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Today NYSE Euronext (NYX) celebrates the 20th anniversary of the CAC 40 index, the recognized benchmark for the French cash equity market. The index was officially launched on June 15, 1988 with a base value of 1,000 on December 31, 1987.
The acronym “CAC” originally stood for “Compagnie des Agents de Change”, the body which previously operated the Paris stock exchange, and then for “Cotation Assistée en Continu”, or continuous computer-assisted trading. Set up in response to emerging needs for trading in derivatives, the index rapidly became an essential market tool. Its launch also coincided with the market’s switch to electronic trading, marking a historic watershed.
“Since its launch 20 years ago, the CAC 40 has become both a symbol of success for the component companies and a yardstick for the French economy,” comments Jean-François Théodore, Deputy CEO of NYSE Euronext, noting that “it is now an internationally recognized benchmark and portfolio management tool as well as the underlying asset for an increasingly broad range of structured products. Significantly, too, a number of medium-size businesses have been able to join the index, representing the champions of French business.”
An index underpinning market development
From the beginning, the CAC 40 proved its worth as an instrument perfectly suited to follow the market’s development. Sufficiently broad to reflect overall market trends, it is also sufficiently well-defined to allow for effective hedging and arbitrage strategies, making it a favoured base for derivatives ever since. MATIF and MONEP, France’s derivatives markets, opened trading in CAC 40 index futures a few months after launch, following this with the launch of options on the futures contracts. This was facilitated by the use of new technology, with index values disseminated every 30 seconds. The composition of the index is the responsibility of a Committee, “Le Conseil Scientifique”, whose members include representatives of France’s market regulator, AMF (Autorité des Marchés Financiers), of France’s Central Bank and of the Treasury Department as well as academics and economists. This ensures the required combination of independence, transparency and professional expertise.
To be represented in the index, stocks must satisfy criteria for market capitalization and trading volumes on Euronext Paris, and the issuer must have significant assets and/or a main decision-making centre in France. At the end of 2003, criteria were adjusted to base measurement of market capitalization on free float and set a minimum of 15% free float. The nationality of issuers has never been a criterion.
An increasingly representative sample
The composition of the CAC 40 has been remarkably stable since launch-- 19 of the current companies were included from the start and six others result from mergers involving original members. However, over the years, new sectors have won representation, reflecting the underlying developments in the French economy, such as the emergence of new business sectors such as “services” and “real estate” with the critical mass to join the index. CAC 40 stocks have also proven their strength, with nearly three-quarters ranked among the top ten by market capitalization for their sectors in Europe.
A national index with international weight
While the CAC 40 was launched to meet the needs of the French market, it rapidly won a broader position as an excellent indicator for Europe. Today, its components represent 20% of market capitalization in the euro-zone and 12% in Europe, a proportion up from 8% in 1990. CAC 40 stocks also account for 34% of capitalization in the Euro Stoxx 50 index and nearly 18% of capitalization in the Stoxx 50. They also attract considerable interest from non-resident investors, whose share of index capitalization rose from 33% in 1997 to 46% in 2006 (source: Bank of France).
Record performances
In the 20 years since its launch, the CAC 40 has shown a strong growth with market capitalization multiplied by 18 and the value of daily trading by 42. The liquidity of component stocks has also improved significantly, since trade value has risen twice as fast as market capitalization. Peak performances over the years include the €16 billion traded on January 20, 2008, two and a half times the daily average for the opening months of the year. Annual returns on the index have averaged 12.11% (with dividends reinvested) over the past 20 years and 14.37% over the past five years.
The CAC 40 and structured products
The CAC 40 is the second most widely used index for passive management, just behind the S&P 500. Outstanding positions amount to over €40 billion, a level equivalent to that of the FTSE and double that of the DAX.
CAC 40 futures were first launched in 1988 and since then volumes and open positions have multiplied by 20. In 2007, daily trading reached the equivalent of €10 billion. Confirming these strong trends, the futures/cash ratio is now close to 150%.
The first ETF tracking the CAC 40 was launched in January 2001 and there are now eleven on offer from five issuers, including one from the US. These represent an outstanding total of over €5 billion. In addition, a CAC 40 ETF is listed on NYSE Arca, demonstrating international recognition of the index. Nine issuers have also launched warrants and certificates on the CAC 40 Index.
About NYSE Euronext
NYSE Euronext (NYX) operates the world’s leading and most liquid exchange group, and seeks to provide the highest levels of quality, customer choice and innovation. Its family of exchanges, located in six countries, includes the New York Stock Exchange, the world's largest cash equities market; Euronext, the Eurozone's largest cash equities market; Liffe, Europe's leading derivatives exchange by value of trading; and NYSE Arca Options, one of the fastest growing U.S. options trading platforms. NYSE Euronext offers a diverse array of financial products and services for issuers, investors and financial institutions in cash equities, options and derivatives, ETFs, bonds, market data, and commercial technology solutions. NYSE Euronext's nearly 4,000 listed companies represent a combined $ 30.9/ € 19.8 trillion in total global market capitalization (as of April 30, 2008), more than four times that of any other exchange group. NYSE Euronext's equity exchanges transact an average daily trading value of approximately $161.9 / €106.9 billion (as of April 30, 2008), which represents more than one-third of the world's cash equities trading. NYSE Euronext is part of the S&P 500 index and the only exchange operator in the S&P 100 index. For more information, please visit www.nyx.com.
