It is also worth noting that the figures quoted above are the resting displayed sizes. The tight bid-ask spreads seen in both the US and EMEA morning hours are indicative of the fact liquidity is available. The top of book size on the touch is on average 10 contracts ($2M notional) whilst the first three tiers of displayed depth totals circa 35 contracts ($7.2M).
We do this for the most recent full month of data (October 2021).įigure 2 shows that the bid-ask spread during US hours when the underlying stocks are open is extremely liquid with a bid-ask of approximately two basis points.
So, what does the liquidity look like today? Below is an analysis of the typical bid-offer in terms of basis points and the depth available in different hourly windows throughout the day. What is true is that the S&P 500 and S&P 500 ESG indices are extremely highly correlated 3 and thus the liquidity found in the E-mini S&P 500 futures can be easily transferred into the S&P 500 ESG futures variant. Whilst this contract is an ESG alternative to its parent contract (S&P 500 futures), it’s unrealistic to expect that the liquidity should be similar to E-mini S&P 500 futures given that the parent futures contract is the most liquid benchmark equity index future on the planet. Taking a closer look at the liquidity profile behind the contract can be illuminating and lead to a different conclusion. Many prospective investors analyze the liquidity and OI numbers of the contract, and if their expectations are higher than where the contract is today, they might quickly dismiss the contract. ADV for 2021 is about 1K contracts per day and open interest is currently just over 14K contracts (circa $3B notional) and reached a record of over 22K in the Sep expiry week. 1 The chart below shows the contract’s accelerating ADV and open interest, and given liquidity begets liquidity, this pattern can be expected to continue into 2022. This fact has been corroborated by third party research such as by Graham Capital and others.
The E-mini S&P 500 ESG futures contract has just reached its two year anniversary and has quickly established itself as the most liquid ESG equity index futures contract on the globe.
This is beginning to change quickly, and after COP 26, the focus will likely accelerate. This article seeks to identify where liquidity is today and highlight how the product is more liquid than it may seem, allowing potential investors to explore the product more thoroughly.ĮSG and sustainability continue to be at the forefront of many investors’ minds, and whilst many investors are incorporating ESG in their securities-based portfolios, many are still at an embryonic stage and considering incorporating ESG-based derivatives. E-mini S&P 500 ESG futures are the most liquid ESG futures on the globe, but some investors are still concerned whether liquidity is strong enough to meet their needs.