Another -2% drawdown in the S&P 500 during the week was enough to explode exchange traded volume exponentially higher as investors quickly attempt to reallocate capital in light of weakening economic data. Cash equity volume in the young 1Q16TD is already up +30% Y/Y, with options activity up +26% from 1Q15, and futures higher by +17% from last year. The exchanges are late cycle defensive stocks. Looking at 2007 as a test case, both CME Group (CME) and the Intercontential Exchange (ICE) continued to rise by +34% and +79% respectively in '07 after the Financials sector SPDR, the XLF, rolled over after highs in June to finish the year down -22%. As years of a low VIX and bull market complacency line up to sell equity, fixed income, and anything in between, exchange volume benefits greatly at the end of expansions. Our analysis of the few Financial sectors that work late cycle include Fin Tech, the E-Brokers, and the Exchanges.
Enjoy the best weekend in Pro Football. We like the Panthers to continue the best winning streak in the league (they have won 20 of their past 22) and look for Big Red to upset those Pats in Foxboro.
Weekly Activity Wrap Up
This week, cash equity trading volume came in at 9.4 billion trades per day, bringing the quarter's ADV to 8.7 billion. Options traders exchanged 20.5 million contracts per day, bringing the 1Q16TD average to 19.6 million. Futures activity came in at 25.2 million contracts per day, bringing the 1Q16TD average to 23.3 million.
U.S. Cash Equity Detail
U.S. cash equities trading came in at 9.4 billion shares per day this week, averaging with last week to bring the 1Q16 average so far to 9.0 billion shares per day. That marks +30% Y/Y and +27% Q/Q growth. The market share battle for volume is mixed. The New York Stock Exchange/ICE is taking a 24% share of first-quarter volume, which is consistent with the prior quarter and year-ago quarter, while NASDAQ is taking a 19% share, +40 bps higher Q/Q but -108 bps lower than one year ago.
U.S. Options Detail
U.S. options activity came in at a 20.5 million ADV this week, bringing the 1Q16TD average to 19.6 million, a +26% Y/Y and +22% Q/Q contraction. In the market share battle amongst venues, NYSE/ICE has been trending downward at a moderate pace, but at an 18% share it is +95 bps higher than the year-ago quarter. Meanwhile, NASDAQ's recent declines bring it -421 bps lower than 1Q15. CBOE's market share is down -106 bps Y/Y, but its decline seems to have stabilized recently; its 27% share of 1Q16TD volume is up +172 bps from 4Q15. BATS and ISE/Deutsche have been taking share from the competing exchanges, with BATS up to a 10% share from 9% a year ago and ISE/Deutsche taking 16%, up from 13% a year ago.
U.S. Futures Detail
19.5 million futures contracts traded through CME Group this week, bringing the 1Q16TD average to 17.7 million, a +18% Y/Y and +34% Q/Q expansion. CME open interest, the most important beacon of forward activity, currently tallies 102.1 million CME contracts pending, good for +9% growth over the 93.7 million pending at the end of 4Q14, an improvement from last week's +2%.
Contracts traded through ICE came in at 5.7 million per day this week, bringing the 1Q16TD ADV to 5.7 million, +13% Y/Y and +19% Q/Q growth. ICE open interest this week tallied 66.1 million contracts, a +11% expansion versus the 59.4 million contracts open at the end of 4Q14, an improvement from last week's +8%.
Monthly Historical View
Monthly activity levels give a broader perspective of exchange based trends. As volatility levels, measured by the VIX, MOVE, and FX Vol should rise to normal levels after the drastic compression this cycle, we expect all marketplaces to experience higher activity levels.
Sector Revenue Exposure
The exchange sector has broadly diversified its revenue exposure over 10 years as public entities with varying top line sensitivity to the enclosed trading volume data. The table below highlights how trading volumes will flow through the various operating models at NASDAQ, CME Group, ICE, and Virtu:
Please let us know of any questions,
Jonathan Casteleyn, CFA, CMT
Joshua Steiner, CFA