The financial news outlets often talk about futures contracts on the S&P 500 to forecast the opening of US markets before 9:30 am. Well, such an indicator exists right here in Canada.

The SXF contract on the S&P/TSX 60™ index, which was launched on MX in September 1999, is the benchmark financial instrument used primarily by institutional investors to hedge a portfolio of Canadian equities. On average for 2010, more than $2 billion in value is traded daily in the SXF index futures contract compared to $3 billion for the stocks that comprise the underlying index, making the SXF an important contributor to the trading activity of the equities and equity derivatives markets in Canada.

An analysis conducted by our R&D department shows that the SXF contract has become an important barometer that accurately anticipates the direction of the S&P/TSX 60 index at the opening.

For all you math geeks out there… The SXF contract has correctly forecasted 82% of the time where the underlying spot index will open, inside a 95 percent confidence interval. What’s more, the analysis shows that the SXF contract forecasts 74% of the time the direction of the S&P/TSX 60 index at the opening of the market.

Trading on the SXF futures contract starts at 6:00 a.m., which provides three and half hours of trading activity before Toronto Stock Exchange opens. Similar to other international markets, Canadian investors have the opportunity to evaluate where the market will open by observing the behaviour of the SXF contract in response to economic news released prior to the open.

To learn more about the S&P/TSX 60 Index Futures, view our short presentation at
http://m-x.na4.acrobat.com/sxf_leading_indicator/.