Regulatory uncertainty pushes Eurex volume down 10%

Uncertainly over regulation has led to an almost 10% fall in volumes on Deutsche Börse Group’s Eurex European derivatives exchange.

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Uncertainty over regulation has led to an almost 10% fall in volumes on Deutsche Börse Group's Eurex European derivatives exchange.

Equity derivatives trading has been hit hard by uncertainty over the direction of European derivatives regulation, according to Deutsche Börse, but interest rate derivatives have experienced healthy growth, second quarter figures from the exchange operator show.

European equity index derivatives traded on Eurex dropped 23% to 175.6 million contacts in the second quarter of this year from 229 million in Q2 2012.

Equity derivatives were also down, dropping 6% to 153.5 million contracts in the quarter.

However, interest rate derivatives have grown, jumping 10% to 141.8 million contracts in Q2 2013, from 128.7 million for the same period in 2012. The figures show total European derivatives volume fell 9.3% in Q2 2013 to 473 million contracts.

The group said that European regulation was largely to blame for the fall in equity derivative volumes, as well as economic factors.

In its Q2 statement, it said: "the second quarter of 2013 was dominated by the central banks' low interest rate policy, the European debt crisis and continuing extremely low volatility on the stock market."

"The effects of ongoing regulatory projects in the financial industry also remain a source of uncertainty. These conditions led to more cautious trading by market participants, especially in equity index derivatives.

The decline in volumes led to Eurex reporting a net revenue reduction of 6% to €202.3 million, while earnings before tax dropped 12% to €114.9 million.

The positive trend in interest rate derivatives trading was largely attributed to expectations that central banks, particularly the US Federal Reserve, will end their quantitative easing programs and begin to increase interest rates.

The group's US-based derivatives exchange, the International Securities Exchange (ISE) saw increased volumes. Its US options volume climbed 4% to 172.4 million contracts, largely due to increased volatility. However, ISE market share declined due to higher overall US options activity, falling16.9% in Q2 2013, from 17.5% in Q2 2012.

The group has recently introduced volatility derivatives and dividend products, both of which saw growth. Volatility derivatives growth was particularly strong, up 47% in Q2 to 1.7 million contracts, while dividend derivatives grew 7% to 1.5 million contracts.