The TRADE names Eurex Outstanding Derivatives Exchange Group 2021

We have focused intensively on supporting the market during the pandemic and on promoting important trends that have been reinforced and accelerated by the pandemic, said Eurex chief executive Michael Peters.

The award for Eurex was justified by The TRADE as follows:

“Eurex, once again, gave us every reason to award it Outstanding Derivatives Exchange Group after a 12-month period of excellence, innovation and products and services catering for the buy-side community. The Group overall continues to excel throughout the trade lifecycle, while its clear focus on innovation through digital assets exploration and environmental, social and governance (ESG) linked products, set the exchange apart in a competitive group of derivatives exchange operators.”

It was the perfect end to a challenging but also successful year for Eurex, said Michael Peters, Eurex CEO, who pointed out some of the exchange’s highlights from the year.

How did Eurex ensure success the past year?

We have focused intensively on supporting the market and on promoting important trends that have been reinforced and accelerated by the pandemic. These trends include, in particular, the shift from active to passive investments, the acceleration of futurisation, and the strong focus on environmental, social and governance (ESG) issues. I believe that this, combined with our continued innovation in our product and service offering, makes us unique.

In which areas have you had the most success?

MP: ESG has become one of the key growth areas in global finance and Eurex is now the global market leader in this area with 26 products on global, European and regional ESG indices and over €5 billion worth of contracts outstanding. We are also the global platform for MSCI derivatives contracts and are increasingly becoming the premier destination for MSCI derivatives in the Asia-Pacific region.

Our Total Return Futures (TRF) offered strong support for the market’s transition from bilateral business to transparent exchange trading. Since 2016, Eurex has managed to migrate more than half of the over-the-counter EURO STOXX 50 market to the TRF product, and current open interest stands at 1.9 million contracts – representing a notional value of over €94 billion.

Worth mentioning is also the leading role we have taken in the development in what is known as passive liquidity protection (PLP). With PLP, we have essentially created a market mechanism that can help improve the liquidity picture and price discovery process of the order book when price discovery is significantly driven by underlying or exogenous markets. After two years, we can see that it contributes to a level playing field and a more attractive order book. PLP not only ensures fairer competition. It also prevents latency arbitrage and strengthens the diversity of trading participants.

You mentioned innovation, can you give us some examples?

MP: We launched a new range of micro futures, which achieved an average daily volume of nearly 20,000 contracts after six months, as well as, Bitcoin ETN futures – the first regulated market for Bitcoin-related derivatives in Europe – and ESG futures for fixed income indices. With the new Bitcoin contract, we offer our clients access to the price of Bitcoin in a regulated, exchange-based and centrally cleared environment. These futures are the starting point of a family of products that we plan to bring to market over time in consultation with regulators.

Innovation can be a direct response to increasing market demand, but ingenuity can also be a direct response to market challenges. One of the biggest challenges investors faced last year was the uncertainty and risk associated with expected dividend payments. Participants wanted to either avoid or hedge this risk, but annual expiry dates alone no longer covered the risk of dividend uncertainty. In response, we introduced quarterly expiry dates in October 2020. Since then, around 2.2 million contracts have already been traded, representing 28% of the total volume of single stock dividend futures.

But let’s not just look at the exchange side. We have also seen great developments and innovations at Eurex Clearing and Repo. The launch of a clearing service for deliverable cross currency swaps and OTC FX once again underlines our Group’s ambition to support the transition from OTC to central clearing

We continued to develop a strong liquidity pool for clearing euro-denominated interest rate swaps, mainly through our partnership program. This market-driven initiative is designed to further accelerate the development of a liquid, EU-based alternative for clearing OTC interest rate derivatives.

Another big topic is the clearing of repo transactions for the buy-side, where with our new ISA Direct Indemnified model we can expand our existing buy-side offering to more target groups and include hedge funds in addition to pension funds and insurance companies, allowing them to become direct clearing members for the repo markets.

What are your predictions for the future? 

MP: Looking ahead to the rest of 2021 and beyond, we see several structural factors shaping our exchange and its strategy, along with cyclical developments. 

The first is futurisation, driven by the increasing demand for listed and CCP-cleared derivatives following regulatory reforms such as the Uncleared Margin Rules. The second is the shift from active to passive investing, and the third is the importance of ESG. The shift towards more sustainability and social and environmental responsibility is in full swing. Functioning capital markets are a prerequisite for the success of this change.

Finally, digital assets will change the financial industry. There is a growing demand from established financial institutions to become active in this new asset class. We are in the process of building a trusted and fully regulated digital asset ecosystem for institutional investors in Europe.