CME Group Targets Priced-Out Retail Traders With Nano-Sized Futures

The CME (#CMEGroup) has announced plans to launch E-nano equity index futures on 24 August, pending regulatory review, extending its smaller-sized contract suite to one-tenth the size of the existing Micro E-mini contracts.

The contracts will cover the S&P 500, Nasdaq-100, Russell 2000 and Dow Jones Industrial Average, and will trade 23 hours a day. The exchange says the smaller notional size is intended to allow institutional and retail investors to optimise exposure to those benchmarks with additional precision for risk management strategies.

The move follows a sustained rise in US equity index levels, which has pushed up the cash value of even the smaller existing contracts and, with it, the margin required to hold a position. The exchange's response to this pressure is to cut notional size to continue to allow retail participation: it cut contract sizes with the Micro E-mini launch in May 2019, since when approximately 4.5 billion of those contracts have traded. Demand in the smaller-sized complex has continued to build, with Micro E-mini Nasdaq-100 futures reaching a record monthly average daily volume of 3.2 million contracts in June, and Micro E-mini S&P 500 futures a record quarterly average daily volume of 1.5 million contracts in the first quarter.

"As equity markets continue to reach all-time highs, the barrier to entry has increased for retail investors, creating a need for even smaller contracts that deliver cost efficiency and enhanced flexibility," said Tim McCourt, Global Head of Equities, FX and Alternative Products at CME Group. "E-nano equity index futures will enable our clients to hedge their portfolios with an unprecedented level of granularity, all within the trusted infrastructure and centralized liquidity that is available from CME Group."

Retail brokers positioning around the launch point to the mechanics that separate futures from cash equity and ETF exposure - leverage embedded in the margin structure, offsets across correlated positions, and the ability to trade through overnight macro events rather than waiting for the US cash open.

"U.S. equity markets have been on a historic run, and that's great news for investors; however, they're operating without the benefits that futures uniquely provide, such as capital efficiency, margin offsets and nearly 23-hour access to trade macro events as they unfold," said Martin Franchi, CEO, NinjaTrader Group. "Nano-sized equity futures through CME Group change that calculus. We see this as another significant expansion of access to U.S. equity futures, and NinjaTrader is proud to bring it to our community."

"Launching nano-sized equity index futures later this summer is another key milestone in Robinhood's mission to democratize access for all," said JB Mackenzie, VP and GM of Futures and Prediction Markets at Robinhood. "As major US equity benchmarks climb to historic highs, some retail traders are being priced out of existing futures products. We're excited to work with CME Group to make it even easier for customers to trade these benchmarks with contracts that are one tenth the size of what's available today."

Both brokers have expanded their futures offerings to retail clients in recent years, and the participation of platforms of that type in a launch announcement indicates where the initial distribution is expected to sit.

E-nano equity index futures will be listed on and subject to the rules of CME and CBOT.

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