HEDGEYE Exchange Tracker | Same Old Playbook for London

Takeaway: ICE seems to be gearing up for an '07 style bidding war for the LSE akin to the playbook executed for CBOT.

The forming competitive bidding process for the London Stock Exchange Group (LSE LN) looks a lot like the 2007 bidding war for the Chicago Board of Trade (CBOT) by CME and ICE. In our view, ICE never presented the best industrial logic as the CBOT acquirer however with its competing bid for the Chicago Board, ICE ensured that CME paid top dollar for its across town rival. In the end the original bid of $7.9 billion by CME, ended up on sweetened terms at $9.2 billion in '07, as ICE made a case of an anti-competitive conglomerate and a lack of competition in U.S. rates (which none-the-less resulted in the creation of the CME Group). Regardless of how the LSE saga unfolds, out-of-the-money call options on the target have always been a decent way to express a view on what can be a lengthy exchange takeout battle. ICE stockholders seem to be looking for a break from its deal flow with the recent stock decline and also the fear of the acquisition of another hyper-competitive cash equity business.

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - LSE ICE 

 

Weekly Activity Wrap Up

Volume expanded week-over-week in all three U.S. exchange traded categories pushing 1Q16TD average daily volumes (ADVs) well above their year-ago levels. Cash equity volume for the week came in at 8.8 billion shares traded per day, bringing the 1Q16TD ADV to 9.0 billion, up +30% Y/Y. Futures activity at CME and ICE came in at 22.5 million contracts traded per day this week, bringing the 1Q16TD ADV to 23.8 million, up +19% Y/Y. Additionally, CME's open interest currently tallies 115.8 million contracts, +27% higher than the 91.3 million pending at the end of 2015, which ensures robust trends for the foreseeable future. Options came in at 16.8 million contracts traded per day this week, bringing the 1Q16TD ADV to 17.7 million, up +14% Y/Y. 

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon1

  

U.S. Cash Equity Detail

U.S. cash equities trading came in at 8.8 billion shares per day this week, bringing the 1Q16TD average to 9.0 billion shares per day. That marks +30% Y/Y and +28% 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 an 18% share, -157 bps lower than one year ago.

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon2

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon3

 

U.S. Options Detail

U.S. options activity came in at a 16.8 million ADV this week, bringing the 1Q16TD average to 17.7 million, a +14% Y/Y and +11% Q/Q expansion. In the market share battle amongst venues, NYSE/ICE has been trending downward at a moderate pace, but at an 18% share it is +72 bps higher than the year-ago quarter. Meanwhile, NASDAQ's recent declines bring it -396 bps lower than 1Q15. CBOE's market share is down -144 bps Y/Y but has improved recently; its 27% share of 1Q16TD volume is up +135 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 15%, up from 13% a year ago.

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon4

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon5

 

U.S. Futures Detail

17.0 million futures contracts traded through CME Group this week, bringing the 1Q16TD average to 18.1 million, a +20% Y/Y and +37% Q/Q expansion. Additionally, CME open interest, the most important beacon of forward activity, currently sits at 115.8 million CME contracts pending, good for +27% growth over the 91.3 million pending at the end of 4Q15, an improvement from last week's +24%.

 

Contracts traded through ICE came in at 5.5 million per day this week, bringing the 1Q16TD ADV to 5.8 million, +15% Y/Y and +21% Q/Q growth. ICE open interest this week tallied 69.8 million contracts, a +10% expansion versus the 63.7 million contracts open at the end of 4Q15, an improvement from last week's +8%.

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon6

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon8

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon7

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon9 

 

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.

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon10

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon11

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon12

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon13

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon14

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon15

 

 

Please let us know of any questions,

 

Jonathan Casteleyn, CFA, CMT 

  

  

 

 Joshua Steiner, CFA

 

 

 

 


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