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Splitting the S&P 500 futures

✍ Scribed by Jianli Chen; Peter R. Locke

Book ID
102219499
Publisher
John Wiley and Sons
Year
2004
Tongue
English
Weight
115 KB
Volume
24
Category
Article
ISSN
0270-7314

No coin nor oath required. For personal study only.

✦ Synopsis

Abstract

In this paper we investigate the consequences of the Chicago Mercantile Exchange's 1997 redesign of the S&P 500 futures contract. The focus is on two important measures of exchange efficacy: member proprietary income and outside customer volume. Floor traders did not appear to benefit in their proprietary trading from the redesignβ€”revenue fell after the contract split and doubling of the minimum tick. On the other hand, looking at relative volumes, it appears that customer volume was relatively constant, showing little sensitivity to the increase in tick size, possibly due to an increased use of limit orders by customers, bypassing floor traders. Through this redesign the futures exchange was apparently interested in preserving customer volume in an increasingly competitive index trading environment, not enhancing member noncompetitive proprietary trading revenue. Β© 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:1147–1163, 2004

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