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Asia, MSCI and Eurex’ extended trading hours – all good things come in threes

Release date: 21 Sep 2018 | Eurex Exchange, Eurex Clearing

Asia, MSCI and Eurex’ extended trading hours – all good things come in threes

Eurex is the only exchange to offer a comprehensive suite of MSCI products consisting of futures and options on regional and country indexes. Close to 60 percent of these products are related to the Asian-Pacific time zone and show rapid growth. This makes the products particularly relevant for Asian clients.

We spoke to Rachna Mathur, Head of Equity and Index Derivatives Sales, Americas at Deutsche Börse, about the impact Eurex’ extended trading hours could have on the MSCI market.

Rachna, How important is the Asian perspective within our overall MSCI offering?

It is very important. The Asian market now represents over 75 percent of MSCI’s flagship Emerging Markets index. With the long-term growth expected in the Asian region, the phased inclusion of additional Chinese shares by MSCI and the overall macro-economic environment, this percentage can only grow over time.

Eurex’ regional MSCI Emerging Markets Index derivatives allow our participants to not only gain access to leading benchmarks for fund managers, but also to invest in single emerging market countries in Asia. Eurex currently offers 19 index futures on Asian Regions and Asian countries, collectively representing a large portion of our volumes and open interest. To give an example: With an open interest exceeding USD 21 billion in March 2018, futures on the MSCI EM Asia index have been Eurex’ leading MSCI future for quite a while.

What makes the Eurex MSCI offering unique?

Eurex is truly global in its offering. We offer both futures and options on one exchange, and underlyings in all three time zones – Europe, Asia and the Americas – making it easier for banks to hedge everything at one venue. In our constantly expanding portfolio, dividend products and factor indexes for global and emerging market products could be a logical next step. Eurex is also the only exchange that offers longer dated maturities, allowing for easier futurization of swaps.

Being one of biggest and most diversified providers of equity derivatives, Eurex allows for lower margin rates and the highest margin offsets for clients. Clients can also easily manage higher sizes of risk, as our Trade Entry Service functionalities are well established.

Many of the MSCI products are based on single Asian countries and Asian regions. Why is trading and clearing them all on one platform nevertheless interesting for clients?

The PRISMA portfolio-margining effects result in the best margin offsets when more equity and index derivatives are added to the same portfolio. Moreover, managing positions at one clearing house makes it more efficient from both a risk and a collateral management perspective. Eurex accepts collateral in cash, securities, ETFs, treasuries and more, which makes it capital-efficient for our clients. Intraday margins can even be posted in other currencies making it also operationally easier for clients.

How will the trading hour extension benefit the client trading MSCI products?

The most important benefit is possibly the ability for clients to manage the risk in the time zone where it is relevant. The extension also complements the way business is moving: The Asian desks/businesses of most of our clients are getting bigger and we foresee that in the international indexing space, Asian desks will play a larger role over time.

Several of the investment banks and brokers now run global books with a ‘follow the sun model’. Opening Eurex for the majority of the trading day covering all three time zones, will fit in perfectly with such models and allow for better risk transfers and risk management for clients.

 

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