Some 99.7 per cent of the volume in Russell 2000 futures is still traded on the CME, although investors had the opportunity to start moving their positions to ICE Futures last year. Some of the transition strategies could revolve around the expiration of the June contract, because waiting for the September expiration might create a volume stampede at the last opportunity to exit CME positions in possibly volatile market conditions. Other index futures might be affected by price swings in the Russell index if the transition does not take place in an orderly manner. “Our estimate is that some movement of positions will take place with the June [contract] cycle where some Clifton clients would move their Russell 2000 futures positions to ICE during the roll phase,” said Jack Hansen, chief investment officer at The Clifton Group.

Clifton manages US$21 billion in equity index listings, which include exchange-traded funds and options and futures on the index. “The way it should happen with most parties would be to buy the calendar spread (offsetting positions on two contracts with different expiration dates) on ICE; investors will get long the September contract and short the June contract. Through that spread transaction, the June short positions will match long positions for the June contract on CME,” Hansen explained.

Margin costs Margin costs are likely to be affected as well: Russell 2000 investors who own other CME index contracts can net all of their positions and benefit from a margin offset. But buying the Russell 2000 contracts on ICE Futures might increase margin costs at first, as investors might not have offsetting positions there. Transaction costs also could be affected because the CME still has deep liquidity in that listing. While liquidity builds up progressively on ICE Futures, spreads could be wider at first, providing an opportunity for sophisticated arbitrageurs of the two markets.

While ICE paid upfront a significant premium to lure Russell’s flagship index to its platform, it was not greed or fear of the CME’s overwhelming growth that clinched the deal. “As an index provider, our most effective method of competing is as an index family. We did not feel we were going to be able to expand futures products without making this move to ICE,” said Kelly Haughton, founder and strategic director of Russell Indexes. “ICE is committed to the Russell 2000, but also to having a family of Russell products.”

With derivatives on the Russell 1000 and 3000 indexes already on ICE Futures, the Russell 2000 move puts all Russell contracts under one roof. According to industry sources, Russell executives were disappointed that the large-cap Russell 1000 futures contract failed to build any volume on the CME, where it traded between 2003 and 2007.