The S&P 500 and Asian investors

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1 The S&P 500 and Asian investors CME Group s Flagship S&P 500 Equity Index Futures Contract July 2015

2 Equity Index Futures on the S&P 500 CME Group s flagship equity index product CME Group E-mini S&P 500 Equity Index Futures - Equity index futures contracts that are cash settled to $50 times the S&P 500 cash index level - Contracts expire on the third Friday of March, June, September and December - The original Standard S&P 500 futures contracts launched in 1982 with a multiplier of $250. E-mini contracts launched in 1997 and surpassed Standard contracts in notional volume traded in E-mini S&P 500 Futures: The global benchmark equity index futures product - Average daily traded notional of $155bn: the most actively-traded globally-available equity index futures contract - Available 23 hours per day on CME s Globex electronic trading platform - Widely used by market practitioners as the definitive benchmark for the US equity markets, and more generally for global equity markets as a whole. 2

3 E-mini S&P 500 Futures Summary Contract Specifications E-mini S&P500 * Ticker Symbol Multiplier ES $50 * SPX Index Approximate Value $105,000 Tick Size 0.25 index points (= $12.50) Trading Venue Expiry Daily Settlement Price Final Settlement Price Margin Amount (as of 1 July, 2015) Circuit Breakers Globex electronic platform, available 23 hours a day, Mon - Fri. (Trading starts 7am Monday in Asia) Quarterly: Third Friday of March, June, September and December The volume-weighted average price ( VWAP ) of all trades in the E-mini contract on Globex between 15:14:30 and 15:15:00 Central Time. (The VWAP also includes transactions in the Standard SPX contract during the same period with a multiplier of 5 applied to reflect the relative contract size.) Special Opening Quotation (SOQ) on the expiry date. SOQ is determined by the index provider and is the index level calculated based on the opening prices for each of the underlying constituent stocks. $4,600 (implies approximately 23x leverage) In extended trading hours (ETH), circuit breakers at 5% up and down. Regular trading hours (when the underlying stock markets are open), circuit breakers at 7%, 13% and 20% down only. * There is also a Standard S&P500 contract (ticker SP) with $250 multiplier which trades electronically during extended trading hours (ETH) and on the floor in regular trading hours (RTH). 3

4 E-mini S&P 500 futures trading in Hong Kong hours E-mini S&P500 is among the top 5 most liquid index futures contracts during HK trading hours Significant liquidity in Hong Kong market hours, but only represents 4% of total ADV of approximately $US 155bn. * E-mini S&P500 futures trading only during 09:00 17:00 local trading hours (UTC + 08:00) Source: Bloomberg and CME data for H

5 Comparison of US, European and Asian markets (5 year) US (S&P500), Europe (EuroSTOXX 50), Japan (Nikkei) and Non-Japan Asia (Hang Seng) 5

6 Comparison of Global Benchmark Volatilities S&P 500 provides a powerful combination of strong returns and low volatility 6

7 Trading US Equity Markets Five economic data releases that move markets 1) Unemployment report - Published on the first Friday of each month by the U.S. Bureau of Labor Statistics, - Highly significant indicator and the cause of many of the biggest one-day movements - CME weekly equity options volume increases 2-3x around announcement - Top-line number is the change in non-farm payrolls; also provides the unemployment rate, average hourly earnings, average weekly hours. 2) Consumer Price Index - Published monthly by the U.S. Bureau of Labor Statistics - Value of a basket of approx. 80,000 items (specific composition evolves over time) - Important as an indicator of the economy as well as in determining variable in the calculation of many government payments (e.g. social security payments) - There is also a CPI ex-food and Energy as these are very volatile over short term 7

8 Trading US Equity Markets Five key economic data releases that move markets 3) Consumer Confidence - A market sentiment survey conducted by The Conference Board, an independent business research organization - Monthly since 1969; based on survey of 5,000 randomly-selected households - Index of conditions personally and for the nation, and expectations for six month s time. - Questions about general state of business conditions, availability of jobs, expected changes in income, likelihood of major purchases and overall outlook for the economy. 4) Advance Retail Sales - Published by the US Department of Commerce (Bureau of the Census) based on a survey of 5,000 businesses across the country on the dollar value of sales. - Survey responses collected by the third day of the month and the advance report is disseminated in the second week, making the data very fresh, but noisy (subject to significant revisions) - Household consumption makes up 50% of GDP. Large seasonal variations. 8

9 Trading US Equity Markets Five key economic data releases that move markets 5) Federal Open Market Committee (FOMC) Meetings - FOMC meets every six weeks to review economic and market conditions and decide future direction of monetary policy. - Specifically: FOMC sets the Fed Funds target rate - A brief press release announcing the new target rate, and a summary of economic conditions and the balance of risks to the economy. - Changes are often telegraphed and can be implied from the Fed Funds futures market. Timing of changes often implied from the language of the press release. - In general, a dovish statement (biased towards lower rates) is positive for equity markets while a hawkish statement (biased towards higher rates) is negative. - Complicated psychology: Monetary policy is a combination of growth and inflation concerns. For example: A hawkish policy suggests economic growth is sufficiently robust to support higher rates and may be taken well by the market. By contrast, an unexpectedly dovish statement may reflect concerns over growth and be taken badly. Question is often whether Fed perception is consistent with the market s. 9

10 Jan02 Jan22 Feb10 Feb28 Mar19 Apr07 Apr25 May14 Jun03 Jun20 Jul10 Jul29 Aug15 Sep04 Sep23 Oct10 Oct29 Nov17 Dec05 Dec24 Market-Moving Indicators: Employment Report Weekly E-mini S&P500 options volume surges 2-3x around employment data 500, , ,000 Weekly E-mini S&P 500 options Surge around Employment Data (2014 Volume Data) Unemployment Report Record 431,875 contracts traded 350, , , , , ,000 50,

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