European derivatives exchange Eurex has reported a 196% increase in the number of single-stock futures it traded in the first five months of this year compared with the same period last year.
From January until the end of May 2008, 95 million contracts were traded, compared with 32 million contracts in the first five months of 2007. The exchange said trading of single-stock futures usually peaks during dividend season in April and May, mostly through block trades.
Eurex’s share of the European single-stock futures market is 55%. The exchange offers 573 single-stock futures from 17 countries and in four currencies: euro, sterling, US dollar and Swiss franc.
Part of the reason for the growth, according to Eurex, is its market-making activities. Since 1 March 2008, Eurex market makers have supported basic order book liquidity for the key components of the Dow Jones Euro STOXX 50, DAX and SLI benchmark indices.
“The constant quotation of prices by our market markers allows smaller-scale institutional and private investors to take advantage of this exchange-traded product via order book liquidity,” said Peter Reitz, member of the Eurex executive board, in a statement. “Additionally, the order book also increases overall price transparency of single-stock futures.”
According to Eurex, single-stock futures are an efficient and cost-effective vehicle to manage short-term cash flows. They are also used by investors pursuing investment strategies such as 130/30 strategies, which can be easily implemented with single-stock futures as they can be sold short without the need for a securities lending agreement.
It added that the UCITS III Directive makes it easier for investment companies to invest in derivatives such as single-stock futures, and that permanent quotation of prices in the order book since 1 March has simplified trading in these instruments.