Intercontinental Exchange wins trading rights for Russell equity indexes

[brownsfan019 17]

http://www.chicagotribune.com/business/chi-tue_ice0619jun19,1,5526876.story?ctrack=1&cset=true

 

Merc loses futures to ICE

Russell move may affect CBOT battle

 

By Robert Manor

Tribune staff reporter

Published June 19, 2007

 

The IntercontinentalExchange Inc., which is attempting a merger with the Chicago Board of Trade, said Monday it had won the exclusive right to trade a well-known group of equity index futures previously traded mainly on the Chicago Mercantile Exchange, a move that could weaken the Merc's competing merger bid for CBOT.

 

The ICE announcement involves the Russell Investment Group's two popular stock indexes of large and smaller capitalization stocks. Such index futures products have grown increasingly popular in recent years.

 

Patrick O'Shaughnessy, an equity analyst with Morningstar, said ICE's win of the contracts will serve two purposes. One is to diversify its offerings, which now are mainly energy and commodities such as sugar and cocoa, to include the increasingly fast-growing universe of financial futures.

 

It is also to strengthen ICE's bid to merge with the CBOT, a merger also sought by the Merc. "The ICE platform will offer investors worldwide exclusive access to Russell's unparalleled group of equity indexes," said Jeffrey Sprecher, the chief executive of ICE.

 

"They want people to see that they are here to stay and that they are a big player," O'Shaughnessy said. "It certainly brings ICE some credibility."

 

Russell equity indexes have been trading with the Merc since 1992, the company said, although some Russell products trade on the New York Board of Trade, which was recently acquired by ICE.

 

A spokesman for the Merc played down the loss of the Russell indexes. "Russell products make up only 1.5 percent of the total CME equity standard products, which means out of the 6 million contracts we do each day it's below half a percent of total volume," said Allan Schoenberg, director of corporate communications for the Merc.

 

Even backers of the Merc's bid for CBOT said the loss of the Russell indexes will have some impact on CBOT shareholders, who are to vote on the merger issue July 9.

 

"It will have a lot of shock value," to the Merc, said Alan Palmer, an independent trader at the CBOT. But he said that, in the long run, Merc's offer for CBOT is still more attractive than that of ICE.

 

The Russell Investment Group has developed a number of stock indexes intended to measure how different types of stocks are performing.

 

Russell licenses the use of the name for the indexes.

 

Kelly Haughton, strategic director for Tacoma, Wash.-based-Russell, could not give an exact timetable for when trading in the index futures would migrate from the Merc to ICE.But Haughton said ICE could win the right to trade other Russell equity indexes.

[brownsfan019 17]

I know there are some ER2 traders here, so make sure you follow how this progresses and what changes you need to make in order to keep trading the ER2 when it's at the ICE.

 

Coincidentally, the CME had an announcement as well:

 

CME and S&P Announce New E-mini Small Cap Stock Index Futures Contracts

Chicago Mercantile Exchange MediaRoom - News Releases

 

 

Hmmmm.... A small cap E-mini... why would they do that?

 

My guess is that this new E-mini coupled with a S&P 400 E-mini push, the CME is hoping to keep ER2 traders there. Problem is that the new e-mini is just that, new, and the S&P 400 has yet to get some good volume. Time will tell.

[bh_trade 10]

I trade the ER2 almost exclusively. Thanks for posting this info Brownsfan. Now I'm thinking additional real time feed and possible liquidity issues initially. Why can't they just leave well enough alone . . .

[walterw 10]

Thats one of the reasons I switched at this time to Ym...

[brownsfan019 17]

I trade the ER2 almost exclusively. Thanks for posting this info Brownsfan. Now I'm thinking additional real time feed and possible liquidity issues initially. Why can't they just leave well enough alone . . .

 

It's all about the benjamins baby.

 

I wonder what the Russell 'company' gets from this kind of stuff. The exchange is buying a license basically and you know the CME probably fought hard to keep it there.

