ICE Lands Russell Contract

June 19, 2007

The Intercontinental Exchange (ICE) stuck its thumb in the eye of the Chicago Mercantile Exchange (CME) this morning, announcing a deal for the exclusive rights to trade futures and options on futures on the full suite of Russell indexes. 

Those contracts currently trade in large volumes on the CME, to the tune of 200,000+ contracts per day. Now, assuming the FTC doesn’t intervene, all that volume will move to ICE.

We’ll have full coverage of the deal later today, but in the meantime, a few thoughts:

1)      The fact that this comes amidst the acrimonious ICE/CME bidding war over the CBOT is no accident.  CME has tried to position ICE as too small to handle a CBOT acquisition. This deal certainly makes ICE look like a major player in the market, and could catch the eye of CBOT members.

2)      The deal bucks a broader trend in the index industry towards open, non-exclusive derivative contracts.  Although terms of the deal were not reported, you have to imagine that ICE gave Russell a pretty good deal to win this mandate. The risk to Russell is that traders may prefer futures that trade on multiple exchanges --- we’ve seen huge growth in options that go “open source” and “multiple market” --- and ICE will have to work hard to sustain and grow volume in the contracts.

This deal shows that ICE is expanding beyond its routes in energy into other areas of the market, and I imagine they’ll build out their index options market further in the near future.

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