TAIFEX, the Taiwan futures exchange, has entered into a deal with Germany's Eurex Exchange that will offer Europe-based traders the ability to trade and clear Taiwanese derivatives products.
The strategic alliance between Deutsche Börse-owned Eurex - one of Europe's largest derivatives bourses - and TAIFEX was agreed via a letter of intent that was signed today. The agreement will aim to establish a link between both markets, starting with the ability to trade and clear derivatives based on Taiwan's TAIEX equity index.
Eurex plans to list TAIEX options and futures on its platform from Q4 2013, subject to regulatory approval.
TAIFEX and Eurex predict the link will stimulate liquidity and improve the efficiency of trading Taiwanese derivatives.
Last month, TAIEX options reached an average daily volume of over 500,000 contacts, compared to 100,000 for TAIFEX.
The partnership is the first major link established by the Taiwanese market to an international market operator and the country's market regulator the Securities and Futures Bureau has stated it will encourage the development of other mutually beneficial initiatives.
"The partnership with Eurex is part of our strategy to sustain the competitiveness in the fast-changing global derivatives market," said TAIFEX chairman Tony Fan. "Licensing our flagship products TAIEX futures and TAIEX options to Eurex as the underlyings of daily expiring futures is a major milestone in the Taiwan capital market. This cooperation will enable investors to trade TAIEX futures and TAIEX options while the TAIFEX market is closed. Our members can also thereby expand their business by providing customers with diversified products and services."
By listing products on Eurex, TAIEX options and futures can be traded after the local market shuts, for the first time – so they can be traded during US and European market hours. At the end of each trading day at Eurex, the open interest will be transferred to the TAIFEX clearing house.
"This cooperation is a major milestone of our Asia strategy to broaden our global product suite," said Eurex CEO Andreas Preuss. "Our members will benefit from direct access to one of the most successful derivatives contracts in Asia, while Taiwanese market participants will have the opportunity to trade Taiwan's most liquid index derivatives contracts during Taiwanese after hours. The cooperation also aims to attract new Eurex customers for TAIEX products outside of Taiwan and increase the interest for Eurex products from Asia-Pacific."
Linking with TAIFEX is part of Deutsche Börse's strategy to increase its presence in Asia after CEO Reto Francioni identified growth in the region as one of the market operator's main priorities.
"Some thing is clear: the crucial growth in our markets will not take place in the future in Europe or North America, but instead in Asia and Latin America," Francioni said at Deutsche Börse's New Year Reception in Frankfurt last month.
Eurex already has a similar derivatives deal in place with the Korea Exchange, allowing it to offer trading in KOSPI daily futures contracts after the Korean market has closed.