(Bloomberg) -- The closure of U.S. trading floors has taken some liquidity out of the futures market as volumes shifted to exchange-traded funds, according to Peak6 Investments LLC.
It has become more difficult to trade S&P 500 e-mini futures as volume has migrated to products based on the all-electronic SPDR S&P 500 ETF Trust, said Neel Shah, a senior trader at the options trading firm.
“If you’re a broker, you have access to tons of liquidity providers in the pit. Now, that doesn’t exist anymore,” Shah said in a phone interview. “All those brokers are upstairs, and to call up 10 people is going to take longer to source that liquidity.”
For example, open interest in put options on S&P 500 futures has not really recovered since March contracts expired, while the same measure in the SPY (NYSE:SPY) ETF has climbed, he said.
Stock exchanges around the world have been forced to shift to electronic trading in order to control the spread of the coronavirus. CME Group Inc. (NASDAQ:CME) closed its Chicago trading floor on March 13, while the New York Stock Exchange shut its equity and options trading floors on March 23 after an employee and a person who worked there both tested positive.
Still, there are signs the disruption to the market is coming to an end, according to Shah. While futures bid/ask spreads were significantly wider in the peak part of the rout due partially to the lower liquidity, they are “getting back to normal” now, he said.
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