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Deutsche Börse launched an index family for commodities on Monday. The CX index currently charts the performance of 19 commodities in five commodities classes: agricultural products, energy, precious metals, industrial metals and livestock. Subindices have been created for every class that contains different commodities. The CX indices are based on commodities futures, with Deutsche Börse leaving the option of further subindices and additional commodities open. The design and high liquidity of the indices mean that they are well suited for use as underlyings for derivative products, passive investment funds and ETFs. Deutsche Börse’s new index family is thus aimed primarily at financial investors, who can use the indices to gain access to commodities. As one of the world’s leading index providers, Deutsche Börse focuses mainly on equity and bond indices at present.
“The CX indices offer an outstanding level of transparency thanks to their clearly defined rules and the fact that they mirror activity on the capital markets for commodities, making them an ideal instrument for financial investors. The index design focused on ensuring investability and tradability”, said Holger Wohlenberg, Head of Market Data& Analytics.
The CX index family currently comprises 36 indices. The CX index and the five subindices are each calculated not only in US dollars and in euros, but also as spot return, excess return and total return indices. The spot return indices only portray the performance of commodities prices. Excess return indices also include any income from the futures contracts, such as the roll return generated when futures positions from an expired contract are rolled over to a new contract. Total return indices include interest income on the capital deposited as collateral, too.
Each of the indices is based on a basket of futures. All commodities with futures that have generated an average open interest of more than 100,000 contracts a day and a trading volume of more than 10,000 over a twelve-month period are admitted to the index; the “open interest” refers to the number of open positions in a future. This strategy allows Deutsche Börse to guarantee liquidity and tradability. The individual commodities are weighted in accordance with the US dollar-weighted open interest of the respective future, meaning that the index mirrors activity on the commodities markets.
The rollover of futures into new contracts – a procedure which is necessary due to the limited term of the futures – is entirely rules-based for the CX index and is driven by market activity (measured in terms of open interest). If the open interest for a new contract exceeds that of the current contract, the positions are rolled over. The corresponding data is published on a daily basis. Both the CX index and the subindices are rebalanced on an annual basis on the third Friday in September, while the individual commodities are re-weighted on a quarterly basis.
