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.





July 2018 Richard Haynes, John Roberts, Rajiv Sharma, and Bruce Tuckman

Introducing ENNs: A Measure of the Size of Interest Rate Swap Markets


Update as of March 16, 2018

Update as of June 15, 2018

  • The paper argues that notional amount, a commonly used measure of the size of derivatives markets, does not accurately represent the amount of risk transfer in interest rate swap markets.  The paper then introduces a novel metric, Entity-Netted Notionals (ENNs), as a superior measure of market size.

  • ENNs are the sum of all net long (or short) swaps exposures, expressed in 5-year equivalents, where netting is calculated within each counterparty pair and currency.

  • As measured by ENNs, the U.S. regulated swaps market is approximately $15 trillion in size, significantly lower than the notional amount of $179 trillion.  This $15 trillion exposure is comparable in size to many other fixed income markets, like corporate bonds at $12 trillion or U.S. Treasuries at $16 trillion.

June 2018 Richard Haynes, Lihong McPhail, and Haoxiang Zhu Assessing the Impact of the Basel III Leverage Ratio on the Competitive Landscape of US Derivatives Markets: Evidence from Options
  • Market participants argue that the recent leverage ratio has become the binding constraint for certain, often low-risk derivatives businesses, such as client clearing.
  • We examine the potential effect of the Basel III leverage ratio on cleared equity futures options, products where the leverage ratio demands particularly high capital relative to risk.
  • We find that the clearing of equity options has shifted from firms subject to higher leverage requirements (e.g., US GSIB banks) to those subject to a lower requirement (e.g., banking affiliate of EU firms and non-banks).
  • We find that the shift in market shares is most evident in low-delta options, which have relatively small risk for a given notional amount, and is absent in US Treasury futures options, which are subject to a lower requirement.
April 2018 Michael Roberson (Division of Clearing and Risk) Cleared and Uncleared Margin Comparison for Interest Rate Swaps
  • The paper compares cleared margin to hypothetical uncleared margin generated by ISDA SIMM on interest rate swap portfolios currently cleared at two DCOs. First the market risk measure is examined, and then the overall initial margin figure with add-on charges included.
  • The ten-day value-at-risk as calculated by SIMM is not necessarily higher than the five-day DCO measure. The relative measures are dependent on portfolio composition, which in turn points to key model assumptions.
  • Once non-market charges are included, the cleared initial margin requirements are much closer to the equivalent uncleared figures. This may be explained by a difference in the treatment of liquidity and concentration risk across the two models. The SIMM framework extends the holding period to account for large-position liquidation risk, whereas the DCO models calculate simultaneous market and liquidity costs throughout the five-day period.

December 2017

Richard Haynes and Lihong McPhail

The Liquidity of Credit Default Index Swap Networks

  • The paper analyzes the effect of transaction networks on the liquidity of credit index swaps.

  • It finds that transaction costs fall in cases when customers trade with a larger number of dealers and when they trade with the most active dealers.

  • The paper also summarizes a few other recent credit index trends, including possible liquidity improvement like daily volume increases and reduced price impacts.  In possible contrast we do see slight trade size decreases for some contracts.

    December 2017

    Stephen Kane

    Exploring price impact liquidity for December 2016 NYMEX energy contracts

    • Examines the liquidity of the December 2016 NYMEX contracts for crude oil, natural gas, diesel, and gasoline.

    • Finds that there is excellent liquidity near expiration as well as good liquidity when there are multiple years until expiration that is improved by the trading of calendar spreads.

    • Recommends a new liquidity assessment tool that may be used to calculate initial margin for large positions or by traders wanting to establish or remove a large position.

      November 2017

      Vikas Raman, Michel A. Robe, and 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.

        November 2017

        Agostino Capponi,

        W. Allen Cheng,

        Stefano Giglio, and

        Richard Haynes

        The Collateral Rule: An Empirical Analysis of the CDS Market

        • The paper tests whether initial margin held at a clearinghouse against credit swap positions can be estimated using a traditional VaR measure.

        • This analysis finds that VaR is often not a good proxy for actual initial margin levels, with collected margin often far higher than would be implied by the VaR calculation. Other proxies which more highly weight extreme events are found to better align with empirical margin.

