What a difference a year makes. If 2008 demonstrated the industry’s resilience in the face of crisis and its resourcefulness to adapt to changing investor demands, 2009 marked the inevitable bite-back of a vastly diminished appetite for risk.
Headline volumes, however, tell only half the story.
Were it not for the exceptional performance of certain asset classes, and indeed certain contracts, the industry would surely have recorded a much steeper year on year decline.
As things stand, total volumes make the yearly performance look relatively flat. While the number of contracts traded declined from 17.6bn to 17bn, a fall of 3.4%, 2009 was still the industry’s second strongest year on record, dwarfing even 2007’s total of 15.5bn.
An unprecedented rise in volatility was far from bad news for all market segments. The commodities boom continued apace, with metals, agricultural stocks and softs all enjoying record volumes. The sector enjoyed a record year, with total volumes rising 16% from 1.7bn to 1.9bn.
The Dalian Commodities Exchange dropped a place among the big independents, despite seeing volumes rise by nearly a third. The exchange, still the sector leader for agricultural stocks, was leapfrogged by the neighbouring Shanghai Futures Exchange, along with the Futures and Options Division of the Russian Trading System Stock Exchange, which climbs to fifth.
The SHFE’s record growth owes much to the astonishing performance of its Steel Rebar contract – all the more impressive given its March launch date.
Meanwhile BM&F’s equity derivatives segment made up for a relatively flat 2009 across its newly merged futures bourse, with the group’s overall volumes growing by nearly a quarter.
Safex’s plight highlighted the rollercoaster nature of growth in some emerging markets. Its volumes slumped by 67% and wiped out 2008’s stunning growth.
Chicago Board Options Exchange’s share of the US options market declined from 27.8% in 2008 to 26.4% in 2009. This owed more to its own moderate 4.9% fall in volumes, however. Equity options, especially in North America, came into their own in 2009, as flexibility in meeting future risks became the dominant theme.
The US options market reached a record size as trading volume exceeded all previous years for the seventh year running – 3.6bn contracts were traded in 2009, 0.84% more than in 2008. The growth in 2008 over 2007’s volume was 25%.
Woe for the giants
The world’s two largest exchange groups, Deutsche Börse Group and Chicago Mercantile Exchange Group, endured declines on a similar scale for 2009, the former slipping by 16.55% and the latter by nearly 20%.
The CME Group’s Chicago Board of Trade platform endured its most miserable year post-merger, declining for a second successive 12 months. Its long term interest rate futures contracts, most notably its benchmark Treasury futures, were hardest hit.
Nyse Liffe Euronext and Nasdaq OMX both enjoyed modest growth during the year, however, thanks largely to the performance of their buoyant options exchanges. Nyse’s new US derivatives bourse, meanwhile, overtook both Brussels and Lisbon to become the group’s fourth largest diversified exchange.
IntercontinentalExchange also recorded a strong year, thanks largely to the 15% growth of its US futures division.
Equity indices
The reputation of index futures as a hedging tool was clearly hit by the financial crisis. Global indices, led by catastrophic banking sector losses, took a further nosedive as the year began, capping the most miserable decade for stocks since the 1930s.
Eurex’s Stoxx 50 futures and options contracts were particularly hard hit, with both declining by roughly a quarter.
Only Korea Exchange’s seemingly indomitable Kospi 200 Option, the world’s most traded derivative, held steady among the more established flagship contracts, enjoying modest growth of 6%. Excepting the Kospi 200 from global figures, indeed, the sector as a whole recorded a decline of 6% year on year.
RTS’s Index Future contract also deserves an honourable mention, enjoying growth of 72% to take its place among the world’s most traded index contracts.
Meanwhile, Russia and Brazil gained a greater market share in single stock derivatives. The number of South American equity derivatives, almost entirely accounted for by Brazil, rose from 351m to 547m, with their market share rising from 6.3% to 10%. Russia’s growth was still more dramatic, its volumes more than doubling to 263m, a market share of 4.75%.
Long term interest rate futures
A good decade for fixed income investors ended with declining yields, as central banks aggressively slashed interest rates across the board. Investor appetite for exposure to long term interest rates fell accordingly, with virtually all of the 25 most traded contracts recording a heavy decline.
