New NYSE Euronext repo futures can’t match CME Group’s depth, liquidity

Futures contracts based on benchmark repurchase agreement indexes, launched last month by NYSE Euronext, fail to match the liquidity and range of participants in CME Group’s long-established short-term interest rate standard, Fed Funds products.

While NYSE Euronext’s repo contracts mimic Fed Funds futures in many key aspects, the “major distinguishing characteristic” is liquidity, both in the respective contracts and in the underlying markets, CME Group analysts Fred Sturm and John Labuszewski said in a report.

Linked to indexes based on U.S. Treasuries, mortgage-backed securities and collateralized debt, the NYSE Euronext contracts are tailored to a “narrow, homogeneous, and highly commercial user base,” which could make the market prone to “episodes of lopsided trading,” the analysts wrote.

By comparison, Fed Funds futures, launched 1988, are traded by a broad mix of banks and securities dealers and a “large cadre” of speculators, who use the contract to take views on Federal Reserve policy. During the first half of 2012, an average of 28,924 Fed Funds futures contracts, reflecting an average value of $14.5 billion, traded each day on CME Group.

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