In the second of a three part series, Caterina Caramaschi, the global head of interest rates and equities at Intercontinental Exchange, looks back over her first year in the role (continued from August 14).

As well as SONIA and Euribor, ICE’s three month Swiss Average Rate Overnight (SARON) futures have also had a good 2023, beating half a million lots traded in March and June.

Caramaschi said: “SARON, which also went through a transition, is also doing very well with average daily volume up 123% year-to-date. We were the guinea pigs as the first exchange to go through a Libor transition with both SONIA and SARON. Credit goes to the rates team as it was a challenge which involved extensive client engagement, ensuring we have market-makers to build liquidity, support from back office and clearing, in addition to IT readiness.”

While Caramaschi is rightly pleased with the progress of ICE’s SONIA, Euribor and SARON books, CME Group is currently winning the battle for the market of derivatives referencing the US Libor alternative, the Secured Overnight Financing Rate (SOFR). CME launched its SOFR futures in May 2018, closely followed by ICE’s rival product in October that year.

But, for Caramaschi, her first year has been about one thing – securing ICE’s status as the British rates market while the future may see more innovation.

She said: “We are the home of the UK rates franchise, so the focus has been on SONIA in the months since my responsibilities expanded to our rates business. However, we want to expand our multi-currency offering. We still have more work to do to improve SONIA liquidity but we have come a long way. Euribor is doing well but there are opportunities to expand and improve our offering in Euro rates as well.”

One opportunity for ICE could be in Euro short-term rate (ESTR) futures but there are no immediate plans to promote ESTR instead of Euribor so ICE is in no rush.

Equities

While the Truss mini-budget was the dominant event in UK rates, inflation has weighed heavily on equities indices this year, restricting demand for hedging products like those offered by ICE.

Caramaschi said: “Equity Index Futures ADV in general are down by volumes across exchanges. Equity markets volatility has been coming off this year and we are close to pre-pandemic lows. It’s no surprise year-on-year ADVs comparisons are down as we are comparing a low volatility year with a high volatility environment last year.”

ICE Futures Europe has two equity index franchises: MSCI where it competes with Eurex and Hong Kong Exchanges and Clearing, and FTSE where ICE rivals Eurex again and, to a lesser extent, Singapore Exchange.

Caramaschi said: “If you’re looking at MSCI Futures open interest, there is a big pool of open interest in our market concentrated in MSCI Emerging Markets and MSCI EAFE (Europe, Australasia, and the Far East) Futures. If you look at traded volumes of global MSCI Futures, ICE has over 70% market share and that is because our MSCI Emerging Markets and MSCI EAFE Futures are established benchmark contracts which, based on notional open interest, are ranked in the top 10 index futures globally.”

A key theme in the equity derivatives market is offering environmental, social and governance (ESG) versions of the main blue-chip lists to allow institutional investors and pension funds to manage better their exposure to the underlying indices.

ICE, too, is working hard in this sector. “When we made the decision to go into the ESG space, we decided not to go with “light touch” ESG but instead opt for the “greener indices”, so we started with the MSCI ESG Leaders Indices followed by the MSCI Climate Paris Aligned Indices. We are seeing good growth in our MSCI ESG and climate futures, volumes are up 24% year-to-date and notional open interest has exceeded $1.5billion (£1.2bn) up 51% year-on-year” said Caramaschi.

She continued: “ICE doesn’t just offer futures on ESG and climate indices, one of the many things ICE is proud about is we have been a global leader in environmental markets for nearly two decades. We offer the most liquid environmental markets, and our range of products are integral to valuing externalities and balancing the world’s finite carbon budget.”

To be continued on August 16