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ER2 moving from CME to ICE

ER2 traders will be interested in this press release from ICE:
ICE’s Global Electronic Marketplace to Exclusively Offer Russell 1000, 2000 and 3000 Index Futures

ICE is the IntercontinentalExchange. I'm not sure how they managed to wrestle the ER2 out of the CME's hands as that's not explained in the press release - anybody know?

I believe that the switch-over is going to be in September 2007 so about 3 months time. I've no idea how this is going to work. I'm not sure if there's even a precedence for something like this in history. I have all sorts of questions about comparing the CME's data on the ER2 to that from ICE.

I speculate that the volume on the ER2 will drop unless the migration is seamless. By seamless I mean that even the ticker symbol migrates across the exchanges and all trader's brokers accounts do not need adjusting to trade this.

I initially thought that the CME would replace this with their MC400 contract and push this contract in place of the ER2 although on second thought none of the stocks in the MC400 are in the ER2 so that probably won't work. Not sure what will happen here.

Any opinions? How many of you guys trade the ER2?
Interesting development in light of the ongoing bidding war between CME and ICE for ownership of CBOT.

ICE is certainly aggressive in the marketplace.

A couple of questions come to mind...

Will traders need to subscribe to the ICE data feed in addition to the CME and CBOT ?

Does your broker's trading platform support the ICE order servers ?

ER2 has never been a very deep market in terms of liquidity and volume. I suspect the average CME local (seat holder) will not follow the product over onto the ICE platform. There is an obvious negative incentive in terms of commissions to make the switch. Not to mention the animosity between CME and ICE at the moment.

Without market depth, it will be difficult to find a tight bid-ask spread when you need it most.

Hopefully the ER2 liquidity will find a home back in the NQ.

Current Volume:

ES ... 359,148
YM ... 107,854
NQ .... 66,347
ER2 ... 38,480

I'm one of the few that focus almost exclusively on the ER2 as far as mini's. Most of my students who trade mini's also focus on it. I find that for my methodology it trades infinitely better than any of the other mini's (I went from following the NQ to the ES to the ER2 over the years). My style is best described as 'intraday swing trading', catching swings that are obvious on the 3-min to 13-min timeframes, with higher timeframe 'context'. Minimum potential size move I look at is four points. I have seen no liquidity issues at all with the type of size I would be in, which is ten or under. But, I am not worried about a fill to the tick, and I am not chasing momentum (my entries tend to be at times when others aren't going crazy, in my opinion), nor trying to buy the bid or sell on the ask.

The point of all this is that I am hoping this doesn't wreck the contract, since I have nothing like it, as far as smooth, trending movement (and just overall dollar movement) to replace it with. Every student I've had who traded ES and went to the ER2 was blown away by the smooth trends and how much it moved, as opposed to chopped, like the ES. It's going to be curious to see what happens. And yes, we'll have to pay a NYBOT/ICE exchange fee now, too. A lot of people I know, though, feed IB data into Ensign and pay nothing regardless.
Good article from Reuters - thanks pt_emini! Here is the part that interested me:
ICE Chief Executive Officer Jeffrey Sprecher said in the letter that CBOT's board has agreed to a "bargain-basement sale" in a transaction that would leave $1.3 billion of shareholders' money on the table, and urged them to vote against the deal.

At current share values, ICE said its "financially and strategically superior" offer for CBOT is worth $11.9 billion, while the CME deal is worth $10.6 billion.

Jim, don't you think that the data and exchange fee(s) for the ER2 on ICE will be lower than on the CME (at least initially) to entice people over and to ensure that they don't lose their customer base?
I'm suspecting so. I don't think they did this to have the contract go to junk, and they seem progressive enough to understand how easily they could wreck it. Especially given it is a lower volume issue, they should know they can't cut too many people out. But I have seen dumb things done before that make no sense... I'm still hopeful it will be a good thing. Then there's the issue of trade policy, and is the ICE engine as good as GLOBEX. Remember those huge crazy spikes we used to see? GLOBEX may not be the greatest, but at least we have an idea what it might do. Now we would be in the great unknown. And what is their bust policy, and do they work with people? Again, with the Merc, we know about where we stand.
Here's a collection of facts that I summarized from the NYBOT Russell Agreement FAQ.
  • No later than Friday, August 29, NYBOT will offer Russell 2000 full-sized and mini futures contracts on the ICE electronic platform.

  • Both full-size and mini, will be available for trading on the ICE electronic platform from 8:00 p.m. Eastern time to 4:15 p.m. Eastern time on typical trading days. (The platform is available for order entry fifteen minutes before the opening of trading.)

  • Full-size Russell 2000 futures contract has a multiplier of $500 X Russell 2000 Index and a ticker symbol of TO.

  • The mini size Russell 2000 futures contract has a multiplier of $100 X Russell 2000 Index and a ticker symbol of TF.

  • Other exchanges, such as CME, will continue to list and trade their Russell index futures at the sime time but when their licences expire (in the next few months) they will cease to list/trade them. (i.e. there will be an overlap period.)

  • Exchange fees for NYBOT Russell Mini futures contracts are $0.75 per side for non-members.

  • NYBOT Russell full-size futures exchange fees are $1.35 per side for non-members.

  • There are no additional Exchange fees imposed for use of the ICE electronic trading platform.
Jim - you have brought up a lot of good points that I hope the folks at ICE are also considering.