All told, the sector fell by 28% to 1.1bn trades, down from 1.5bn in 2008.
Of the top five, the CBoT’s flagship Treasury Note Futures were the hardest hit. Demand for its 10 Year Note Futures fell by 26%, while volumes in its Five Year Note Futures slumped by 41%. Since the falls were broadly in line with market averages. However, the composition of the top five did not change, with the 10 Year Note remaining the world’s most traded fixed income derivative.
Short term interest rate futures
With global interest rates generally heading in one direction and staying there in 2009, short term interest rate futures enjoyed almost as dismal a year as their long term counterparts.
Volumes were down almost across the board, with CME’s flagship Eurodollar future contract shedding 27% in volume.
Liffe’s interest rate contracts showed more resilience, however. Demand for its Short Sterling futures remained static at 104m, while demand for its Three Month Euribor futures grew by 14%.
The sector as a whole fared slightly better than its long term counterpart, with volumes down 19% to 1.3bn. For a detailed look at the combined sector’s miserable 24 month performance, see the block graph on page 20.
Currencies
Demand for the dollar as a safe haven currency was tempered against the strong march of the euro to new levels against many currencies in 2009. Investors sought to minimise exposure to currency fluctuations, as most Western economies rebounded more swiftly than expected.
CME’s flagship Euro FX Future contract remained virtually static, growing by 1% in spite of the severity of the euro zone recession. Demand for KRX’s Dollar Future contract soared 543%, however, becoming the world’s second most traded currency future.
Meanwhile Forts took Micex’s crown as host of the world’s preferred dollar/rouble futures contract. Forts’s contract enjoyed growth of 123% to become the world’s third most traded currency future, while Micex’s volumes crashed by 87% to 17.7m, dropping from the world’s most traded currency contract in 2008 to sixth in 2009.
Europe’s decline excluding Russian currency futures was all the more stark, dropping by 53% year on year. Total world volumes were down by 16%.
Metals
China’s inexorable climb to the position of global commodities powerhouse – it has now overtaken Germany as the world’s largest exporter – was nowhere better exemplified than in the metals market in 2010. In nine short months, the Shanghai Futures Exchange’s Steel Rebar contract became the world’s most traded metal future.
By December, it was the world’s fifth most traded derivatives contract – a staggering achievement made all the more remarkable by its March 27 launch, meaning the rebars missed almost an entire quarter’s trading.
Even excluding the rebar’s performance, global metals enjoyed a strong year, with trade growing by nearly a quarter to 345.5m contracts.
The SHFE’s Copper Cathode Futures jumped by 291%, becoming the second most traded metals contract behind the rebar, at 81.2m contracts.
The London Metal Exchange, despite seeing its Aluminium Futures knocked from the top spot for metals, enjoyed a steady year in exceptionally difficult market conditions, where demand for base metals fluctuated in tandem with the global recovery. Its total volumes for the year were down a mere 1%, constituting the bourse’s second best annual results.
Ags and softs
Chinese dominance also extended into the agricultural derivatives market. Investor anxiety over price fluctuations amid poor harvests in India and Brazil meant the Zhengzhou Commodities Exchange’s White Sugar Future suffered a 12% hit in volumes, though it remains the most traded agricultural contract.
The Dalian Commodities Exchange’s Palm Oil contract meanwhile enjoyed tremendous growth of 584%. It rose from 18th in the agricultural rankings to fifth, leaving the DCE with three of the five top spots in ags and softs.
Overall, the sector witnessed a mild decline of a little over 1% for the year, trade falling from 827m contracts to 816m.
Energy
A volatile year in the energy markets, with manifold supply side issues vying against a global slump in demand, resulted in volumes in Nymex’s Henry Hub Natural Gas contracts growing by 24%.
The energy sector as a whole enjoyed 7% growth, with 603m contracts traded.
While the world’s benchmark crude contracts were relatively static or moderately down on 2008’s volumes, the SHFE’s Fuel Oil Futures jumped by nearly half to finish in fifth place in the energy markets. What effect (if any) the CFTC’s proposed ruling on position limits will have on the swift return of price speculators to the US energy markets, should it come to pass, remains to be seen.