Five Minutes With Cliff Weber

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Five Minutes With Cliff Weber, EVP Head Of Product Development, NYSE Liffe U.S. About The Newest Mini MSCI Index Futures

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In May 2009, NYSE Liffe U.S. signed a license agreement with MSCI Barra to offer a broad suite of domestic and international index futures products built on a range of MSCI equity indices. It’s been a over a year since NYSE Liffe U.S. became the only listing venue for MSCI Index-based products. This week, which featured a record trading day of 75,876 contracts in its MSCI Emerging Market futures contract, the exchange expanded its suite of MSCI products with the launch of Mini MSCI Canada Index Futures (MCL), Mini MSCI World Index Futures (MWL), and Mini MSCI Emerging Markets Latin America Index Futures (MLE).

Christine Nielsen, managing editor of JLN, spoke with Cliff Weber, EVP and head of product development, NYSE Liffe U.S. about what’s going on with the products, how the products aim to help market participants to tailor their positions as part of their global trading strategy, in addition to where the product suite may be headed.

Q: On Sept. 10, you launched three new MSCI index products. What was introduced and what gaps were you looking to fill in the current global offering?

A: We launched three new futures contracts, all based on MSCI indexes and expanding the already successful existing suite. All of our contracts are mini contracts. The notional value is about $60,000 to $75,000. All contracts are cleared and settled in U.S. dollars at the Options Clearing Corp., which is where all of our equity index products clear and settle. This provides capital efficiencies to our customers.

We like to take a fairly thoughtful, staged roll out approach to products. This builds on the momentum that we’ve been developing in the emerging markets and EFA contracts in particular.

With the current suite of contracts having demonstrated strong liquidity, we are in a good position to continue to expand the product set as it makes sense.

In this instance, MSCI World and MSCI Canada complete specific regions in our developed markets offering, allowing greater opportunity for market participants to tailor their global exposure to suit their needs. We now have the pieces so that one can replicate EAFE+Canada, a common benchmark for the non-U.S. developed markets; by adding USA, one has the pieces to replicate world, with the ability to over- or underweight U.S. and/or Canada; and if you then add Emerging Markets, you have all the pieces to replicate MSCI All Country World Index (ACWI), a very common institutional global benchmark.

The fact that our future on MSCI Canada trades and clears in U.S. dollars also makes the contract more convenient for domestic investors. With respect to MSCI EM Latin America. We basically are responding to strong customer demand.

Q: Why now? Is there something about the current environment that is conducive to the introduction of these products?

A: We try to be as deliberate in our product roll out as possible. Really more than anything, we hear there is demand for it from the end user base.

There aren’t really other order-book contracts that are as broad in nature as what we are talking about from a geographical standpoint. It’s not that easy to trade and price these things, or it didn’t used to be, but the growth of international ETFs and the introduction of BIC trading have made trading these broad regional futures feasible.

Editor’s Note: NYSE Liffe U.S. launched BIC trading in September 2011 as a way to provide customers the ability to manage the tracking impact of executing large orders relative to the underlying index level by tying the transaction price to the closing level of the underlying index.

Editor’s Second Note: According to research from MSCI, the real gross domestic product (GDP) share for emerging countries increased from 12.5 percent in 1969 to 31 percent this year. Further, emerging markets represent approximately 50 percent of the global GDP growth.

Brett Hammond, managing director and head of index applied research of MSCI says MSCI wants people to understand all the stock in the investable world. He says that the MSCI indexes put them all together in a global context and allow investors to decompose the pieces.

Q: Who are the target users?

A: There are several, but the most common are institutions - asset managers or mutual funds or investment advisors who have a broad mandate and exposure to the markets globally. There are also insurance companies, banks, hedge funds, prop traders and high frequency firms and public pension funds.

Q: These new MSCI index products are an addition to a suite of already existing MSCI index products. What is the strategy here? Is there a goal as these products are unfolded?

A: I think the concept is not to try to do the “build-it-and-they-will-come” approach, but to grow the existing products.

We want to find out what are the gaps for asset management purposes. We will continue to roll out more with MSCI’s indulgence and fill in the places where our customers say they need them.

On Sept. 13, the mini MSCI Index complex traded an all time daily record of 122,261 contracts. The previous record was of 106,000 on June 8.

And as of Sept. 14, the exchange increased the position limits in its mini MSCI EAFE Index futures, mini MSCI Emerging Markets Index futures, mini MSCI EAFE NTR Index futures, and mini MSCI Emerging Markets NTR Index future. The new position limit is 50,000 contracts net long or short in any single contract month or all months combined in mini MSCI EAFE Index futures and mini MSCI Emerging Markets Index futures in aggregate; and 50,000 contracts net long or short in any single contract month or all months combined in mini MSCI EAFE NTR Index futures and mini MSCI Emerging Markets NTR Index futures in aggregate.