Your SlideShare is downloading. ×
Q4 2013 Liquidity Monitor
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Q4 2013 Liquidity Monitor

93
views

Published on

Each quarter CME Group Research looks at the liquidity of its flagship futures and options products. The Liquidity Monitor focuses on the same products each time: two key interest rate contracts, two …

Each quarter CME Group Research looks at the liquidity of its flagship futures and options products. The Liquidity Monitor focuses on the same products each time: two key interest rate contracts, two FX contracts, a benchmark equity index and benchmark energy contract.

Published in: Economy & Finance, Business

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
93
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Liquidity Monitor 4th Quarter2013 JANUARY 6, 2014 John W. Labuszewski Lori Aldinger Managing Director Manager Research & Product Development Research & Product Development 312-466-7469 312-930-2337 jlab@cmegroup.com Lori.aldinger@cmegroup.com
  • 2. CME Group exchanges offer a wide diversity of products covering the gamut of asset classes including equities, fixed income, FX and physical commodities. But perhaps our most important asset may be described simply as “liquidity.” contracts, etc.). Market depth may be measured in contracts at different “levels” in the limit order book (i.e., top-of-book or best bid-ask spread; 2nd level or next best bid-ask spread, etc.). Eurodollar Liquidity This represents an update regarding liquidity in “flagship” CME Group exchange products, specifically CME Eurodollar, CBOT 10-Year T-note, CME E-mini S&P 500, CME EUR/USD, CME JPY/USD, NYMEX WTI crude oil, CBOT corn, CBOT soybeans, CBOT wheat and COMEX gold futures through the most recently completed calendar quarter. Liquidity in CME Group flagship markets declined marginally but on generally increased volatility during the past calendar quarter. Note that there is a reasonably consistent inverse relationship between liquidity and marketplace volatility. This is intuitive to the extent that increased volatility increases the risk exposure of a market maker and liquidity tends to follow suit. Measuring Liquidity Conceptually, liquidity may be assessed in four different ways as follows. • Width – How tight or wide is the bid-ask spread? • Depth – How deep is the market in terms of the quantity of orders resting on the bid or offer, or beyond the best bid and best offer? • Immediacy – Can one execute a large size market order immediately? Does it require some time to be filled? • Resiliency – Even in the most liquid markets, a large market order will impact prevailing bid-ask spreads. But how long does it require for the market to bounce back to previous levels after a large order is filled? From a practical standpoint, liquidity measures tend to be limited to the first two of these considerations - market width and depth. We may readily observe these factors on the CME Globex electronic trading platform. Market width may be quoted in ticks or in dollars for orders of a given quantity (i.e., 25 contracts, 50 1 | Liquidity Monitor 4th Quarter 2013 | January 6, 2014 The width of the bid-ask spread for CME Eurodollar futures for a 500-lot order was recorded at $12.61 in December 2013 and slightly improved from $12.63 in September 2013. Noting that the tick size equals $12.50, this width cannot substantially be improved upon. Depth at the top-of-the-book fell from 17,166 in September to 10,409 in June. This may be attributed to enhanced speculation of rising interest rates given the Fed’s December 18th announcement that they will taper their quantitative easing (QE) program marginally beginning in January 2014. 