        • The paper also tests how certain financial frictions, like funding costs and market-level volatility, translate into changes in margin requirements.

          October 2017

          Lynn Riggs, Esen Onur, David Reiffen, and Haoxiang Zhu

          Mechanism Selection and Trade Formation on Swap Execution Facilities: Evidence from Index CDS

          • This paper uses a unique set of message data of messages from a Swap Execution Facility (SEF) to analyze the choice of trading mechanisms.

          • The paper shows that the number of dealers from whom a customer requests quotes depends on characteristics of the customer’s trade, such as the size of the transaction.

          • The paper also shows that whether the dealer responds to a quote request also depends on the size of the transaction as well as how many other dealers are being asked for a quote.

          • The paper finds that past trading relationships are also important determinants for customers’ quote requests and dealers’ responses.

            September 2017

            Esen Onur, John S. Roberts, and Tugkan Tuzun

            Trader Positions and Marketwide Liquidity Demand

            • The distribution of minutely position changes by traders explains how prices move from one minute to another.

            • The paper shows that these position changes bring new information into the market especially when they are acquired with passive orders.

            • The paper finds that our results hold in the S&P 500 futures (E-mini) and 10-Year Treasury futures markets.

            • The authors claim that passive limit orders have important impact on prices.

              June 2017 (revised from May 2015 version)

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

              Anticipatory Traders and Trading Speed (Supplemental Appendix)

              • 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.

                April 2017

                Richard Haynes, and 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.

                  March 2017

                  Nicholas Fett and 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.

                    March 2017

                    Nicholas Fett and 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.

                      March 2017

                      Raymond P. H. Fishe, Richard Haynes, and 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.

                        December 2016

                        Scott Mixon, Esen Onur, and Lynn Riggs

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

                        • 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.

                          April 2016

                          Eleni Gousgounis and Esen Onur

                          The Effect of Pit Closure on Futures Trading

                          • 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.

                            April 2016

                            Eleni Gousgounis and Sayee Srinivasan

                            Block Trades in Options Markets

                            • 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”.

                              December 2015

                              Scott Mixon

                              U.S. Experience with Futures Transactions Taxes: Effects in a Highly Intermediated Market

                              • A tax imposed on U.S. futures transactions in the 1920s and 1930s sharply reduced trading volume but had no apparent effect on market quality, volatility, or open interest.

                              • The tax had the greatest impact on market makers but did not dramatically affect longer-term positioning by other market participants.

                              • In the long-run, exchange members doubled the minimum tick size in order to offset the impact of the tax.

                                December 2015

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

                                Speed and Latency in Treasury and e-Mini Futures Contracts – Part 1

                                • This paper the speed of trading in select treasury futures markets.

                                • Speed of trading is defined as the intensity of messages sent by a trader in a specific time interval.

                                • The paper divides up the speed measure by different market participant groups.

                                • The paper finds that hedge funds, proprietary funds, and non-bank dealers have the fastest trading strategies.

                                  December 2015

                                  Richard Haynes and John S. Roberts

                                  Macro News Announcements and Automated Trading

                                  • The paper analyzes how manual and automated traders respond to expected news events by taking a detailed look at BLS unemployment announcements.

                                  • Automated traders generally reduce activity prior to the announcement, but quickly return to the market, both providing and taking liquidity, once the news has been made public.

                                  • Automated traders also generally have shorter holding periods, closing out most positions within minutes of the announcement, and tend to trade in anticipation of short-term price moves.

                                    December 2014

                                    Scott Mixon and Esen Onur

                                    Dividend Swaps and Dividend Futures: State of Play

                                    • Index dividend swaps are derivatives based on the dividends paid on stocks in an index such as the S&P 500.

                                    • We find that swaps between dealers predominate for the S&P 500 (for which dividend futures did not exist); swaps between dealers and clients predominate for European indexes (for which dividend futures do exist).

                                    • Dealers are net short dividend exposure; asset managers and hedge funds are long dividend exposure.

                                    • Our results are consistent with dealers providing products and services to clients and hedging their risk with another OTC instrument or, if available, a liquid futures market.