The ICE exchange fee of 0.75 cents per side (1.50 per round turn) on the mini contract sounds like a nice improvement. I think this price improvement will help retain existing interest in the market, and hopefully will draw new interest into the contract.
CME News announcement:

Fee Incentives Announced for S&P MidCap 400 Products

Plus New Fee Waivers for Certain Block Trades

Effective Sunday, March 2, 2008 (for a trade date of Monday, March 3, 2008), CME Group will waive all CME Clearing and CME Globex fees on the S&P MidCap 400 contracts through the end of December 2008. These fee waivers are similar to the fee waivers already in place for S&P SmallCap 600 products. We have also added new fee incentives for certain block trades. These fee waivers are outlined below:

S&P MidCap 400 products. New waivers of all CME Globex and Clearing fees on all S&P MidCap 400 products, effective March 2008 through December 2008.

Block transactions. New block trade fee waivers (minimum 50 contracts) for the following spreads, effective March 2008 through September 2008:

• E-mini Russell 2000 (ER2) vs. E-mini S&P MidCap 400 (EMD)
• E-mini Russell 2000 (ER2) vs. E-mini S&P SmallCap 600 (SMC)
• Russell 2000 (RL) vs. S&P MidCap 400 (MD)
• Russell 2000 (RL) vs. S&P SmallCap 600 (SMP)

S&P SmallCap 600 products. Currently available are waivers of all CME Globex and Clearing fees on all S&P SmallCap 600 contracts, effective through December 2008.

These moves are designed to provide end-users with low-cost trading solutions to help minimize the potential costs and disruptions associated with the Russell 2000 product de-listing.
CME News Announcement 2 April 2008

July 2008 and August 2008 Serial Month Options on Russell 2000 and E-mini Russell 2000 Futures Will Not Be Listed

As previously announced, CME Group will no longer list Russell 2000 and E-mini Russell 2000 contracts as of the September 19, 2008 quarterly expiration as the result of a licensing decision made by the index provider, Russell Investment Group.

To help facilitate an orderly de-listing of these contracts, we will not list July 2008 and August 2008 serial month options on Russell 2000 and E-mini Russell 2000 futures.

Currently we list April, May, June and September 2008 contracts for Russell 2000 and E-mini Russell 2000 options. To maintain the integrity of these contracts, we will continue to add new strikes in accordance with current Exchange Rules.

Since last summer we have been working proactively with our customers who want or need to transition Russell 2000 open interest. Steps we’ve taken include offering:

  • Fee waivers on our S&P SmallCap 600 and S&P MidCap 400 products

  • Aggressive market maker incentive programs to help build liquidity in the E-mini S&P SmallCap 600 and E-mini S&P MidCap 400 products.

  • Intercommodity spread tools to help transition open interest

  • Options on E-mini S&P MidCap 400 futures

  • Free quotes on E-mini S&P MidCap 400 and E-mini S&P SmallCap 600 futures so you can see the markets in action

These contracts and E-mini NASDAQ-100 futures and options are among several liquid trading alternatives to the Russell 2000.
New EMD-ER2 Intercommodity Spread Tool to Launch in May
(Effective May 19 2008) - source CME

For customers looking for a way to transfer their E-mini Russell 2000 open interest to a liquid trading alternative, CME Group is launching a new Intercommodity spread tool between E-mini S&P MidCap 400 (EMD) and E-mini Russell 2000 (ER2) futures.

Since September 2007, E-mini S&P MidCap 400 futures monthly ADV is up nearly 20%, reaching 44,118 contracts in March 2008.

The new intercommodity spread will be listed on CME Globex as EMD-ER2 and will trade in .05 increments. You can go long or short the spread, which enables you to simultaneously establish a one-to-one position on the underlying futures contracts. The price of the E-mini S&P MidCap 400 futures leg shall be set at the settlement price of the E-mini S&P MidCap 400 contract from the previous day. The price of the E-mini Russell 2000 leg shall be determined by the E-mini S&P MidCap 400 leg price less the net index point differential.
CME News Announcement 21 July 2008

CME Group Expands E-mini Russell 2000 Block Trading Program

In response to our customers' needs and to help facilitate an orderly transition of open interest, CME Group has expanded the allowed block trades in the E-mini Russell 2000 contracts, effective immediately. Block trades in the contract must meet the following guidelines:

  • Minimum allowed block size of 125 contracts. Existing block trading fees will apply.

  • All block trades must be in compliance with CME Rule 432.D. which prohibits fictitious trades. It would be a violation of Rule 432.D. to engage in block trades (or other allowable privately negotiated transactions) based on an agreement by the parties to reverse such transactions at CME Group or on another exchange.

Accordingly, it would be impermissible for parties to execute a block trade in Russell 2000 futures (standard or E-mini) at CME Group in a particular contract month and agree to reverse the trade by executing a block trade in Russell 2000 futures at another exchange in that same contract month. Block trades that involve equal and opposite transactions would be permitted provided that the block trade done at CME Group was in a different contract month than the block trade done on another exchange (i.e., a block trade done in the September 2008 contract at CME Group and the December 2008 contract at another exchange).
Thursday 11 Sep 2008 is Rollover and the first day for the new ICE version of the ER2 (now ticker symbol TF) to become the front month. Here is the spec sheet: ICE Russell 2000 Mini Fact Sheet.

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