1 10-Year Treasury Liquidity The width of the bid-ask spread on a 500-lot order in CBOT 10-year Treasury futures rose to $16.33 in December 2013 from September’s figure of $15.63. Still, this is only marginally above the minimum tick value of 1/64th ($15.625) and, as such, market width cannot really improve by any wide margin. Depth at the top-of-the-book was seen at 845 contracts, virtually unchanged from the 849 contracts seen in September. This liquidity is rather remarkable given the Fed’s changing stance on rates and the prospect of growing volatility. Stock Index Liquidity The width of the bid-ask spread for CME E-mini S&P 500 futures for a 500-lot order advanced to $15.37 in December from $13.13 in September. The minimum tick increment equals 0.25 index points or $12.50. Depth at the top-of-the-book fell from 529 1 Note that while we had been following liquidity in the fifth quarterly month in the past, we have adopted a new policy for these purposes of following whichever quarterly contract month is most actively traded. This policy accounts for some of the apparently enhanced liquidity. However, we should attribute some of this to the fact that the short-end of the yield curve has been very stable per the Fed’s static monetary policy. This fosters low volatility and that reduced risk is generally attributed with more aggressive market making activities and enhanced liquidity. | © CME GROUP
  • 3. contracts in December. September to 439 contracts in There is a reliable negative relationship between equity market volatility and price direction. I.e., stocks tend to fall quickly on rising volatility; and, rise slowly on declining volatility. Domestic equity markets rose to new all-time highs by the conclusion of 2013 Volatility, as measured by the S&P 500 Volatility Index (VIX) declined to 13.72% by year’s end from 16.60% at the conclusion of the 3rd quarter. To the extent that volatility and liquidity tend to be inversely related, we would normally expect to see enhanced liquidity, measured by market depth and width, as a result. But while equity values have risen, growing anticipation of rising rates caused some equity analysts to anticipate an eventual correction. Currency Market Liquidity The width of the bid-ask spread for a 25-lot lot entered in CME EUR/USD or JPY/USD futures was observed at $13.20 and $13.45 in December and mixed from September’s figures of $12.95 and $14.43 respectively. The minimum tick increment in both of these markets is $12.50. Liquidity at the top-of-the-book was at 41.2 and 35.4 contracts in December and likewise mixed from September’s 48.7 and 34.9 contracts, respectively. Crude Oil Liquidity The width of the bid-ask spread for a 25-lot entered in NYMEX crude oil futures was observed at $23.49 in December and improved from $26.44 in September. The tick size equals $10.00. Liquidity at the top-of-the-book was down to 10.2 contracts in December and up from 8.4 contracts in the previous quarter. Grain Liquidity The width of the bid-ask spread for a 25-lot entered in corn, soybean and wheat futures checked in at $19.62, $59.11 and $40.47 in December and generally improved over the figures of $20.40, $67.15 and $53.20 seen in September, respectively. The tick size for grain futures is 1/4th of one cent for a 5,000 bushel contract or $12.50. Depth at the top-of-the-book for corn, soybean and wheat futures was at 128.0, 14.6 and 26.8 contracts in December 2 | Liquidity Monitor 4th Quarter 2013 | January 6, 2014 and generally improved over the figures of 88.6, 13.3 and 22.8 contracts, respectively, seen in September. Price and trading activity in grains tends to be extraordinarily seasonal in nature. Mid-summer is, of course, the height of the so-called “weather months” while the magnitude of the anticipated harvest is becoming more firmly established by September. Now that we are past harvest, volatilities tend to subside and liquidity tends to become enhanced. Gold Liquidity The width of the bid-ask spread for a 25-lot