ICE Acquires Fixed Income Volatility Index from BAML

Intercontinental Exchange plans to increase the frequency of updates—from end-of-day to continuous intraday values—for a set of fixed income volatility indices that the exchange and data services provider has agreed to acquire from Bank of America Merrill Lynch. Officials say the more timely updates will be useful to investors who are watching the index as an indicator of market sentiment.

ICE’s acquisition of the the volatility indices, including the Merrill Lynch Option Volatility Estimate (Move) indices, follows the purchase and integration in the fourth quarter of 2017 of another suite of 6,000 fixed income indices focusing on sovereign, corporate and municipal debt, and is a “natural progression” for the exchange, officials say.

“It took some time to absorb the suite of over 6,000 indexes we brought over in 2017, and this was the natural next progression,” says Phil Galdi, head of ICE Data Indices.

The Move index is a measure of US interest rate volatility that tracks the movement in US Treasury bond yield volatility implied by current prices of one-month over-the-counter options on two-, five-, 10- and 30-year Treasuries. ICE will also acquire variations of Move that track different option expiries, among other similar indexes.

Move and the rest of the set of volatility indexes will become part of ICE Data Indices’ offering of fixed income, equity, commodity and currency indices that leverage ICE Data Services pricing, reference data and analytics. 

“The nice thing about our move over to ICE is that it marries us with the majority of raw materials we use to create indices. ICE has a wealth of data,” Galdi says. “One of these elements, the pricing side, is key to our ability to take over and do a good job in managing Move. We are able to obtain implied volatility pricing information that we need both for the Treasury options and the swaptions that are part of the different indices from our affiliate in ICE Data Services.”

Lynn Martin, president and COO of ICE Data Services, says current market uncertainty—such as Brexit, US-imposed tariffs on Chinese imports, and questions around the Federal Reserve’s decisions on interest rates—means that “Now is a great time to move forward with the acquisition of the Merrill option volatility indices, which tend to be an early indicator of monetary policy and the overall state of the economy.”

Martin declines to comment on whether ICE plans to buy more indices, but says ICE has always been an acquisitive company, with a proven track record of integrating companies.

During ICE’s Q2 earnings call on August 1, ICE CEO and founder Jeffrey Sprecher said these strategic acquisitions—especially the 2015 acquisition of Interactive Data—will protect the company as new competition potentially arises from the combined might of the London Stock Exchange and Refinitiv, which are awaiting approval to merge.

“What we pivoted towards in data was fixed income data more than anything. And that is a unique space. We acquired with Interactive Data a 50-year-plus history of high-quality fixed income data that is hard to replicate for new entrants simply because of time. And what we find is the buy side and sell side who are doing analytics and [need] that rich, robust dataset in order to backtest portfolio theories and other things,” Sprecher told analysts on the call.