CHICAGO (Reuters) - CME Group (CME.O) and IntercontinentalExchange (ICE.N) said on Wednesday that trading volume dropped last month, which analysts attributed to MF Global's collapse and Europe's debt crisis chilling trading in U.S. futures markets.
CME, the biggest U.S. futures exchange operator, said trading dropped 9 percent last month to an average of 9.6 million contracts a day, taking the shine off a record-setting year.
The decline was driven by a 30-percent dive in interest-rate trading as Europe's simmering debt crisis put a damper on expectations that the U.S. Federal Reserve might veer from its current near-zero rate policy.
The Fed's announcement on Tuesday that it will begin publishing short-term rate forecasts this month bodes poorly for future CME volume, said Raymond James analyst Patrick O'Shaughnessy.
"Whether the Fed signals it will keep rates the same or will begin raising them at some point in the future, it will decrease uncertainty" about the future path of borrowing costs, he said. "Hedging is meant to decrease uncertainty, and if someone else does it for you, the less need there is to hedge using futures."
At ICE, average daily volume last month fell 1.3 percent from a year ago to 1.1 million contracts, with the biggest declines in WTI crude futures and options and in agricultural products like sugar. ICE said it still set a record annual futures volume.
CME and ICE declined to comment beyond the data.
There were multiple reasons for trading activity to slow in December, including the fact that it was a volatile year for many firms, analysts said.
"There's just a pullback in risk appetite," said Matthew Heinz, research analyst for Stifel Nicolaus, noting a decline in open interest at CME.
Heinz, who covers CME, said "there's very little the exchanges can do" to coax traders back into the markets. Upcoming gains or losses in volume will depend largely on whether the global economy improves, he said.
Daily turnover for CME's interest rate futures averaged 3.5 million contracts a day in December, down 30 percent year-on-year, according to the exchange.
The decline outpaced a drop in trading of agricultural products like corn and wheat, which saw average volume slip 2 percent from December 2010 to 821,000 contracts a day, according to CME.
Agricultural volume, in particular, was hurt by MF Global's collapse, as the brokerage was a major player in grain markets, analysts said. MF Global also was the biggest broker on the CME's New York Mercantile Exchange.
The firm, run by former New Jersey governor Jon Corzine, went bankrupt on October 31 after making bad bets on European debt. Customers have not yet received an estimated $900 million worth of money from their accounts, which remain frozen as regulators search for missing funds.
Some traders have lost confidence in CME's ability to regulate brokerages like MF Global and to protect customer money held in segregated accounts.
"People are just trading less given the environment," said Rich Repetto, a principal of Sandler O'Neill and Partners who covers both exchanges. "MF Global, you can't say it's not having an impact. It's not good for the industry."
Daily turnover in ICE's Brent crude oil futures and options averaged about 382,000 contracts last month, up 7.7 percent on the year, according to that exchange. That marked a smaller gain than in recent months.
Strength in the U.S. dollar in December may have contributed to weaker volume in commodities markets, said Mike Zuzolo, analyst for Global Commodity Analytics and Consulting. A firm dollar makes U.S. commodities less attractive on the world market.
Zuzolo said it remained unclear when and if traders hurt by MF Global would return to levels of market activity seen before the collapse.
"The jury's still out," he said. "Money is still there. It's on the sidelines."
(Editing by Bob Burgdorfer)