entered in COMEX gold futures was observed at $33.62 in December and improved from the $36.93 in September. The tick size equals $10.00. Liquidity at the top-of-the-book was improved to 6.8 contracts from September’s 5.7 contracts. Caveat The measures of market liquidity referenced here may be considered conservative. Thus, we describe these measures as “displayed” rather than “true” liquidity. I.e., we are only observing orders that are visibly displayed in the CME Globex® limit order books. But some types of orders, such as so-called “iceberg” orders where the customer chooses to display only a portion of the total order quantity, are not included in these measures. Hence, we believe that true liquidity in CME Group markets is generally superior to displayed liquidity. Website Tool Liquidity is central to a successful futures market. Because liquidity and the quality of order execution are of such paramount significance, CME Group offers “Order Execution Tools” on its website and found at the following addresses. For stock index futures http://www.cmegroup.com/trading/equity-index/orderexecution/main.html For currency futures http://www.cmegroup.com/trading/fx/orderexecution/main.html | © CME GROUP
  • 4. currently offer tools that address order execution quality in the context of stock index, currency and interest rate futures. For interest rate futures http://www.cmegroup.com/trading/interest-rates/orderexecution/main.html These tools provide up to date readings on width and depth of markets as well as other statistics. We Eurodollar Market Width Eurodollar Market Depth Most Active Month on CME Globex RTH 180,000 3,500,000 $15.0 Depth in Contracts $14.0 120,000 $13.0 80,000 2,000,000 60,000 40,000 $12.5 1,500,000 20,000 50 Cnt Width 500 Cnt Width Top-of-Book Qty 3rd Level Qty 5th Level Qty 100 Cnt Width Apr-13 Sep-13 Nov-12 Jan-12 Jun-12 Mar-11 Aug-11 May10 Oct-10 Jul-09 1,000,000 Dec09 Jul-13 Nov-13 Mar-13 Jul-12 Nov-12 Mar-12 Jul-11 Nov-11 Mar-11 Jul-10 Nov-10 Mar-10 Jul-09 Nov-09 0 25 Cnt Width 200 Cnt Width 2nd Level Qty 4th Level Qty Avg Daily Volume 10-Year Treasury Market Depth 10-Year Treasury Market Width Lead Month on CME Globex RTH Lead Month on CME Globex RTH 18,000 $30 2,500,000 $28 $26 $24 $22 $20 $18 2,000,000 14,000 12,000 1,500,000 10,000 8,000 1,000,000 6,000 4,000 500,000 Avg Daily Volume 16,000 Depth in Contracts 2,000 $16 50 Cnt Width 500 Cnt Width 100 Cnt Width | Liquidity Monitor 4th Quarter 2013 | January 6, 2014 Sep-13 Apr-13 Nov-12 Jan-12 Jun-12 Mar-11 Aug-11 Oct-10 Nov-13 Jul-13 Mar-13 Nov-12 Jul-12 Mar-12 Nov-11 Jul-11 Mar-11 Nov-10 Jul-10 Mar-10 Nov-09 Jul-09 25 Cnt Width 200 Cnt Width 0 May-10 0 $14 Jul-09 Bid-Ask in $s per Contract 2,500,000 100,000 $13.5 $12.0 3 3,000,000 140,000 Avg Daily Volume 160,000 $14.5 Dec-09 Bid/Ask in $'s per Contract Most Active Month on CME Globex RTH Top-of-Book Qty 2nd Level Qty 3rd Level Qty 4th Level Qty 5th Level Qty Avg Daily Volume | © CME GROUP
  • 5. E-Mini S&P 500 Market Depth Lead Month on CME Globex RTH 50% $35 40% $30 $25 30% $20 20% 12,000 Depth in Contracts $40 3,000,000 8,000 2,000,000 1,500,000 4,000 1,000,000 2,000 0 500,000 50 Cnt Width 200 Cnt Width 1,000 Cnt Width Apr-13 Sep-13 Nov-12 Jan-12 Jun-12 Mar-11 Aug-11 Oct-10 May-10 Jul-09 0 Dec-09 Sep-13 Apr-13 Top-of-Book Qty 2nd Level Qty 3rd Level Qty 4th Level Qty 5th Level Qty Avg Daily Volume EUR/USD FX Market Depth EUR/USD FX Market Width Lead Month on CME Globex RTH Depth in Contracts $40 $35 $30 $25 $20 600,000 700 500,000 600 400,000 500 300,000 400 300 200,000 200 100,000 100 $15 10 Cnt Width 100 Cnt Width Nov-13 Jul-13 Mar-13 Nov-12 Jul-12 Mar-12 Nov-11 Jul-11 Mar-11 Jul-10 Nov-10 Mar-10 Nov-09 Jul-09 $10 5 Cnt Width 50 Cnt Width Top-of-Book Qty 3rd Level Qty 5th Level Qty 25 Cnt Width 2nd Level Qty 4th Level Qty Avg Daily Volume JPY/USD FX Market Depth JPY/USD FX