Single Stock futures at CME Group are available on 55 individual U.S. stock names in the standard-size contract (100 share multiplier) and are also available on a subset of these (22 names) via Micro-sized contracts (10 share multiplier). This article will examine market quality observed through several specific event risks that include corporate earnings or stock specific news that drives a price reaction in the underlying stock name. These events all took place in the early stage of the product’s launch.

This announcement resulted in the share price rallying over 11% on the day with much of the initial reaction being on the cash open of the stock that day. In the charts below, this price reaction is captured through Single Stock futures.  

The Single Stock futures contract (SMETA 100x multiplier) was available for trading pre-open and had a tight bid/offer approaching the U.S. cash open (9:30 a.m. ET). The top chart shows the bid (dark blue line) and offer (light blue line) of the futures contract. The green bars represent the magnitude of the spread (the difference between the bid and offer price).

As the corporate news breaks the price of the future rallies to reflect the price of the underlying stock’s move to the positive news. The spread does widen out on the SMETAZ6 contract to reflect the uncertainty and adjust for passive liquidity provision on the order book. This is represented by the larger green bars at the time. It is worth noting that a spread at the peak of circa $6.50 is less than 1% in terms of bid-ask spread and this occurred temporarily, less than one minute of the day. For the remainder of the day the bid/ask spread was very tight and not dissimilar to the primary cash exchange.¹

The lower chart shows book depth and whilst this reduced as the news broke, the book remained populated with depth throughout, allowing trading to occur.

Despite the significant price movement of Meta on the day, SMETA provided clients with transparency and robust trading book market quality throughout the day and either side of traditional cash hours.

Nvidia earnings occurred only a month after the Single Stock futures were launched and provided a good early test case to see how the product would hold up through the earnings release of arguably the most eagerly anticipated stock on the globe.

As can be seen from Figure 2, the bid/ask spread on SNVDAU6 (the standard-size Single Stock futures on Nvidia for the Sep 26 contract) was extremely tight throughout the trading day and in the run up to earnings. Once the earnings release started to occur, the bid/ask did widen out but remained populated with liquidity throughout. Indeed, viewed through the lens of actual trading activity this was the most traded period of the day with over 50% of that day’s Single Stock futures volume occurring in the one-hour window after the U.S. cash market close.

This test case suggested that the Single Stock futures allowed price discovery over the earnings release and the liquidity was sufficiently tight for clients to trade against each other. Given this occurred in the embryonic stage of the product’s life, this bodes well going forward, as the product will undoubtedly mature and have more participants and greater volume, which will only enhance the robustness and competitiveness of the order book.

The announcement resulted in the stock gapping up on the open by over 3%. This increasing momentum was reflected in the Single Stock futures of Intel (SINTC Dec 26) rallying slightly prior to the cash open and then rallying further at 9:30 a.m. ET cash open. The spread on the futures widened out to a maximum of 45 basis points (bps) for a minute and quickly settled down for the remainder of the day to trade less than 10bps wide. The book remained populated throughout the trading day, including in non-U.S. hours with a healthy amount of depth maintained at all times as demonstrated by the lower of the two charts in Figure 3.

The three examples show that in the first two months of the U.S. Single Stock futures suite being live at CME Group, the futures are offering the marketplace tight spreads throughout the day and reacting appropriately to news events whether that be earnings or corporate news flow. They also demonstrate that price discovery is available outside traditional U.S. cash hours. For this to be observable so early into the product’s life, it bodes well for the market quality the product set will deliver as it continues to mature and be adopted by a wider pool of participants.

¹ Date source: BMLL Technologies