As we near the completion of our annual Russell US Indexes Reconstitution, major market operators Cboe Global Markets and CME Group have observed increasing levels of US small-cap market volatility and growing volume in derivatives linked to the US small-cap Russell 2000 Index.
After a relatively flat start to the year, the Russell 2000 fell 40.2% from February 24 through March 23 as global pandemic fears hit the western world. And, amazingly, the Index has now risen 37.3% from March 23 through Friday, June 12. The Cboe Russell 2000 Volatility IndexSM (RVXSM), a key measure of near-term volatility conveyed by Russell 2000 Index options prices, has reflected this dramatic shift, more than doubling its average daily closing price from 2019 (18.6) to 2020 (38.7) year-to-date as of June 12, averaging 49.8 since the beginning of March.
A dynamic start to 2020 for US small caps
With an accompanying rise in small cap derivatives market volume
Amid these historical swings in US small-cap equity market performance and spike in volatility, investors have understandably been utilizing the small cap futures and options market in record levels, seeking vehicles to enhance portfolio performance and manage market risk. For example, average daily volume (ADV) for E-mini Russell 2000 futures offered by CME Group have risen by 43% so far in 2020 versus 2019, while year-to-date ADV for Micro E-mini Russell 2000 futures, introduced by CME Group just over a year ago, have tripled in 2020 relative to 2019 levels.
Rick Rosenthal – director, business development, Cboe Global Markets:
“A challenging market environment is being reflected by elevated levels within the 30-day expected volatility as measured by the CBOE Russell 2000 Volatility Index (RVX). Investors have an opportunity to manage their risk exposures to US small-caps and define investment outcomes using cash-settled index options during this unprecedented period of uncertainty.”
“Since the start of the year, we have seen notable increases in volume on Russell 2000 Index-based futures (RTY) as market participants have used our markets to manage small-cap equity market price risk amid significant levels of volatility and continued uncertainty.”
The 32nd annual Russell US Indexes Reconstitution concludes at the close of the US equity markets on Friday, June 26. The close of the annual Russell Reconstitution is typically one of the highest volume days of the year on the US equity markets as approximately $9 trillion in investor assets follow the Russell US Indexes*. For more information, go to the Russell Reconstitution page.
*FTSE Russell AUM figures as of December 31, 2019
© 2020 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE Global Debt Capital Markets Inc. and FTSE Global Debt Capital Markets Limited (together, “FTSE Canada”), (4) MTSNext Limited (“MTSNext”), (5) Mergent, Inc. (“Mergent”), (6) FTSE Fixed Income LLC (“FTSE FI”), (7) The Yield Book Inc (“YB”) and (8) Beyond Ratings S.A.S. (“BR”). All rights reserved.
FTSE Russell® is a trading name of FTSE, Russell, FTSE Canada, MTSNext, Mergent, FTSE FI, YB and BR. “FTSE®”, “Russell®”, “FTSE Russell®”, “MTS®”, “FTSE4Good®”, “ICB®”, “Mergent®”, “The Yield Book®”, “Beyond Ratings®” and all other trademarks and service marks used herein (whether registered or unregistered) are trademarks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, FTSE Canada, Mergent, FTSE FI, YB or BR. FTSE International Limited is authorised and regulated by the Financial Conduct Authority as a benchmark administrator.
All information is provided for information purposes only. All information and data contained in this publication is obtained by the LSE Group, from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical error as well as other factors, however, such information and data is provided "as is" without warranty of any kind. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the accuracy, timeliness, completeness, merchantability of any information or of results to be obtained from the use of FTSE Russell products, including but not limited to indexes, data and analytics, or the fitness or suitability of the FTSE Russell products for any particular purpose to which they might be put. Any representation of historical data accessible through FTSE Russell products is provided for information purposes only and is not a reliable indicator of future performance.
Views expressed by Rick Rosenthal of Cboe Global Markets and Tim McCourt of CME Group are as of June 18 and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the LSE Group.
No responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for (a) any loss or damage in whole or in part caused by, resulting from, or relating to any error (negligent or otherwise) or other circumstance involved in procuring, collecting, compiling, interpreting, analysing, editing, transcribing, transmitting, communicating or delivering any such information or data or from use of this document or links to this document or (b) any direct, indirect, special, consequential or incidental damages whatsoever, even if any member of the LSE Group is advised in advance of the possibility of such damages, resulting from the use of, or inability to use, such information.
No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing contained in this document or accessible through FTSE Russell Indexes, including statistical data and industry reports, should be taken as constituting financial or investment advice or a financial promotion.
Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back- tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.
This publication may contain forward-looking assessments. These are based upon a number of assumptions concerning future conditions that ultimately may prove to be inaccurate. Such forward-looking assessments are subject to risks and uncertainties and may be affected by various factors that may cause actual results to differ materially. No member of the LSE Group nor their licensors assume any duty to and do not undertake to update forward-looking assessments.
No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group data requires a licence from FTSE, Russell, FTSE Canada, MTSNext, Mergent, FTSE FI, YB and/or their respective licensors.