Market Width Lead Month on CME Globex RTH Lead Month on CME Globex RTH 700 Depth in Contracts $70 0 Jul-09 Nov09 Mar10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 0 $60 $50 $40 $30 300,000 600 250,000 500 200,000 400 150,000 300 100,000 200 50,000 100 $20 0 Nov-13 Jul-13 Mar-13 Nov-12 Jul-12 Mar-12 Nov-11 Jul-11 Nov-10 Jul-10 Mar-10 Nov-09 Jul-09 Mar-11 10 Cnt Width 100 Cnt Width 25 Cnt Width | Liquidity Monitor 4th Quarter 2013 | January 6, 2014 Jul-09 Nov09 Mar10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 0 $10 5 Cnt Width 50 Cnt Width Avg Daily Volume 800 $45 Top-of-Book Qty 3rd Level Qty 5th Level Qty | © CME GROUP 2nd Level Qty 4th Level Qty Avg Daily Volume Avg Daily Volume Nov-12 Jan-12 Jun-12 Aug-11 Oct-10 Mar-11 May-10 Dec-09 Jul-09 10% Lead Month on CME Globex RTH Bid/Ask in $'s per Contract 2,500,000 6,000 $15 S&P 500 VIX Index 100 Cnt Width 500 Cnt Width Bid/Ask in $'s per Contract 3,500,000 10,000 $10 4 4,000,000 Avg Daily Volume Lead Month on CME Globex RTH CBOE VIX Index Bid-Ask in $s per Contract E-Mini S&P 500 Market Width
  • 6. Crude Oil Market Depth Lead Month on CME Globex RTH 800,000 $35 $30 600,000 $25 400,000 $20 200,000 $90 $80 50 Top-of-Book Qty 3rd Level Qty 5th Level Qty 25 Cnt Width 5 Cnt Width Corn Futures Market Depth Lead Month on CME Globex RTH $70 $60 $50 $40 $30 $20 1,000 400,000 800 300,000 600 200,000 400 100,000 200 $10 $- Jul-09 Nov09 Mar10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Jul-13 Mar-13 Nov-13 Top-of-Book Qty 3rd Level Qty 5th Level Qty 10 Cnt Width 100 Cnt Width Soybean Futures Market Width 2nd Level Qty 4th Level Qty Avg Daily Volume Soybean Futures Market Depth Lead Month on CME Globex RTH $160 0 Lead Month on CME Globex RTH 350 Depth in Contracts $140 $120 $100 $80 $60 $40 300,000 300 250,000 250 200,000 200 150,000 150 100,000 100 1 Cnt Width 25 Cnt Width 200 Cnt Width 10 Cnt Width 100 Cnt Width | Liquidity Monitor 4th Quarter 2013 | January 6, 2014 0 Jan10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Sep-13 May-13 Jan-13 Sep-12 Jan-12 5 Cnt Width 50 Cnt Width May-12 Sep-11 May-11 Jan-11 Sep-10 0 May-10 $- 50,000 50 Jan-10 $20 Top-of-Book Qty 3rd Level Qty 5th Level Qty | © CME GROUP 2nd Level Qty 4th Level Qty Avg Daily Volume Avg Daily Volume 5 Cnt Width 50 Cnt Width Nov-12 Jul-12 Mar-12 Nov-11 Jul-11 Mar-11 Nov-10 Jul-10 Mar-10 Nov-09 Jul-09 0 1 Cnt Width 25 Cnt Width 200 Cnt Width Bid/Ask in $'s per Contract 500,000 Avg Daily Volume 1,200 $80 Depth in Contracts Bid/Ask in $'s per Contract Corn Futures Market Width 5 Jul-13 2nd Level Qty 4th Level Qty Nearby Futures Price Lead Month on CME Globex RTH $90 Mar-13 Jul-12 Nov-12 Mar-12 Jul-11 Nov-11 Mar-11 Jul-10 Jul-09 $60 Nov-10 0 Sep-13 Apr-13 1 Cnt Width 10 Cnt Width Nov-12 Jan-12 Jun-12 Mar-11 Aug-11 Oct-10 May-10 Jul-09 Avg Daily Volume 100 $70 - Dec-09 $10 $100 Mar-10 $15 $110 150 Nov-09 $40 $120 Nearby Futures Price 200 1,000,000 Depth in Contracts $45 Avg Daily Volume Bid-Ask in $s per Contract Crude Oil Market Width Lead Month on CME Globex RTH
  • 7. Wheat Futures Market Depth Lead Month on CME Globex RTH $180 Lead Month on CME Globex RTH 250 $140 $120 $100 $80 $60 $40 160,000 200 120,000 150 80,000 100 60,000 40,000 50 20,000 0 Sep-13 Jan10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 0 Top-of-Book Qty 3rd Level Qty 5th Level Qty 10 Cnt Width 100 Cnt Width Gold Futures Market Width 2nd Level Qty 4th Level Qty Avg Daily Volume Gold Futures Market Depth Lead Month on CME Globex RTH Lead Month on CME Globex RTH $70 Depth in Contracts 90 $60 $50 $40 $30 300,000 80 250,000 70 60 200,000 50 150,000 40 100,000 30 20 50,000 10 $20 5 Cnt Width 10 Cnt Width Oct-13 Jun-13 Feb-13 Oct-12 Jun-12 Feb-12 Oct-11 Jun-11 Feb-11 Oct-10 Jun-10 Feb-10 Oct-09 Jun-09 $10 25 Cnt Width | Liquidity Monitor 4th Quarter 2013 | January 6, 2014 0 Jul-09 Nov09 Mar10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 0 Top-of-Book Qty 3rd Level Qty 5th Level Qty | © CME GROUP 2nd Level Qty 4th Level Qty Avg Daily Volume Avg Daily Volume 5 Cnt Width 50 Cnt Width May-13 Jan-13 Sep-12 May-12 Jan-12 Sep-11 Jan-11 May-11 Sep-10 May-10 Jan-10 1 Cnt Width 25 Cnt Width 200 Cnt Width Bid/Ask in $ per Contract 100,000 $20 $- 6 140,000 Avg Daily Volume $160 Depth in Contracts Bid/Ask in $'s per Contract Wheat Futures Market Width
