HEDGEYE Exchange Tracker | Flat is the New Up

Takeaway: Exchange volume is outstripping exchange equity performance, so we still like the group long.

Outside of the noise of BM&F exiting its 4% position in CME Group (CME), we remind investors that year-over-year rate of change in the exchange sector volume is still solid and we are buyers of the sector on weakness. CME specifically has put up a solid 1Q16 result in our view with results to come in at $1.18, +4% above consensus driven by +13% volume growth and a +1% pricing advance. Although CME has given up its year-to-date gains on the short swing BM&F sale, investors won't get this type of earnings growth anywhere else in the Financials sector. Industry leaders BlackRock (BLK) and Goldman Sachs (GS) reflect that with GS stock down -22% over the past 12 months and even the growing passive ETF business at BLK resulting in a -10% loss. Exchange activity is again opening the new 2Q on firm footing with more important open interest tallies still expanding.

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Weekly Activity Wrap Up

Cash equity volume is starting 2Q16 strongly with 7.0 billion shares traded per day so far, +10% higher than the average daily volume (ADV) one year ago in 2Q15. Meanwhile, futures traded through CME and ICE, which are putting up a 17.6 million ADV, are flat versus the year-ago quarter. However, CME's open interest currently tallies 109.3 million contracts, +20% higher than the 91.3 million pending at the end of 2015, which ensures robust trends for the foreseeable future.  Lastly, options volume is weaker, down -9% Y/Y with a 13.9 million ADV.

HEDGEYE Exchange Tracker | Flat is the New Up - XMon16

U.S. Cash Equity Detail

U.S. cash equities trading is coming in at 7.0 billion shares per day in 2Q16TD. That marks +10% Y/Y growth. The market share battle for volume is mixed. The New York Stock Exchange/ICE is taking a 25% share of second-quarter volume, which is +71 bps higher Y/Y, while NASDAQ is taking a 17% share, -145 bps lower than one year ago.

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U.S. Options Detail

U.S. options activity is coming in at a 13.9 million ADV in 2Q16TD, a -9% Y/Y and -19% Q/Q contraction. In the market share battle amongst venues, NYSE/ICE has been trending downward and is taking a 16% share of 2Q16TD volume, -22 bps lower than the year-ago quarter. Additionally, CBOE's 24% market share of 2Q16TD is down -298 bps Y/Y. Meanwhile, NASDAQ is doing well in the first week of 2Q16, taking a 23% share, +75 bps higher than one year ago.  BATS has also been taking share from the competing exchanges, up to a 12% share from 10% a year ago. Finally, ISE/Deutsche, which experienced market share growth through 1Q16, has stagnated recently at 15%, which is -84 bps lower than 2Q15.

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U.S. Futures Detail

13.4 million futures contracts per day traded through CME Group so far in 2Q16, which is flat Y/Y. However, CME open interest, the most important beacon of forward activity, currently sits at 109.3 million CME contracts pending, good for +20% growth over the 91.3 million pending at the end of 4Q15, an expansion from last week's +16%.

Contracts traded through ICE came in at 4.2 million per day so far in 2Q16, a -1% Y/Y contraction. ICE open interest this week tallied 65.4 million contracts, a +3% expansion versus the 63.7 million contracts open at the end of 4Q15, a contraction from last week's +4%.

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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.

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Please let us know of any questions,

Jonathan Casteleyn, CFA, CMT 

  

  

 Joshua Steiner, CFA