May was a record month for the global futures and options markets – and by a huge margin. Now that nearly all derivatives exchanges have reported their trading volumes, FOi’s database reports that 2.204bn contracts changed hands in the month.

That beat the previous record of 1.888bn in September 2008, the month when Lehman Brothers collapsed. May 2010’s trading was 16.7% busier than that – an astonishing margin of one sixth.

The next biggest month was October 2008, with 1.681bn contracts, before volume plunged to around 1.2bn contracts a month for the next four months – similar to levels in 2007.

For a whole year, from March 2009 to February 2010, the market was then stuck on about 1.5bn trades a month.

It is only in March, April and May that volumes have really rebounded, to 1.767bn, then 1.797bn and now a new record.

As FOi highlighted at the beginning of the month when leading exchanges CME Group, Eurex, NYSE Liffe and Intercontinental Exchange, as well as the US options market, all released record trading numbers, the surge in activity was the result of a broad-based increase across all asset classes and regions.

Fear and greed

Both bullish and bearish factors swelled trading, ranging from brisk speculation on energy as the global economy recovers to shuddering volatility in stockmarkets and currencies as markets feared defaults by European governments and banks, or even the breaking of the euro.

Volume in the Asia and Pacific regions was 812.6m contracts, 27.5% above the previous record, set in the previous month.

In Europe, trading of 497.9m contracts was 24.3% higher than the previous peak month of September 2008 and 32% above April’s volume.

The US scored a record too, but by a lower margin – its 735.4m total was 4.6% above September 2008’s 703.3m, itself only a shade above the 694.2m of trades in January 2008.

The only big region that did not hit a new peak was South America, where 144.5m contracts were traded, before counting results from Mexico, expected to yield about another 2m.

That was a shade more trading than in April, but not as much as the massive 168.4m total in March, which was 52% above the previous record.

Almost every asset class in record territory

By asset class, agricultural and soft derivatives traded 80.87m contracts – the eighth highest month ever, but well below March’s all time peak of 98m.

In energy it was a record month with 61.67m trades, a whisker above April’s 60.3m, but more significant is what looks like a steady trend of month-on-month increases, mainly driven by US trading, that has been running since February.

Metals’ total of 69.8m contracts beat the previous top month of November 2009, when there were 66.3m trades. Growth was shared between all the main regions of Asia, Europe and North America.

But the real fireworks came in equity and rates derivatives. In the single stock category, May’s total of 711.9m contracts was 12% above September 2008 – even though that month’s 635m total had been swelled by a freak 123m of South African trades. Johannesburg produced only 6.3m trades in May.

No other month has come close to September 2008, the next highest being April 2010 with 607m contracts.

Since 2008, South America (essentially Brazil) has doubled to 86m trades, the US has increased slightly, but the big gainer, just in the last two months, has been the European market, where there were 161m trades in April and 208m in May – against a previous record of 150m in May 2008.

What flash crash?

In equity index derivatives the decisive factor in record volume of 776.8m contracts may have been political tension between the two Koreas.

Despite all the hoohah about the May 6 ‘flash crash’, North America’s volume of 125m was not a record, though it was the biggest month apart from September and October 2008, which had 143m and 159m trades. It was a similar picture in Europe, where the total was 132m contracts.

The big jump came from Asia, with 506m contracts traded – far above that region’s previous peak of 426m in September 2008. Some 30m of that growth came from the famous Kospi 200 Futures and Options at the Korea Exchange, which hit new volume highs on worries about North Korean aggression. The next most important market was India, which has grown from 41m to 64m in the past two years.

Long term interest rate derivatives are not yet at record levels. The monthly total of 151m trades was exceeded once in 2006, six times in 2007 and four times in 2008. But the size of the recovery in rates has been crucial to pushing the overall futures and options market to a new record – some 50m more bond contracts went through in May than at the end of last year. The market is now well on the way to June 2007’s record of 190m.

Short term rates are still more bullish. May’s haul of 186m contracts beat every month since January 2008, and the market has doubled in volume since its slump at the end of 2008. Apart from the bumper month of August 2007, the Stirs market is now back close to its highest ever levels.

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