The slow back up in vol is the perfect mix for solid and improving exchange traded activity. All categories including cash equities, options, and futures extended year-over-year gains last week up +13%, +2%, and +5% respectively putting all the exchange stocks in positive territory for the year, rare air in the Financials sector. Futures activity on CME and ICE put in new quarterly highs last week as rates and commodities activity are discounting new Fed speak and a rebound in the oil patch. The best is yet to come for the sector as volatilty always rises into and during recessions, so earnings power will continue to improve for the group. As a result we are positive on the positioning of new issue BATS Global Markets (BATS - recent BlackBook call replay HERE), which has the ideosyncratic opportunity to capture an incremental 10% share in equity options as well as riding a wave of vol to higher earnings. Our valuation output is $34 fair value, +25% higher than current Street estimates and we think analysts will be catching up on the firm's earnings power and especially like the setup for new long positions after 2Q16 earnings.
Weekly Activity Wrap Up
Cash equity volume came in at 7.2 billion shares traded per day this week, pushing up the 2Q16TD average daily volume (ADV) to 7.2 billion, +13% higher than the year ago period in 2Q15. The volume of futures traded through CME and ICE came in at 20.2 million contracts traded per day, the highest weekly level so far this quarter, bringing the 2Q16TD ADV to 18.5 million, +5% higher year-over-year. Additionally, CME's open interest currently tallies 115.3 million contracts, +26% higher than the 91.3 million pending at the end of 2015. This compares to ICE's OI growth of just +5% YTD. Lastly, options volume also achieved its highest level of 2Q16TD, coming in at 16.9 million and bringing the quarter-to-date ADV to 15.6 million, +2% higher against 2Q15.
U.S. Cash Equity Detail
U.S. cash equities trading came in at 7.2 billion shares per day this week, bringing the 2Q16TD ADV to 7.2 billion. That marks +13% 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 +87 bps higher Y/Y, while NASDAQ is taking a 17% share, -142 bps lower than one year ago.
U.S. Options Detail
U.S. options activity came in at a 16.9 million ADV this week, bringing the 2Q16TD average to 15.6 million, a +2% Y/Y expansion. In the market share battle amongst venues, NYSE/ICE's share has been on the rise over the past few weeks and its 17% share of 2Q16TD volume is now +62 bps higher than one year ago. BATS has also been taking share from the competing exchanges, up to an 11% share from 10% a year ago. Meanwhile, NASDAQ's share has been falling recently, although at 23% it is still +33 bps higher than one year ago. Additionally, CBOE's 25% market share of 2Q16TD is down -162 bps Y/Y. Finally, although ISE/Deutsche's share expanded through 1Q16, it has been falling recently; at 14%, its share is -134 bps lower than 2Q15.
U.S. Futures Detail
16.0 million futures contracts per day traded through CME Group this week, bringing the 2Q16TD ADV to 14.0 million, +5% higher Y/Y. Additionally, CME open interest, the most important beacon of forward activity, currently sits at 115.3 million CME contracts pending, good for +26% growth over the 91.3 million pending at the end of 4Q15, consistent with the previous week.
Contracts traded through ICE came in at 4.3 million per day this week, bringing the 2Q16TD ADV to 4.5 million, a +5% Y/Y expansion. ICE open interest this week tallied 67.1 million contracts, a +5% expansion versus the 63.7 million contracts open at the end of 4Q15, consistent with the previous week.
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.
Please let us know of any questions,
Jonathan Casteleyn, CFA, CMT
Joshua Steiner, CFA
