Our ear to the ground: Eurex sales staff in interview

Erscheinungsdatum: 04. Sep 2018 | Eurex Exchange, Eurex Clearing

Our ear to the ground: Eurex sales staff in interview

Part II: Client satisfaction – Eurex products and services most in demand

The best product development in the world is of little use if customers do not get to hear about new products and services. Clients need a contact at Eurex who listens to them and takes their interests to heart. We speak to two Eurex Sales colleagues, Simona Simon and Andreas Stadelmaier, who are both in constant touch with their clients. Simona is Senior Vice-President in Global Equity & Index Sales and Andreas Senior Vice-President in our Fixed Income EU Sales unit. In the second part of this series, we focus on which Eurex products and services clients are most interested in. The first part of the series looked at client’s needs.

Andreas, which are the products your customers in fixed income are most interested in?

Andreas: The fixed income business is very well established on the exchange-traded derivatives (ETD) side – BUND, Bobl, Schatz futures, all the French and Italian government bond futures and the Spanish one – so we don’t have to push these a lot.

Will there will be changes in short-term futures as the world is looking for a replacement for the Eonia?

Andreas: In the end, this will depend on the overall decision by the supervisory authorities. Of course, we already have a solution in place. It is a benchmark solution, a secured funding rate future, compared to other solutions, which are unsecured. So, we have done our homework, but we don’t have a sexy name for it yet. But it’s less important that the name is sexy and more important that the product works! It is an excellent product and has the potential to become the new benchmark.

Any other products?

Andreas: We launched the government bond index future – something new for us – but this product will take a bit more time before it becomes a widely used index future. However, all the conversations we had with asset management companies have been very positive and fund managers would like to use it. Currently, we are working on additional market makers to increase liquidity further. Over and above that, the largest topic on our side is to increase our market share on OTC IRS clearing.

What about the CCP?

Andreas: On the CCP, we have provided new access models, which reduce the costs on the capital side for banks dramatically. The service is called ISA Direct. A few companies are already live, others are in the on-boarding process. ISA Direct offers huge capital cost savings for the clearing brokers and therefore it has the potential to change the clearing service landscape. After all, our original clearing model was implemented in 1990 and has been in use ever since.

Does ISA Direct address different customers than the ones we’ve had before?

Andreas: No, it addresses the same ones. It’s a direct answer to reduce the capital cost burden for the clearing brokers for their client business. Even though it’s a concept that fits that requirement, it changes the role of the clearing broker to that of a clearing agent, which is more a transaction banking than an investment banking service. Many in the clearing broker community are now evaluating this service in more detail to help them decide whether they should offer it or not.

However, we are going to see some great progress here within the next couple of weeks, which I’m really looking forward to. I’ve been in the market since 1990, and it is exciting to see how ISA Direct will change the clearing market. ISA Direct was launched two years ago and now has three clearing brokers offering the service.

So, is this a product that takes time to establish itself?

Andreas: Yes, it takes time. The risk management and treasury colleagues in the banks say “Wow, this saves us a lot of money!” but the head of client clearing might answer “Hold on, this changes our business role from an investment to a transaction banker” so there’s a bit of a mind-frame issue here as well. Redefinition, redefining the service you can offer, is a big topic in our business.

The CCPs – and here we can say that Eurex has been one of the front-running thought leading CCPs in this respect – have picked up the challenge from the regulatory framework and offer cross-product services as an answer. For example, if you use our GC pooling repo service and OTC IRS, you can re-use your collateral from the repo side to cover your initial margin for OTC IRS and ETD business. Combining, bringing all the possibilities together, results in maximum benefit for clients. We already offer cross-margining between BUND future and OTC IRS, which is something not many CCPs can offer.

Clearing brokers need to adjust their systems and workflows to benefit from our cross-product services. Even though it is easy to get it live for their in-house business, unfortunately, it takes additional effort before a clearing broker is in a position to offer it to their clients as well.

Simona, what are the products flying off your shelves at the moment?

Simona: At the end of 2016 we launched the TRF futures, which are now doing very well. Last year we launched iSTOXX Factor Futures, which again was a completely new asset class. With our MSCI product suite, we can approach clients globally which makes this a very exciting product – also with regard to the sales process as the MSCI derivatives are not only traded at Eurex, but also at competitor exchanges.

Are these now being picked up on by clients?

Simona: Within this short time frame we have already reached a broad and diverse base of investors in all of these products. And this positive reaction encourages us to develop further markets. All our products have been developed in close interaction with our clients. For example, TRF futures, where institutional investors were pushing for it. We are now seeing discussion and consultation for step two of the TRF swap universe, which is focusing on the first single name TRFs, to be followed at a later stage by basket TRFs.

What is the biggest challenge on the product side?

Simona: As I mentioned, the big challenge is to overcome the complexity of the OTC market and bring it into a standardized form. As an exchange we have to make sure that clients implement a straight-through process for new standardized contracts, which often means a number of adaptations within the entire process chain. This is a substantial difference to listing an additional underlying in an Equity Option. In futurization projects trading departments, middle office and back office processes are affected and therefore close interaction with all these client areas is needed. We need to go to the back office, the middle office and convince them that there is work to be done: the entire value chain has to be tackled in order to achieve such a product.

 

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