ETFs, which are baskets of securities designed to track an index, represent one of the fastest growing investment vehicles in today’s equity markets. Over the past 10 years, ETF assets under management have grown from approximately $1 billion to about $226 billion at the end of 2004. The S&P 500, NASDAQ-100 and Russell 2000 ETFs maintain a combined total of more than $82 billion in assets under management.
While CME currently offers both a standard size and an “E-mini” size contract on all three indexes, the new ETF futures will have a significantly smaller notional value of approximately one-fifth of the CME E-mini contract. The S&P 500 Depositary Receipts futures contract has a notional value of approximately $11,600 and the NASDAQ-100 futures contract has a notional value of approximately $7,000. The iShares Russell 2000 futures will reflect a notional value of approximately $12,300. With the smaller size, these contracts are designed to appeal to sophisticated individual investors. Unlike CME’s other equity products, which are cash settled, ETF futures will be physically delivered.
One of the advantages of ETF futures, like all futures, is that they will allow investors to take a short position without borrowing shares from a broker, which is necessary to sell short securities or ETFs. Also, the initial margin with ETF futures will generally be lower than the Regulation T margins associated with the underlying ETF.
For more information on these products, please visit www.cme.com/etf-futures.