                                      November 2014

                                      Scott Mixon and Esen Onur

                                      Volatility Derivatives in Practice: Activity and Impact

                                      • Derivatives based on the volatility of certain market prices have become extremely active since 2008, but part of the market is traded via swaps and exhibited little transparency before the advent of regulatory data.

                                      • We find that the magnitude of risk transfer conducted via positions in the variance swap market is comparable to the risk transfer conducted via the listed option market – over USD 1 billion in notional vega outstanding in each.

                                      • We find that VIX futures are used mostly for near-dated transactions and are actively traded, but swaps are used for longer-dated positioning and trade less frequently.

                                      • Asset managers tend to be net long volatility exposure, with dealers and leveraged funds net short volatility.

                                        October 2014

                                        Raymond P. H. Fishe, Michel A. Robe and Aaron D. Smith

                                        Foreign Central Bank Activities in U.S. Futures Markets


                                        • Analyzes the daily positions of 31 foreign Central Banks in U.S. interest rate futures markets between 2003 and 2011.

                                        • Documents that Central Bank positions generally account for a small fraction of the overall size of the futures markets

                                        • Shows that Central Bank positions before the financial crisis of 2007-2009 are consistent with hedging some underlying balance sheet exposure. During and after the crisis, the pattern suggests an attempt to enhance returns.

                                        • Examines whether Central Bank position changes tend to occur simultaneously. Finds differences before and after the onset of the financial crisis: Euro-linked Central Banks become more synchronized, whereas non-European Central Banks show no significant change during the crisis.

                                          August 2014

                                          Celso Brunetti and David Reiffen

                                          Commodity Index Trading and Hedging Costs

                                          • This paper develops a model of commodity index trader (CIT) behavior that derives implications for the behavior of futures prices for nearby and deferred contracts.

                                          • The paper tests these implications using a unique non-public dataset that allows for precise identification of trader positions.

                                          • The results support the model’s predictions. For example, it finds that larger CIT positions lead to a smaller “price” of hedging.

                                          • Another key finding is that, consistent with the theoretical model, the spread between prices of nearby and deferred contracts increases with the percentage of CIT holdings in the first deferred contract.

                                            July 2014

                                            Grant Cavanaugh, Michael Penick

                                            The Lifecycle of Exchange-traded Derivatives

                                            • This paper uses a Bayesian analysis to study volume and lifecycle patterns of exchange-traded futures contracts during the 20th and early 21st centuries.

                                            • The paper finds that the advent of electronic trading at the beginning of the 21st century coincided with a shift in volume and lifecycle patterns.

                                            • Prior to the advent of electronic trading, most futures contracts failed (ceased to be listed) for not maintaining sufficient volume levels.

                                            • After electronic trading was implemented, far more contracts were listed, but failure rates declined since contracts were more likely to achieve sufficient volume to survive.

                                            • Outside of exchanges listing single stock futures, success and failure rates do not appear to vary by listing exchange.

                                              Older Research Papers:

                                              July 2014 Steve Y. Yang, Qifeng Qiao, Peter A. Beling, William T. Scherer, and Andrei A. Kirilenko Gaussian Process-Based Algorithmic Trading Strategy Identification

                                              April 2014

                                              Matthew Baron, Jonathan Brogaard, and Andrei Kirilenko

                                              Risk and Return in High Frequency Trading

                                              March 2014

                                              Hendrick Bessembinder, Allen Carrion, Laura Tuttle, and Kumar Venkataraman

                                              Predatory or Sunshine Trading? Evidence from Crude Oil ETF Rolls

                                              March 2014

                                              Andrei Kirilenko, Albert S. Kyle, Mehrdad Samadi, and Tugkan Tuzun

                                              The Flash Crash: The Impact of High Frequency Trading on an Electronic Market

                                              March 2014

                                              Ing-Haw Cheng, Andrei Kirilenko, and Wei Xiong

                                              Convective Risk Flows in Commodity Futures Markets

                                              December 2013

                                              Mark Endel Paddrik

                                              Assessing Financial Markets through System Complexity Management

                                              December 2012

                                              Vikas Raman, Michel Robe, and Pradeep K. Yadav

                                              Electronic Market Makers, Trader Anonymity and Market Fragility