ICE Expands Equity Derivatives Complex With the Launch of MSCI® Index Total Return Futures

Rhea-AI Summary

Intercontinental Exchange (ICE) launches MSCI Index Total Return Futures, offering investors exposure to MSCI's flagship indices in a transparent and capital-efficient manner. Contracts use the U.S. funding rate SOFR and are available for trading up to 2033.

Insights

Market Research Analyst

The introduction of MSCI Index Total Return Futures (TRFs) by Intercontinental Exchange, Inc. represents a significant development in the world of financial derivatives. TRFs allow investors to gain exposure to a range of MSCI indices, which are benchmarks used globally to measure equity market performance. The availability of these futures contracts through a regulated exchange enhances transparency and capital efficiency, which could attract a broader investor base compared to over-the-counter total return swaps.

Given that ICE's markets account for a substantial portion of global MSCI futures trading, the addition of TRFs could further consolidate its market share. The use of SOFR as the underlying funding rate aligns with the financial industry's ongoing transition away from LIBOR, ensuring that these contracts are built on a more stable and widely-accepted benchmark. The potential impact on ICE's financials could be significant, particularly if these contracts are adopted widely, contributing to the average daily volume and notional value traded on the exchange.

Financial Analyst

The launch of MSCI Index Total Return Futures by ICE is a strategic move that may have positive implications for the company's stock. By providing a capital-efficient alternative to total return swaps, ICE is positioning itself to capture demand from investors seeking cost-effective ways to replicate index performance. The ability to trade contracts with expiries up to 2033 offers long-term hedging and investment opportunities, which could lead to increased trading volume and revenue for ICE.

Furthermore, the reported average daily volume and notional value for ICE’s MSCI complex in 2023 suggests robust trading activity, which is a key driver of transaction-based revenue. The introduction of TRFs could enhance this metric further, potentially leading to a positive impact on the company's earnings. Investors may view this development as an indicator of ICE's innovation and growth potential within the equity derivatives market.

Economist

The introduction of MSCI Total Return Futures by ICE is a reflection of the evolving landscape of financial markets, where the demand for more transparent and regulated investment vehicles is increasing. These contracts could lead to a more efficient allocation of capital by providing investors with a tool to manage equity risk without the counterparty risk associated with over-the-counter products. This could have a broader economic impact by enhancing market stability and confidence.

The choice of SOFR as the benchmark rate for these contracts is also economically significant. It represents a shift towards a more reliable and representative rate for overnight borrowing, which is crucial for the pricing of financial instruments. As market participants adapt to the post-LIBOR world, the successful implementation and uptake of SOFR-based products like ICE's TRFs could serve as a bellwether for the broader acceptance of SOFR in financial contracts, influencing lending practices and interest rate dynamics.

NEW YORK & LONDON--(BUSINESS WIRE)-- Intercontinental Exchange, Inc. (NYSE: ICE), a leading global provider of technology and data, and home to the most liquid markets for trading MSCI® futures, today announced the launch of MSCI® Index Total Return Futures (TRFs).

ICE’s MSCI® TRFs offer investors a way to gain exposure to MSCI’s flagship indices: MSCI EAFE Index, MSCI Emerging Markets Index, MSCI USA Index and MSCI World Index. The TRF contracts serve as an exchange listed alternative to over-the-counter total return swaps that seek to replicate the performance of MSCI’s indices in a more capital-efficient and transparent way.

The contracts use the underlying U.S. funding rate SOFR (Secured Overnight Financing Rate) which measures the cost of overnight cash borrowing. Contracts are available to trade out the curve to 2033, with quarterly and yearly expiries.

“ICE’s markets account for over 70% of global MSCI futures trading by volume, making ICE the natural home for customers to trade MSCI Total Return Futures alongside our deeply liquid suite of MSCI Futures,” said Caterina Caramaschi, Vice President, Financial Derivatives at ICE. “We have worked directly with the market to design the TRF contracts, which allow clients to benefit from trading in a U.S. time zone, against the closing MSCI index level and report the trade on the same day, utilizing the truly global nature of ICE’s equity derivatives offering.”

