as well. “ICAP announced that daily FX volume on its EBS platform fell below $100 billion in December for the first time since 2005. Hotspot’s volume in December was $38 billion a day, down from $56 billion in November. The word is that January volumes have continued the downtrend.”

Just ticking down the list of exchanges that have released volume figures for January, the trend is notable and one reason we decided to put together today’s special report.

The CME Group announced its volumes in January were down 5 percent from a year earlier. Interest rate volumes were off just 2 percent, but Treasury futures were down 12 percent from a year earlier. Equity index futures were down 13 percent and FX volumes dropped 21 percent from a year earlier. Energies were up 1 percent and ags were basically flat.

The options industry is on a three-month losing streak. The Options Industry Council reported that total US options volumes fell 11 percent in January. This comes on the heels of a tough December, where volumes were off 6 percent from a year earlier, and November which was down 2 percent. Top dog Chicago Board Options Exchange reported its January volume dropped 15 percent. Does three months, a trend make? It should be noted that the January options volume still ranked as the third highest January for the options industry.

Meanwhile, Nasdaq OMX reported this week that profits fell 40 percent in Q4 from a year earlier. Total cash equity share volume was 1.85 billion in the quarter, down from 1.89 billion a year earlier. Nasdaq CEO Bob Greifeld admitted that the trading volume environment was “challenging.”

Intercontinental Exchange (ICE) reported its overall exchange volume dropped 6 percent for the month. NYSE Euronext and Eurex volumes were not yet released by Thursday afternoon.

The good news is that the CBOE Futures Exchange experienced their busiest January ever, up 4% from January of 2011. That bodes well for the idea that innovative products drive volume.

If there is a bigger good news component to this, it is that most of the likely causes can be fixed. The EU could come up with a be-all, end-all solution to its ills. Confidence may return to the markets and the virtuous volume cycle may return. The futures industry can come up with solutions to the MF Global and the lost confidence issue and regulators could make serious headway on Dodd-Frank rules. All of these would give the markets the clarity they sorely need.

Exchange Volumes

CME Group Volume Averaged 11.6 Million Contracts per Day in January 2012
Press release
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that January 2012 volume averaged 11.6 million contracts per day, down 5 percent from January 2010, but up 21 percent from December 2011. Total volume for January was 232 million contracts, of which 82 percent was traded electronically.

CME Group’s CEO Discusses Q4 2011 Results 
Earnings Call Transcript
Last, I’d like to discuss 2 additional announcements we have made this morning. The first is related to our dividend policy, which Jamie will cover in detail in just a moment, and the second is the $100 million Family Farmer and Rancher Protection fund that CME Group announced as one step to restore the confidence of market users following the collapse of MF Global, particularly those farmers and ranchers who hedged agricultural risks in CME Group market. In addition, we will continue to work with the rest of the industry, including the National Futures Association, the Futures Industry Association, our fellow exchanges, and SCMs, and customers to determine what additional safeguards will best serve the interest of all market users and strengthen protection of customer funds at the firm level.”

ICE Reports Daily Futures Volume for January; $27 Trillion Cleared in CDS Globally to Date
Press Release
IntercontinentalExchange, a leading operator of regulated global futures exchanges, clearing houses and over-the-counter (OTC) markets, reported a 6% …

Nasdaq OMX Profit Slumps 40%
NEW YORK—In a period of slower trading across the financial markets, Nasdaq OMX Group Inc.’s profit fell 40% from a year ago but still managed to beat Wall Street’s fourth-quarter earnings projections. The fourth quarter’s slower trading was a contrast to the hectic activity of the third quarter, when investors sought cover from market volatility, Europe’s sovereign-debt crisis and worries of an economic slowdown.

NASDAQ OMX Reports Fourth Quarter and Full Year 2011 Results 
Press release
The NASDAQ OMX Group, Inc. reported strong results for the fourth quarter of 2011. Net income attributable to NASDAQ OMX for the fourth quarter of 2011 was $82 million, or $0.45 per diluted share, compared with $110 million, or $0.61 per diluted share, in the third quarter of 2011, and $137 million, or $0.69 per diluted share, in the fourth quarter of 2010. For the full year of 2011, net income attributable to NASDAQ OMX was $387 million, or $2.15 per diluted share. Included in the fourth quarter of 2011 results are $44 million of pre-tax expenses associated with debt refinancing, the impairment of an available-for-sale investment security and merger and strategic initiatives.

Press release
The Options Industry Council (OIC) announced today that 335,399,999 total options contracts changed hands in January, which is down 11.38 percent compared to January of last year when 378,480,506 contracts were traded. Although volume is down compared to last year, January 2012 is the third highest January by volume on record. Average daily volume for the month came in at 16,770,000 contracts, 11.47 percent less than the 18,942,025 contracts traded during January 2011.

CBOE Holdings Reports January 2012 Trading Volume
Press Release
CBOE Holdings, Inc. today reported that January trading volume for options on the Chicago Board Options Exchange (CBOE) and C2 Options Exchange (C2), combined, totaled 90.36 million contracts. January average daily volume (ADV) was 4.52 million contracts, a 15-percent decrease from January 2011 ADV of 5.29 million contracts and a 27-percent increase from December 2011 ADV of 3.55 million contracts.
Trading volume at CBOE Futures Exchange (CFE) was the highest ever for any January.

