NYSE Euronext Plans New MSCI Index Futures, Fee Incentives

NYSE Euronext (NYX) will expand its nascent stable of equity index futures to include Europe- and Asia-focused products in the coming months, according to the top executive of its U.S. futures unit.

NYSE Liffe US, which on Tuesday launched its first futures based on MSCI Inc. (MXB) indexes, will also offer new fee incentives to draw investors already trading exchange-traded funds on those indexes.

"This is the tool to bring in new participants," said Tom Callahan, chief executive of NYSE Liffe US, in an interview.

Callahan described day-one volume as "modest" in the initial three equity index futures, based on MSCI's USA, Emerging Markets and Europe Australia Far East stock indexes.

The exchange's licensing agreement with MSCI covers 41 stock indexes, and Callahan said new contracts focused on Europe, Asia and BRIC nations will follow, with two to three new contracts rolling out each quarter.

To build liquidity in the new contracts, NYSE Liffe US is counting on some of the $3 trillion tracking MSCI's family of indexes globally.

In particular, the exchange seeks to tap the strength of corresponding exchange-traded funds. Two of the five largest ETFs in the U.S., with more than $60 billion in combined assets under management, are benchmarked to MSCI's emerging markets and EAFA indexes.

Combined turnover in the major ETFs tracking MSCI indexes has topped $600 billion so far this year, and Callahan said NYSE's electronic Arca platform is a prime trading venue for the products.

"There's very high demand in the cash form for [ETFs] that track these indexes, so there should be strong demand for futures as well," Callahan said. "If you're a market maker in these ETFs, you can buy and sell futures to hedge your positions."

The exchange is in the final stages of developing the NYSE Liffe Routing System, which will let investors trade futures and ETFs side-by-side on the same screen.

Callahan targeted an October launch for the new service.

NYSE Euronext continues to seek equity investors for its U.S. futures platform, where major Wall Street banks could help drive trading activity as stakeholders.

Discussions are in progress, Callahan said, but were delayed as the exchange entered into an agreement earlier this summer with the Depository Trust and Clearing Corp. to create a new clearinghouse for interest rate-linked derivatives.

The venture, slated for a mid-2010 launch and dubbed New York Portfolio Clearing, will enable side-by-side clearing of derivatives and cash Treasurys.

-By Jacob Bunge, Dow Jones Newswires; 312-750-4117; [e-mail]