A new study commissioned by the CME and using CFTC data concludes that large traders do not have a detrimental impact on futures markets, An Evaluation of the Influence of Large Reporting Traders on Futures Market Performance. The study tries to address the issue of whether speculators or indexers have had a negative price impact on futures trading. The study exhaustively looks at the the percentage presence of traders types in the market and measures their relationship with liquidity, volatility, price discovery, and price convergence. In all of these cases, there is little consistent evidence to show that non-commercial, indexers, or commercial users will negatively effect futures prices or the functioning of markets.
Generally, commercial users are still the most important traders in the market. Non-commercial users are more active as percentage of the total further from expiration. Indexers will enter the market in a manner consistent with index construction and exit before delivery.
Analysis of liquidity as measured by volume to open interest does not show that any particular group negatively affecting liquidity. No single group takes liquidity from the market or is related to a drop in liqudity.
While some evidence suggest that indexers and money managers have a greater presence when volatility is higher, there is no conclusive evidence that they are a cause of higher volatility.
No group is shown to have a strong negative influence on price discovery, nor is there any evidence to suggest that a particular group will negatively affect the convergence of price during the period before delivery.
The study shows that analyzing particular groups from large trader reports does not show a pattern of behavior of influence that will negatively affect market activity. This is currently the most exhaustive study of large market participants and would suggests that the futures markets are functioning fairly well. Does this mean that there cannot be be short-term behavior that may create market dislocation? No, but the overall function is competitive and a fair game. One hopes this reduces the interest by some to increase market regulation.
Generally, commercial users are still the most important traders in the market. Non-commercial users are more active as percentage of the total further from expiration. Indexers will enter the market in a manner consistent with index construction and exit before delivery.
Analysis of liquidity as measured by volume to open interest does not show that any particular group negatively affecting liquidity. No single group takes liquidity from the market or is related to a drop in liqudity.
While some evidence suggest that indexers and money managers have a greater presence when volatility is higher, there is no conclusive evidence that they are a cause of higher volatility.
No group is shown to have a strong negative influence on price discovery, nor is there any evidence to suggest that a particular group will negatively affect the convergence of price during the period before delivery.
The study shows that analyzing particular groups from large trader reports does not show a pattern of behavior of influence that will negatively affect market activity. This is currently the most exhaustive study of large market participants and would suggests that the futures markets are functioning fairly well. Does this mean that there cannot be be short-term behavior that may create market dislocation? No, but the overall function is competitive and a fair game. One hopes this reduces the interest by some to increase market regulation.
No comments:
Post a Comment