  • 8. Market Width in USD (For Quantity as Indicated) Min Tick Eurodollars (500-lot) 10-Year T-Notes (500-lot) E-mini S&P 500 (500-lot) EuroFX (25-lot) Japanese yen (25-lot) $12.50 $15.625 $12.50 $12.50 $12.50 Dec10 $13.02 $25.32 $13.16 $14.82 $28.40 Mar11 $12.63 $15.64 $14.48 $13.53 $19.84 Jun11 $12.59 $15.64 $13.07 $15.96 $20.13 Sep11 $12.62 $16.80 $25.05 $21.23 $22.70 Dec11 $12.63 $16.92 $19.05 $15.89 $20.65 Mar12 $12.54 $15.64 $12.50 $13.80 $24.27 Jun12 $12.60 $15.64 $15.66 $13.48 $20.56 Sep12 $12.51 $15.63 $12.60 $13.52 $15.42 Dec12 $12.53 $15.93 $15.85 $13.12 $15.45 Mar13 $12.56 $15.63 $12.50 $12.91 $16.62 Jun13 $12.68 $16.95 $21.52 $13.30 $23.52 Sep13 $12.63 $15.63 $13.13 $12.95 $14.43 Dec13 $12.61 $16.33 $15.37 $13.20 $13.45 Crude Oil (25-lot) $10.00 $25.15 $37.14 $33.76 $37.00 $31.88 $28.29 $26.36 $29.15 $26.07 $22.93 $24.86 $26.44 $23.49 Corn Soybeans Wheat Gold $12.50 $12.50 $12.50 $10.00 $29.59 $62.48 $69.31 $42.60 $31.56 $78.70 $88.07 $40.24 $36.77 $72.68 $103.1 $36.84 $31.22 $56.66 $79.05 $65.19 $27.79 $49.58 $54.51 $59.39 $25.88 $38.90 $42.05 $48.82 $14.71 $31.47 $35.23 $52.07 $12.89 $28.06 $29.90 $35.46 $12.76 $38.82 $32.31 $32.41 $12.62 $35.28 $34.42 $31.12 $39.05 $96.79 $62.73 $43.41 $20.40 $67.15 $53.20 $36.93 $19.62 $59.11 $40.47 $33.62 (25-lot) (25-lot) (25-lot) (25-lot) Market Depth in Contracts (Top-of-the Book) Eurodollars 10-Year T-Notes E-mini S&P 500 EuroFX Japanese yen Crude Oil Corn Soybeans Wheat Gold Dec-10 1,295 360 896 25.2 16.5 11.3 78 28 28 5.4 Mar-11 2,635 790 566 35.4 23.1 7.0 4,872 35 21 5.7 Jun-11 2,900 965 614 23.9 20.7 6.9 4,836 37 16 5.8 Sep-11 2,100 531 262 18.2 18.2 5.7 323 44 21 3.3 Dec-11 1,425 508 369 26.2 18.9 7.1 82 46 26 3.8 Mar-12 14,362 962 712 36.8 16.3 7.8 386 52 28 4.5 Jun-12 14,629 789 456 33.0 19.2 9.2 1,556 11.1 9.4 4.6 Sep-12 48,510 1,052 607 40.4 25.8 7.2 1,733 11.8 10.6 6.5 Dec-12 24,005 1,637 460 55.6 25.6 8.9 45.5 13.5 16.8 6.3 Mar-13 39,959 1,700 623 40.2 22.9 10.8 54.7 13.9 14.4 7.0 Jun-13 15,703 613 313 35.4 16.8 9.1 27.0 10.5 18.0 4.5 Sep-13 17,166 849 529 48.7 34.9 8.4 88.6 13.3 22.8 5.7 Dec-13 10,409 845 439 41.2 35.4 10.2 128.0 14.6 26.8 6.8 Copyright 2014 CME Group All Rights Reserved. Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. All examples in this brochure are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience.” Swaps trading is not suitable for all investors, involves the risk of loss and should only be undertaken by investors who are ECPs within the meaning of section 1(a)18 of the Commodity Exchange Act. Swaps are a leveraged investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. CME Group is a trademark of CME Group Inc. The Globe logo, E-mini, Globex, CME and Chicago Mercantile Exchange are trademarks of Chicago Mercantile Exchange Inc. Chicago Board of Trade is a trademark of the Board of Trade of the City of Chicago, Inc. NYMEX is a trademark of the New York Mercantile Exchange, Inc. The information within this document has been compiled by CME Group for general purposes only and has not taken into account the specific situations of any recipients of the information. CME Group assumes no responsibility for any errors or omissions. All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME, NYMEX and CBOT rules. Current CME/CBOT/NYMEX rules should be consulted in all cases before taking any action. 7 | Liquidity Monitor 4th Quarter 2013 | January 6, 2014 | © CME GROUP

×