Eurex unveils swap futures, FX offering

Frankfurt-based derivatives exchange Eurex announced two new swap futures products for launch in September and new FX futures and options, scheduled to go live in July.

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Frankfurt-based derivatives exchange Eurex announced two new swap futures products for launch in September and new FX futures and options, scheduled to go live in July.

The expansion of Deutsche Boerse-owned Eurex’s product range comes amid increased competition between derivatives exchanges on both sides of the Atlantic. Post-crisis reform of the hitherto bilateral OTC derivatives market – notably requiring the centralised clearing and electronic trading of liquid rates and credit swaps – has led exchanges to introduce innovative new contacts to capture market share.

Mehtap Dinc, member of the Eurex Executive Board, said in a conference call market conditions were creating an opportunity for standardised exchange-traded interest rate swap contracts.

Eurex will launch euro swap futures based on physically settled two-, five- ,10- and 30- year euro-denominated swap contracts on 1 September, she said.

The euro swap futures are designed to offer market participants broadly the same economic market risk as an OTC interest rate swap (IRS), to hedge European swap portfolios and to trade asset-swap spreads in combination with Eurex’s liquid European government bond futures. Swap futures generally are seen as appealing to users as they attract lower margin requirements than cleared swaps.

Dinc said, “That will complement our offering in the long-term interest rate derivative space… it will allow for the replication of an asset swap product on an exchange for the first time.”

Dinc said several banks had shown an interest in the product.

The swap futures will be cross-margined with other Eurex fixed income futures. Asset swap spreads with German, Italian and French government bonds will be tradable via order book or through Eurex trade entry services.

Clients will be able to trade the product, provided they have a futures clearer that is also a member of EurexOTC Clear, said Dinc.

Dinc said, “If a contract has not been closed, or rolled over, we will have a physically-delivered product which will settle into an OTC IRS contract which will then be cleared by our daughter company Eurex Clearing.”

Eurex also released details of one-month euro secured funding futures, based on short-term order book transactions on Eurex Repo's GC Pooling repo market.

Hartmut Graf, chief executive officer of Deutsche-Boerse-owned index provider STOXX, said they were cash settled futures, structurally similar to forward starting Eonia swaps along monthly European Central Bank dates, but with a different reference index.

The product will be the first globally to allow hedging and trading of euro GC repo interest rate risk outright or against Eonia.

Graf said, “This product is based on actual transactions. It is an objective index compared to other indices recently in the market, which are based on quotes and indications only.”

Dinc said that Eurex would also launch FX futures and options in six currency pairs on 7 July.

The six pairs are euro-US dollar, euro-Swiss franc, euro-sterling, sterling-dollar, sterling-Swiss franc, and dollar-Swiss franc, to be physically settled through the Continuous Link Settlement (CLS) system.

CME Group’s European derivatives exchange started trading last month, offering 30 FX futures products.