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Splitting the S&P 500 futures
Author(s) -
Chen Jianli,
Locke Peter R.
Publication year - 2004
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.20133
Subject(s) - futures contract , tick size , revenue , economics , forward market , financial economics , business , microeconomics , finance , order (exchange)
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 redesign—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. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:1147–1163, 2004