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One year of extended trading hours in Asia

Erscheinungsdatum: 10. Dez 2019 | Eurex Exchange, Eurex Clearing, Eurex Group

One year of extended trading hours in Asia

“Our customers were waiting for this.”
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Mezhgan Qabool, Head of Market Development APAC,
and Head of Equity & Index Sales APAC

10 December is the first anniversary of the launch of our extended trading hours in Asia. And what a year it has been! With constantly growing trading activities and volume records. We spoke to Mezhgan Qabool, Head of Market Development APAC, and Head of Equity & Index Sales APAC:

One year of extended trading hours in Asia. Did this meet your expectations?

Absolutely! In fact, we have exceeded expectations in certain products and client participation levels. Because of the extended hours, we welcomed 50 new direct clients in Asia, with more in the pipeline – despite certain challenges around MiFid II that we had to overcome with our clients in the region. 
As of November, we have traded close to 7 million contracts, with Bund, Eurostoxx, and DAX performing particularly well. 

One of the initial concerns we had was whether we would have sufficient support from our market makers to be in the order book from day one, ensuring liquidity and tight bid ask spreads. We were astonished to receive 19 ‘Letters of Intent’ signed by our global liquidity providers, committing to support us from day one.

To date, 13 of them have consistently provided order book liquidity, and have ensured the bid ask spreads and price picture in the Asian time zones during the extended hours are in line with what we observe during the core European trading times.

Since there is no deviation in this respect during the continuous trading session, starting at 8 am Singapore and ending at 22:00pm CET, this created confidence from our client base to diversify their portfolios and trade our benchmarks in the Asian time zones.

Further, 40 percent of the turnover of our trading volume is from ‘Agency’ accounts, showing high interest from end clients and the buy side during our extended hours. This has been consistent since launch and really shows our customers were waiting for this!

Some experts saw a good opportunity to generate alpha for both the sell and the buy side. Were they right?

The main motivations for extending the Eurex trading hours in our benchmark futures was for our clients to better hedge and risk manage their portfolios in all time zones. This includes being able to react globally to major market news as it happens, hedge against geopolitical uncertainties, and adjust accordingly ahead of economic releases and announcements. With better risk management and portfolio diversification, active returns on investments can be achieved.

Increases in participation have been observed, for example, during corporate actions, when EURO STOXX traded 153,000 contracts in a day as dividend announcements were made. The activity was driven both from the buy side (Agency) and sell side (Principle). As Asia is the first time zones where market reacts to news or event, we have observed other record days in our trading volume when certain market news unfolded. Seeing consistent participation from over 200 of our direct members shows us that there are opportunities for our clients to benefit from.

Finally, price discovery in the Asian time zones is a by-product of the extended hours. This is not just beneficial for our clients trading in the order book, but those with European exposure in the OTC market. As an example, the extended hours also benefitted our client’s Euro swap clearing exposure. Clients trading bilaterally can price their swaps using the price points of the German government bonds futures from our order book in the Asian time zones. This is going to further compliment our OTC clearing offering in the region going forward.

You had several roll months in the course of the year. What did you learn from them?

Trading Participants were actively involved in rolling their positions during the extended hours, with an average of 136 members recorded during each roll period, particularly in the Euro-Bund Futures and Eurostoxx Futures.

Over the past three rolls, we witnessed a gradual improvement in the hourly distribution, where more trades are now occurring during the core Asian hours of 8-10 a.m. Singapore. The increase in roll participation is also an indication of the liquidity building healthily in the extended hours.

Have certain products benefited in particular from the trading hour extension?

In our fixed income segment our Bund and Bobl contracts are doing particularly well. In our equity index franchise DAX and Eurostoxx are performing very well. These are all order book traded, creating the price transparency needed for our clients to better hedge and risk manage.

Our MSCI portfolio has also had steady growth, mainly through block trades, although participation in the order book is starting to increase. We have received very positive reactions from the market for having our Trade Entry Services available in the Asian time zones, which they can utilise to block the 117 contracts currently listed on Eurex. Asian underlyings continue to contribute strongly to the EUR 130 billion notional in open interest on options and futures.

For those products where we observed low liquidity, we quickly worked with the market to make the necessary adjustments, such as liquidity provider parameters, to support growth. We are grateful to our committed client base globally who work with us on a regular basis and have the same ambition to see the success of our extended hours.

What are the next steps?

Of course, extending the hours in our core benchmark futures is just the beginning.

We are currently working with our clients to further improve the liquidity and volume in the products available and to ensure market access to new clients who see opportunities.

Driven by client demand, and Asia becoming a bigger force in the global financial landscape, we are currently conducting market wide consultations on the next phase of our extended hours. This will include the extension of further products and services and looking at new offerings to cater to the demands and needs of the Asian market.

 

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