ICE offers the most liquid futures on MSCI EAFE, MSCI Emerging Markets, MSCI ESG and MSCI Climate indices, providing participants around the world with a set of tools to manage equity risk. In 2023, the average daily volume for ICE’s MSCI complex was approximately 214,000 contracts, equal to an estimated $14 billion of notional value. ICE MSCI futures traded over 53 million contracts in 2023.

“Goldman Sachs is excited about the launch of ICE MSCI Index TRFs. We expect it to be an excellent product for clients seeking a cost-effective solution to access a range of flagship MSCI indices,” said Daria Sentuc, Managing Director, Emerging Markets Global Synthetics at Goldman Sachs. “As a long-established provider of liquidity across the MSCI complex, we look forward to supporting growth in this new product.”

“We’re pleased to license ICE as they expand their TRF segment to include MSCI indices,” said George Harrington, Managing Director, Global Head of Fixed Income and Derivatives at MSCI. “This reflects the increasing demand for new products linked to MSCI’s global benchmarks.”

For more information, please visit: www.ice.com/equity-index/msci.

About Intercontinental Exchange

Intercontinental Exchange, Inc. (NYSE: ICE) is a Fortune 500 company that designs, builds and operates digital networks that connect people to opportunity. We provide financial technology and data services across major asset classes helping our customers access mission-critical workflow tools that increase transparency and efficiency. ICE’s futures, equity, and options exchanges – including the New York Stock Exchange – and clearing houses help people invest, raise capital and manage risk. We offer some of the world’s largest markets to trade and clear energy and environmental products. Our fixed income, data services and execution capabilities provide information, analytics and platforms that help our customers streamline processes and capitalize on opportunities. At ICE Mortgage Technology, we are transforming U.S. housing finance, from initial consumer engagement through loan production, closing, registration and the long-term servicing relationship. Together, ICE transforms, streamlines and automates industries to connect our customers to opportunity.

Trademarks of ICE and/or its affiliates include Intercontinental Exchange, ICE, ICE block design, NYSE and New York Stock Exchange. Information regarding additional trademarks and intellectual property rights of Intercontinental Exchange, Inc. and/or its affiliates is located here. Key Information Documents for certain products covered by the EU Packaged Retail and Insurance-based Investment Products Regulation can be accessed on the relevant exchange website under the heading “Key Information Documents (KIDS).”

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 – Statements in this press release regarding ICE's business that are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see ICE's Securities and Exchange Commission (SEC) filings, including, but not limited to, the risk factors in ICE's Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 8, 2024.

Category: EXCHANGES

ICE- CORP

Source: Intercontinental Exchange

View source version on businesswire.com: https://www.businesswire.com/news/home/20240311435201/en/

ICE Media Contact:

Jess Tatham

jess.tatham@ice.com

+44 7377 947136



ICE Investor Contact:

Katia Gonzalez

katia.gonzalez@ice.com

(678) 981-3882

Source: Intercontinental Exchange

FAQ

What did Intercontinental Exchange (ICE) announce?

ICE announced the launch of MSCI Index Total Return Futures (TRFs) to provide investors with exposure to MSCI's flagship indices.

What are the MSCI indices available for trading through ICE's TRFs?

Investors can gain exposure to MSCI EAFE Index, MSCI Emerging Markets Index, MSCI USA Index, and MSCI World Index through ICE's TRFs.

What is the underlying U.S. funding rate used in the TRF contracts?

The TRF contracts use the U.S. funding rate SOFR (Secured Overnight Financing Rate) to measure the cost of overnight cash borrowing.

What is the average daily volume of ICE's MSCI complex in 2023?

In 2023, the average daily volume for ICE's MSCI complex was approximately 214,000 contracts, equal to an estimated $14 billion of notional value.

How many contracts did ICE MSCI futures trade in 2023?

ICE MSCI futures traded over 53 million contracts in 2023.