ICE to launch MSCI total return futures on same day as rival

Intercontinental Exchange plans to launch the US group’s first MSCI total return futures on the same day as its European rival Eurex, marking the latest example of heightened competition between the exchange giants.

ICE said on Friday it will launch four US-based MSCI total return futures (TRF) on March 11, the same day Eurex plans to launch TRFs on three of those indices in Europe.

ICE Futures US said it will make available total return futures based on the MSCI USA, MSCI Emerging Markets, MSCI EAFE (Europe, Australasia and Far East) and MSCI World indices.

The notice was published nine days after Frankfurt-based Eurex, part of Deutsche Boerse, said it will launch TRFs on the MSCI Emerging Markets, MSCI EAFE and MSCI World indices on March 11.

Caterina Caramaschi, vice president, Financial Derivatives at ICE, told FOW: “We have been looking at MSCI TRFs for a while and started talking to banks some years ago. More recently, however, the banks have seen the adoption of TRFs more generally and there is now genuine demand. With that in mind, we have been speaking to MSCI and building the product quietly for a while.”

Total return futures are an exchange-traded version of the total return swap that seek to replicate the price performance of an index, in this case some of MSCI’s.

Caramaschi, who was promoted in October 2022 to run rates and equities for ICE, said the ICE MSCI TRF has an obvious advantage because ICE Futures US is the world’s largest MSCI index derivatives market.

“The ICE MSCI TRFs can also leverage the huge liquidity we have in MSCI Emerging Markets and EAFE futures contracts on ICE Futures US. ICE markets account for over 70% of global MSCI trading by volume which gives us a huge advantage as it is logical that the index futures and the total return futures trade on the same venue.”

According to the exchange, ICE Futures US traded last year 38.4 million lots of MSCI Emerging Market index futures, down 14% on 2022, and 13 million contracts of MSCI EAFE, which was 15% lower than the previous year.

Eurex trades MSCI index futures in Europe where the German exchange’s most popular contract is the MSCI Emerging Markets Asia future which traded last year 4.5 million lots, up a tenth on 2022.

Caramaschi continued: “Our MSCI TRF will benefit from the fact it is traded on a US rather than European exchange, so our contract trades in the US timezone meaning clients can trade the TRF against the closing index level and report the trade on the same day.”

The Eurex MSCI TRFs will trade in Frankfurt and initially be made available in US trading hours with European and Asian trading sessions slated for delivery later this year, the German exchange said on February 7.

The ICE MSCI TRFs are the US group’s second total return product after London-based ICE Futures Europe launched a FTSE 100 TRF in November 2022, some 18 months after Eurex delivered its FTSE 100 and FTSE 100 total return futures in March 2021.

Last year, the Eurex FTSE 100 TRF traded 600,000 lots, an increase of 5% on 2022, while the ICE FTSE 100 TRF traded 20,000 contracts, which was up three times on the previous year, according to the exchanges.

Caramaschi said: “A key lesson we learned from the FTSE TRF is “be first to market””.

Eurex relaunched in November its Euribor contract, based on the European short-term interest rate benchmark, in a direct challenge ICE Futures Europe, which dominates Euribor trading.

Eurex, ICE and CME Group, the vast Chicago-based exchange, are also fighting for market share in the nascent ESTR futures market which tracks the European risk-free rate alternative to Libor.

Caramaschi, however, sought to play down the rivalry by saying: “Ultimately, the real competitor is the over-the-counter market. Firms are becoming increasingly keen on capital-efficient listed derivative equivalents of the products they trade in the OTC market. What we are trying to do with the MSCI TRFs is give clients access to a credible alternative to MSCI total return swaps.”