ISE Reports Business Activity for January 2012
Press Release
ISE is the second largest equity options exchange in January with market share of 18.7%, excluding dividend trades.
Dividend trades made up 8.8% of industry volume in January 2012. The International Securities Exchange (ISE) today reported average daily volume of 2.7 million contracts in January 2012. This represents a decrease of 18.6% compared to January 2011. Total options volume for the month was 53.8 million contracts. ISE was the second largest U.S. equity options exchange in January with market share of 18.7%*.

CBOE Futures Exchange Experiences Busiest January Ever, Trading Volume Up 4% Over 2011
Press Release
The CBOE Futures Exchange, LLC (CFE) today announced that trading volume during January 2012 totaled 811,283 contracts, an increase of four percent from the 778,157 contracts traded in January 2011. This was the busiest January in CFE history and it ranks as the tenth most-active trading month ever at the exchange. Average daily volume (ADV) at CFE during January 2012 was 40,564 contracts, also up four percent from the 38,908 contracts traded per day a year ago. January 2012 marked the twenty-eighth consecutive month that CFE monthly volume posted a year-over-year gain.

KCBT HRW Wheat Futures, Options & Exchange Volume Increase Compared to Previous Month
Press release
The Kansas City Board of Trade volume traded in January posted increases in the Hard Red Winter Wheat futures contract, the HRW wheat options contract and the exchange as a whole when compared to December 2011. Also, open interest increased in all contracts when compared to last month. In the HRW wheat futures contract, 369,613 contracts were traded, which was an increase of 45.7 percent when compared to December 2011 volume. Open interest increased 6.6 percent during the same time period.

The Spanish Stock Exchange Traded €69.99 Billion In January 
Press release
* The number of equity trades in January reached 3.8 million, up 38% from the previous month of December
* Trading in Options on Stocks reached 2.97 million contracts, slightly above the figure posted in January 2011
* Corporate Debt trading reached €392.02 billion, down 31.5% year on year. However the number of trades increased more than fivefold compared to the same month in 2011.”

Volume Stories

Traders Lament: ‘My Desk Is Dead’
Bob Pisani – CNBC
Over dinner last night with several managing directors for a large equity desk, the first topic of conversation was not, “What’s going to happen after the NYSE Euronext-Deutsche Boerse merger gets turned down?” It was, “What the hell is going on with this lousy volume? My desk is dead.” Indeed. The slow decline of volume (even options volume is weaker) is the main topic on Wall Street and was a major reason why there is less lamenting over the loss of the Deutsche Boerse deal than you might expect at the NYSE. The logic of the deal is not as compelling as a year ago.

On second thought, low volume not so bad for stocks
The U.S. stock-market surge in January may feel to some like having reached a remote mountain peak. It was a lot of work, but there are not many people to celebrate with. The S&P 500 rose 4.4 percent in January, the second-best month for stocks since 2010. But trading volumes were down sharply – speaking to worries that the market’s gains are unsustainable.

Icap to cut jobs and clamp down on bonuses
By Jeremy Grant and Adam Jones – Financial Times
Weak trading volumes prompted Icap to cut jobs in the third quarter as the world’s largest inter-dealer broker said it was reviewing its bonus policy and “taking an increasingly tighter line on compensation”. The disclosure came as Icap reported a 19 per cent fall in electronic broking volumes, with overall trading volumes down by 7 per cent.

MF Global

MF Global U.K. Clients to Get 26 Cents on Dollar Payout 
Kit Chellel – Bloomberg
MF Global Holding Ltd.’s U.K. administrators plan to make the first payment to British clients of the failed brokerage, returning 26 cents on the dollar. KPMG LLP, the administrators of MF Global’s U.K. unit, said the figure was the most it could return at this stage because of “continued uncertainty” as to who can claim a share of the so- called client money pool.

MF Global risk officer says ousted after warnings
By Sarah N. Lynch and Karey Wutkowski – Reuters
The former chief risk officer at MF Global who raised red flags about the firm’s aggressive trading bets told lawmakers that his warnings contributed to the firm’s decision to let him go in early 2011. Michael Roseman, who was ousted in January 2011 from the now-bankrupt futures brokerage, said he rang alarm bells about the firm’s exposure to European sovereign debt a year before the firm collapsed in late October of 2011.

MF Global’s Former Risk Officers Defend Their Tenures
By Ben Protess – New York Times
WASHINGTON — MF Global’s internal watchdogs defended their tumultuous tenures at the brokerage firm, telling Congress on Thursday that they sufficiently sounded the alarms about risky wagers on the European sovereign debt that ultimately toppled the firm. http://jlne.ws/wzXIoE

CME creates $100m fund after MF Global
By Hal Weitzman – Financial Times
CME Group, the US’s biggest futures exchange operator, is creating a $100m protection fund for farmers and ranchers as it attempts to restore confidence in futures markets after the collapse of MF Global.

Exclusive: MF Global triggers regulatory rethink at CFTC
The head of the Commodity Futures Trading Commission has ordered an extensive review of how futures brokerages are regulated, following the collapse of MF Global three months ago, a CFTC official told Reuters on Wednesday.

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