Research Papers

The Office of the Chief Economist produces original research papers on a broad range of topics relevant to the CFTC’s mandate to foster open, transparent, competitive, and financially sound markets in U.S. futures, option on futures, and U.S. swaps markets. In this role, the papers are written, in part, to inform the public on derivatives market issues and can be freely accessed below. They are commonly presented at academic conferences, universities, government agencies, and other research settings.  The papers help inform the agency’s policy and regulatory work, and many are published in peer-review journals and other scholarly outlets.

The analyses and conclusions expressed in the papers are those of the authors and do not reflect the views of other members of the Office of Chief Economist, other Commission staff or the Commission itself.

Date Author Names Title
Vikas Raman, Michel A. Robe, Pradeep K. Yadav

The Third Dimension of Financialization: Electronification, Intraday Institutional Trading, and Commodity Market Quality

  • Provides the first detailed empirical evidence on the financialization of intraday trading activity in WTI futures.

  • Shows that electronification of U.S. crude oil futures trading in 2006 brought about a massive growth in intraday activity by “non-commercial” institutional financial traders.

  • Shows that this development had a first-order positive impact on market liquidity (spreads, depth) and pricing efficiency.

  • Finds notable differences between contributions of high-frequency traders (HFTs) vs. other (non-HFT) institutional financial traders to different market quality attributes.

Nicholas Fett, Lihong McPhail

Stop Orders in Select Futures Markets

  • This study analyzes the use of stop orders for E-mini S&P 500, Ten year Treasury and WTI Crude oil futures markets.
  • Stop orders are executed more often on volatile days and provide liquidity in the direction of the price move.
  • Average resting time for stop orders have decreased over the sample period we analyze.
  • Slippage, the difference between the execution price and stop order trigger price, can be significant at times. However, exchange implemented protections limit the magnitude of the slippage.
Raymond P. H. Fishe, Richard Haynes, Esen Onur

Anticipatory Traders and Trading Speed

(Supplemental Appendix)

Journal of Financial and Quantitative Analysis Volume 54, Issue 2 April 2019, pp. 729-758 https://doi.org/10.1017/S0022109018000832

  • The paper introduces a new technique to identify short-term price trends.

  • The paper identifies market participants who can correctly anticipate price peaks and troughs and trade in response to these predictions.

  • The paper finds that speed is not necessary to successfully execute this anticipatory strategy in the WTI crude oil futures contract.

  • The paper also finds that traders who acted early after a peak or trough have price impacts in the market.

  • The authors claim that anticipatory strategies may have become more difficult to implement in recent years, particularly for those traders who acted early after a peak or trough.

Richard Haynes, John S. Roberts

Automated Trading in Futures Markets

  • The paper investigates the prevalence of automation across futures markets and tracks changes over the period of 2012 through 2016.

  • Automation during that period is often highest in financially based instruments like FX futures, the S&P Emini and U.S. Treasuries. Automation is commonly lower for physical commodities, including grains, softs and livestock.

  • Over time, most markets have gotten faster, with order resting times and execution times decreasing within the four year period. The level of change in market speed appears to have flattened in recent years.

Nicholas Fett, Richard Haynes

Liquidity in Select Futures Markets

  • The paper measures the liquidity of a few highly liquid futures products (U.S. Treasuries, the S&P E-mini) across a number of different metrics.

  • Generally, liquidity across the selected contracts has remained steady or has improved in recent years, at least relative to a few metrics like order book depth, bid-ask spreads and realized execution costs.

  • More generally, the paper highlights a set of measures that can be utilized on an ongoing basis for futures liquidity monitoring.

Nicholas Fett, Richard Haynes

The Futures Trading Landscape

  • The paper examines how different participant classes, including asset managers, banks, and corporates, make use of futures markets, and how this may have changed through time.

  • Participation levels by class can vary widely across futures contracts, with end-users/corporates having a much larger presence in physical commodities and others, like asset managers, much more concentrated in financial products.

  • Many other metrics vary significantly depending on participant type, including average trade size, whether the trade is done on a principal or agency basis, and whether trades tend to be more concentrated in spreads or outrights.

Raymond P. H. Fishe, Richard Haynes, Esen Onur

Speed and Latency in Treasury and e-Mini Futures Contracts – Part 2

  • The paper analyzes how long it takes for traders to place new orders in the limit order book.

  • The paper also studies what kinds of signals traders observe from the changes in the limit order book might affect the time to new order placement.

  • E-mini futures, ten-year treasury futures, and thirty-year treasury futures are explored.

  • he paper finds that manual traders pay more attention to changes in the limit order book than algorithmic traders.

Scott Mixon, Esen Onur, Lynn Riggs

Exploring Commodity Trading Activity: An Integrated Analysis of Swaps and Futures

UPDATED TITLE: Integrating swaps and futures: A new direction for commodity research
Journal of Commodity Markets Volume 10, June 2018, Pages 3-21
https://doi.org/10.1016/j.jcomm.2017.06.001

  • This paper combines futures and swaps data for main commodities derivatives by positions held by dealers and end-users.

  • The paper offers a detailed analysis of the WTI crude oil swaps and futures derivatives.

  • The paper finds that commercial end-users have a larger presence in WTI crude oil swaps than financial end-users do.

  • The paper emphasizes that joint study of swaps and futures data is key for understanding true exposures in derivatives markets.

Eleni Gousgounis, Esen Onur

The Effect of Pit Closure on Futures Trading

Journal of Commodity Markets Volume 10, June 2018, Pages 69-90
https://doi.org/10.1016/j.jcomm.2017.11.002

  • This paper studies the Chicago Mercantile Exchange’s (CME) decision to close down most of the futures pits in July of 2015.

  • The study focuses analysis on livestock and treasury futures markets, which had considerable pit activity prior to its closure.

  • The paper finds that execution costs following the pit closure appear to have increased for livestock futures and declined for treasury futures.

  • The paper does not detect any shift in the timing of the trading hours following the closure of the pits.

Eleni Gousgounis, Sayee Srinivasan

Block Trades in Options Markets

Journal of Futures Markets, forthcoming

  • CME reduced the block threshold for crude oil options in 2012.

  • This paper evaluates the effect of this change on the trading activity and the execution costs of large pit, electronic and block orders. 

  • The proportion of block and electronic trading increased, while trading at the pit declined prior to its eventual closure in 2016.

  • Block orders are mostly liquidity driven and currently represent about 30% of the volume in crude oil option trading strategies.

  • The electronic order book provides a cost efficient execution for option trading strategies, but it absorbs relatively smaller “large orders”.