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CME Launches New Futures - Analyst Blog
CME Group Inc. ( CME ) has announced the launch of the Brazilian Ibovespa Futures and said that it will initiate the trading of the new futures in the U.S. from October 22, 2012. Ibovespa is already traded on the Brazilian Stocks, Mercantile & Futures Exchange (BM&FBOVESPA).
Now it will be traded in U.S. Dollars denomination and will be listed on CME. These cross-listed futures will be governed by the rules and regulations of CME.
The Ibovespa is a total return index of 69 stocks traded on the BM&FBOVESPA. The index represents a theoretical portfolio made of the stocks, which accounted for 80% of the last 12 months' trading volume and were traded on a minimum of 80% of the trading days.
The constituent stocks of Ibovespa made up for 78.1% of the capitalization in the stock market as of September 6, 2012. However, since the portfolio is revised by the Sao Paulo Stock Exchange after every four months, the underlying stocks of the futures contract can vary over the lifespan of the contract.
The cross-listing of Ibovespa on CME will allow easy access to the Brazilian futures to CME's global customer base. It will also provide the clients with an alternative way to handle their exposure to market and counterparty credit risk across various asset classes.
Separately, CME has announced the expansion of its Chinese product portfolio with the launch of Deliverable Renminbi futures. These futures will begin trading on the exchange in the upcoming months and will be subject to its rules and regulations.
CME plans to offer the futures in both standard and E-micro sizes. Moreover, they will be listed on CME as well as CME Europe Ltd., subject to regulatory approval in case of the latter. The revenues and expenses related to the futures will be covered by the International Monetary Market division of the company.
Considering the growing global market for the currency as well as its increased trading, it can be concluded that the Renminbi futures will be an important addition to CME's international product offerings. The exchange already offers cash-settled CNY futures and OTC Non-Deliverable Forward (NDF) products in USD/CNY.
CME, which competes with other exchanges such as NYSE Euronext Inc. ( NYX ) and Nasdaq OMX Group Inc. ( NDAQ ), currently carries a short-term Zacks #3 Rank (Hold). Considering the fundamentals, we maintain our long-term Neutral recommendation on the stock.
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