[Dogpile 10]

Sandler O'Neill research report on the news:

 

 

04:09pm EDT 19-Jun-07 Sandler O'Neill & Partners LP (Richard Repetto, CFA) CME

Sandler: CME: The Response to the Russell Movement

 

 

Sandler O'Neill + Partners, L.P. EQUITY RESEARCH

Company Note

------------------------------------------------------------------------------

 

Chicago Mercantile Exchange NYSE: CME - $545.99

eFinance RATING: BUY

12-Month Price Target: $630.00

-------------------------------------- ---------------------------------------

 

June 19, 2007

 

Richard Repetto, CFA, Principal

212-466-7906

rrepetto@sandleroneill.com

 

Betsy Miller, Vice President

212-466-7962

bmiller@sandleroneill.com

 

Christopher R. Donat, Associate Director

212-466-8068

cdonat@sandleroneill.com

The Response to the Russell Movement

----------------------------------------------------------------------------

 

EPS

Estimate

Mar Jun Sep Dec Year Growth Change P/E

------- ------- ------- ------- -------- -------- -------- -------- --------

2006A $2.61 $3.12 $2.95 $2.91 $11.60 31.7% -- 47.1x

2007E $3.69A $3.53 $3.68 $3.86 $14.76 27.2% -- 37.0x

2008E $4.26 $4.71 $4.50 $4.63 $18.10 22.6% -- 30.2x

 

* CME announces its competitive response to ICE's acquisition of Russell

Index rights. This morning, CME announced an expansion of its agreement

with Standard & Poors to include E-mini futures on the Small Cap S&P

Indexes. After CME's license to trade the Russell indices expires in

September 2008, CME stated that it would incent traders to transfer their

open interest from CME Russell 2000 futures to the new CME/S&P E-mini Small

Cap contracts.

* CME can trade Russell index futures until September 2008. We learned from

CME management today that the company has a license to trade Russell index

futures until September 2008, although ICE can trade it concurrently for

just over a year. Once ICE obtains Hart-Scott-Rodino approval, which should

be in roughly 30 days, it can begin trading the Russell.

* The product versus the platform. We will have to take a "wait and see"

approach as to where liquidity shifts for small cap E-mini indexes. The

pros for ICE (the product) include large funds that are specifically

indexed to the Russell. The pros for CME (the platform) include its

technology, clearinghouse and cross-margining benefits with CBOT contracts.

* Exclusive rights have not driven market for CME's main contracts. YTD in

2007, Eurodollar futures have accounted for 56% of CME's daily volume, and

CME has no exclusive trading agreement for those. FX products have

accounted for another 9% of CME's volume, and it has no exclusive licenses

for those contracts either. The takeaway here is that there is more to

driving volume than the exclusive right to trade a contract.

* June-to-date volumes are tracking above expectations. In June-to-date, CME

has traded an average of 8.73 million contracts per day, up 43.8%

sequentially. We note the early part of the month included the roll, and we

believe volume will drop off somewhat in the second half of June. Still,

over the last two years, the second part of June has been down 25.0% and

26.2% from the first part. Our 2Q07 estimate of 6.07 million contracts per

day implies the second part is down 41.9% from the first part. With open

intererst also at record levels in the roll cycle, we believe there is

upside potential to our 2Q07 EPS estimate of $3.53. The consensus is at

$3.56.

* Maintaining BUY rating. We are maintaining our BUY rating and our price

target of $630, which is based on a 30x multiple of our 2008 pro forma

earnings power EPS estimate of $19.87. We also add $30 for the discounted

value of the $0.88 we estimate that CME Reuters FXMarketSpace initiative

will earn in 2009.

[notouch 10]

With Interactive Brokers you can subscribe to ICE data for just £1.

[JustMega 10]

With Interactive Brokers you can subscribe to ICE data for just £1.

 

Enjoy it while it lasts.

[brownsfan019 17]

You can get data from ICE (and many, many other exchanges) for FREE with Open ECry. I mean, serious amount of data sources available to customers. Worth a look in my opinion.

[Guest cooter]

How far back?

[brownsfan019 17]

How far back?

 

Depends on what format you want (minute, tick, etc.) and if you are plugging that data into the OEC trader or another platform like MC. The minute data appears to go back pretty far on it's own w/o requesting more data.

 

The guys at OEC are good guys and if you ask nicely, you just might be able to get even more data.