New contracts typically struggle to succeed. And they struggle all the more when times are tough. But, as Colin Packham discovers, while the majority of most new contracts in 2009 failed to attract interest, there were some notable winners, particularly in China.
2009 marked the year that China arrived at the top table of global derivatives trading. Despite severe restrictions on trading by international market participants, the country was still home to the top two contracts introduced last year, and four of the top 20 exchange products listed in 2009.
Top of the pile was Shanghai Futures Exchange’s steel rebar contract, with annual trading totalling 161.57m contracts — in just eight months — following its introduction on March 27.
The success of SHFE coincided with China’s continued thirst for expansion.
The contract was so successful that it attracted more than 10 times the trading volume of its nearest competitor, the Dalian Commodity Exchange’s polyvinyl chloride future. And that was no stripling. The PVC future was only launched at the end of May but trading totalled 16.82m contracts.
The success of emerging market economies continued with Russian Trading System’s Euro-US dollar currency future proving a useful addition to dealers’ hedging armoury. Currency derivatives, like many historically traded OTC instruments, were highly sought after in 2009, as means to hedge securities or benefit from the volatile currency market. Hedge funds and private speculators have found currency futures an attractive product in times of financial hardship.
The most successful option was Taiwan Futures Exchange’s gold contract. The exchange benefited from a full year of trading, having rolled out the product in January.
The top 20 list has also been influenced by the entry of the new US exchange, ELX Futures. Despite going live in July, the bourse can boast of having introduced four of the top 20 new contracts in 2009, as the exchange sought to challenge the interest rate derivatives dominance of the CME Group. ELX’s best performing contract was the five-year US Treasury future, which attracted 2.01m trades.
Ag derivatives: China on top
The success of the Chinese exchanges was again seen with the introduction of agriculture derivatives last year. Here the Zhengzhou Commodity Exchange with its rice futures dominated the results. Its trading volume of 1.95m contracts far exceeded its closest rival, potato futures offered by Eurex.
Eurex’s success follows its expansion into commodities, with potato futures, joining hogs and piglets in the top 15 best performing new agriculture contracts launched last year.
SAFEX, the South African exchange, also enjoyed some success in the contract, following its deal with the CME Group to license the pricing of the legacy Chicago Board of Trade commodity contract, on which the new contract is settled.
CME Group, however, also enjoyed its own success with new contracts inside the top 15 new products, particularly soybean linked products.
The success of the US exchange in this area lies in part to a more general reaction to the global financial crisis. Market participants are voting with their feet away from over-the-counter instruments, instead preferring the more transparent exchange-listed environment.
Russian one-two in currencies
While the RTS’ Euro-US dollar product was the clear winner in 2009’s list of new currency contracts, earning it third place in the overall most successful new products of last year, the Russian exchange’s Euro-Rouble contract had a strong start to its life. The contract was the subject of 479,084 trades last year.
CME Group also enjoyed a number of successful new product launches in this asset class. The Chicago-based bourse was home to no less than eight of the top 15 new products, with its strongest performing contract its micro Euro-US dollar contract.
The success of the US exchange in this space compensates for its failure with its FX Marketspace product.
Clean sweep for Nymex
2008 is remembered for record highs in the oil markets. The record price of $147 a barrel could never be sustained and when counterparty credit concerns were thrown into the mix, exchanges recognised the potential for new products.
The New York Mercantile Exchange, now part of the CME Group, was quick to recognise the demand for lookalike OTC contracts and introduced a huge number of contracts, particularly in the energy markets.
The US exchange most definitely profited from that, with the exchange home to all of the top 15 energy products introduced last year. Top of the ladder was the ISO New England Internal Hub 5 MW Off-Peak Calendar-Month Day-Ahead LMP Swap contract, with trading totalling over 2.4m contracts – nearly double that of the ISO New England Connecticut Zone 5 MW Off-Peak Calendar-Month Day-Ahead LMP Swap future.
Index derivatives
The financial crisis was felt by all asset classes but derivatives linked to indices managed to shrug off some of the worst of the downturn. Many exchanges recorded strong growth in index-related products, as traders sought liquidity in the index business as against the specific individual stock contract.
As a result, several exchanges introduced new index-linked contracts. Liffe launched the strongest performing contract last year, which was its FTSE 100 Dividend Index future. Trading totalled 6.67m contracts, more than four times its nearest competitor, the CME Group’s S&P 500 Week 1 Option, which was the subject of 1.5m trades in 2009.
Phoenix from the ashes
Interest rate derivatives were the hardest hit asset class from the global financial crisis. However, some products managed to find demand.
ELX Future’s suite of interest rate derivatives made a strong impact in the market, with the exchange responsible for the top four new products in the asset class. Leading the way were the Five Year Treasury futures, with over 2m trades, followed by the 10 year contract.
New exchanges aside, Eurex was the most successful established exchange in interest rate derivatives. Its BTP Future — which the bourse launched in request for an additional trading tool following the divergence in spread of European government bond yields — attracted 327,914 trades in just four months of trading.
NYSE Liffe also introduced a successful new interest rate derivative with its short Gilt futures. Despite only being traded for the closing months of the year, the two year contract — which the exchange launched in request for shorter dated hedging tools — achieved some 30,680 trades.
Tiger economies hungry for commodities
Metals trading was dominated by the Asian economies in 2009. China was home to the most successful metal contract. But the whole group was a hot one — the top three contracts in the asset class introduced in 2009 all appeared in the list of top 20 overall winners.
However, while steel led the way, the precious metal products introduced by Asian nations contributed to the majority of the most successful products.
The TFX gold option was a roaring success, as was the Central Commodity Exchange of Japan’s gold contract which was the subject of 65,393 trades in just three months of trading.
Eurex again recorded a good start to its commodity expansion with its gold and silver contracts making it into the list of the top 15, while RTS and SAFEX each recorded excellent starts to their precious metal complexes.
Nymex, which already boasts a full suite of precious metal contracts, also managed to get into the top 15 with its mini gold and silver products.
Colin Packham, Sydney cpackham@fow.com