London Stock Exchange celebrates FTSE Russell’s partnership on derivatives with Cboe Global Markets

Today, London Stock Exchange markets were opened by Cboe Global Markets and FTSE Russell to mark the launch of Mini-Russell 2000® Index Options.

Mini-Russell 2000® Index Options
Russell 2000 Index Options
Russell 1000 Index Options
Russell 1000 Growth Index Options
Russell 1000 Value Index Options

Frank Russell Company (now part of FTSE Russell) was one of the pioneers in creating transparent, replicable indexes representing the size dimensions of the US equity market.  

The existence of a small-cap premium has been documented in academic research since at least 1981.1 But it was not until the introduction of the Russell 2000 in 1984 that investors had a practical index accurately representing smaller US stocks and that could be used as a benchmark for active strategies, as well as the basis of investable products.  

Interestingly, the initial impetus for and formulation of the index was largely an outgrowth of Russell’s observations of active manager behaviour. The firm’s research identified two distinct investing styles: some active managers specialized in selecting larger companies, while others focused on the smaller end of market capitalizations. The notion that large- and small-cap stocks have unique characteristics and performance profiles was confirmed by empirical research done by Fama and French in 1992. 2   The creation and widespread adoption of benchmarks that capture these different opportunity sets was a game-changer for the investment community.

In November 2020, the Russell 2000® Index saw a monthly total return of 18.4%, its highest return since February 2000.

US small-cap stocks continued their winning streak in January 2021, riding the early "blue wave" optimism triggered by the new Biden administration’s aggressive fiscal stimulus proposals, and the burst of online retail buying in a handful of small-cap stocks.

The Russell 2000 topped the list of global equity returns, climbing 5.0% for the month of January 2021 and vaulting ahead of the 0.9% decline for the Russell 1000 and the 0.9% gain of the FTSE All-World ex US.

Sean Smith, Managing Director Derivatives Licensing, FTSE Russell (part of London Stock Exchange Group) comments: “This launch of the Mini-Russell 2000® Index Options by Cboe is yet another milestone in our long-standing partnership and we are especially proud of this latest expansion of the Russell US series. The options are designed to provide direct exposure to the Russell 2000 Index in a more manageably sized and cost-effective contract. The creation of the mini contract follows Cboe's success with standard Russell 2000 options – one of the five most liquid cash-settled equity index options listed in the U.S. – and will provide investors with additional tools to execute their U.S. small-cap equity trading strategies.

As a leading provider of multi-asset, global indexes and investment solutions, our partnership with Cboe, truly provides investors with world-class solutions and services.”

Arianne Criqui, Senior Vice President and Head of Derivatives and Global Client Services at Cboe Global Markets, comments: “The Russell 2000 Index is one of the most widely followed U.S. small cap benchmarks, and we are pleased to extend its utility to a broader universe of investors by offering Mini-Russell 2000 Index options. The smaller notional value of Mini-Russell 2000 Index options offers investors potentially greater flexibility and precision when managing U.S. small-cap equity market risk or allocating among accounts. This latest product launch is representative of Cboe’s strengthened collaboration with FTSE Russell, whose leading indices combined with our derivatives expertise create opportunities to further expand our universe of index options in the years to come.”

•    More about Cboe’s Mini-Russell 2000 Index Options:
             o    https://www.cboe.com/video/17850938aa8345fbbeb11b2a1253de1e/
             o    https://ir.cboe.com/news-and-events/2021/02-01-2021/cboe-options-exchange-list-mini-russell-2000-index-options-mrut-beginning-march-1 
•    More about FTSE Russell indexes for Derivatives & the Russell 2000 Index:
             o    https://www.ftserussell.com/index/index-linked-products/derivatives
             o    https://www.ftserussell.com/index/spotlight/russell-us-indexes
             o    https://ftse-russell.foleon.com/ftserussell/russell-2000-index-quarterly-chartbook/intro
             o    https://content.ftserussell.com/sites/default/files/russell_us_indexes_recon_2020_recap_6.26.2020.pdf 
  
Risk Warning

Index-based Investing - The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Where overseas investments are held the rate of currency exchange may also cause the value of such investments to fluctuate.

1Banz, Rolf, “The relationship between return and market value of common stocks”, Journal of Financial Economics 9, 1981.

2 Fama, E. F., and French, K.R. “The Cross-Section of Expected Stock Returns”, Journal of Finance, v. 47, June 1992.

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