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Equity Index Highlights – December 2018 edition

Release date: 11 Dec 2018 | Eurex Exchange

Equity Index Highlights – December 2018 edition

Market briefing

Volatility was this month's theme, as November took us on a roller coaster ride leaving us right back where we started. It seems that investors remain uncertain if the most recent wave of selling pressure is the last in a row of short-term buying opportunities. The rotation between momentum, low volatility and value stocks has been evident and is reflected by increased volumes across our suite of STOXX® sector futures and options. Heightened activity was visible in Oil & Gas, Basic Resources, Telecommunications, Utilities and Autos.

In times of market stress, we often see a flight to liquidity. Volumes then concentrate in our EURO STOXX 50® index derivatives. For this reason, it has been particularly encouraging that our DAX®, SMI® and STOXX® 600 index derivatives saw robust activity levels. Eurex remains committed to improving liquidity across all of the benchmark index derivatives ensuring product growth. VSTOXX® derivatives have also been in focus, with volumes in futures and options up more than 10 and 15 percent respectively compared to November 2017. The VSTOXX® term-structure for the 2019 back six expiries remain elevated and relatively flat. This echoes the sentiment that investors are wary of market retracement risks for next year as well.

In previous commentaries, we discussed the month-end Euro STOXX 50® Index Options. We now saw a significant jump in volumes, rapidly approaching the 500k threshold since its July launch. The volume jump is evidence that market maker support with liquid, visible order books in the month-end expiries can attract new participants and volume. Supporting order book price transparency is one of Eurex's key objectives. With that goal in mind, we announced the extension of pro-rata matching across our major equity option segments. Pro-rata matching starts with France and Belgium in December, followed by Germany, Switzerland and Austria in January and February. We expect an improved liquidity picture which will convert latent client demand into execution volumes across single name equity options.

As we move into December, members can look forward to the trading hours extension. We expect that our Asia-based customers will benefit from the availability of our benchmark futures during their core trading hours. This will be particularly true for our MSCI index products. For example, the bulk of the underlying basket of the EM contract is comprised of Asian equities. Having a more synchronized trading period for both cash and derivatives markets will stimulate activity there.

With the end of the year almost upon us and as all major European equity markets remain in negative territory, there is an increased focus on finding relative safe havens. This partially explains the tremendous growth in dividend derivatives. Responding to market demand, we recently extended the maturity range to seven years for dividend futures over a selection of blue-chip single stocks. There has been a similar driver behind the excellent progress made in establishing our Total Return Futures contract as an equity repo benchmark. Members can expect Eurex to further strengthen its presence in both segments next year.

Zubin Ramdarshan, Head of Equity & Index Product Design, Eurex


Facts & figures


News section


Watch the second part of our dividends video series. Learn more about how the market has been developed and what key factors have made the dividend derivatives successful. In addition, find out more about how dividend futures are priced and how they work.

The Rise of TRFs - How Funds Use Them to Generate Alpha

Hedge funds and traditional institutional investors are increasingly turning to total return futures (TRFs) to get exposure to the repo market related to an underlying index such as the EURO STOXX 50® Index. Antoine Deix, Senior Equity Derivatives Strategist at BNP Paribas, discusses how firms are currently using TRFs, the benefits they gain compared with total return swaps (TRS) or index futures, and how he sees the space developing in the next year.

Another milestone for EURO STOXX 50® options with month-end expirations

November was the first month, EURO STOXX 50® options with month-end expirations were the "real substitute" for the former the EURO STOXX 50® 5th Friday weekly option (OES5). EURO STOXX 50® options with month-end expirations are developing successfully and traded around half million contracts since its launch in July this year. The month-end expirations are another part of our buy-side initiative as it meets the needs of insurers and other market participants that offer pension schemes linked to the performance of the EURO STOXX 50® index.

Extended trading hours create extended opportunities. With global benchmark futures such as DAX® Futures, Mini-DAX® Futures, EURO STOXX 50® Index Futures, 90 MSCI Futures as well as futures on Bund, Bobl, Schatz and Buxl®, we offer more market access and have created the basis for portfolio diversification. From 8.00 a.m. Singapore time daily. In this video experts from the financial community explain what opportunities they see. Read more.

STOXX, the global provider of innovative and tradable index concepts, has launched the STOXX® Europe 600 ESG-X Index. The index was developed based on feedback of asset owners and is in line with the exclusion criteria of their responsible investing policies. The STOXX Europe 600 ESG-X includes a product involvement screening for controversial weapons, tobacco and thermal coal as well as a norm-based screening that follows the United Nations Global Compact principles of human and labor rights, the environment, business ethics and anti-corruption.

Awards

When it comes to industry awards Eurex never had reason to complain, but the last few weeks have been particularly noteworthy. Five awards from FOW and Risk in total and three of them based on clients' views.

Events

Thanks for attending our Derivatives Forums in 2018


A big thank you to all Derivatives Forum speakers and participants who joined us in Frankfurt, Paris, Amsterdam, Stockholm and London this year. We welcomed over 600 buy- and sell-side representatives and discussed what will shape the derivatives industry of the future. We look forward to seeing you again next year!

To learn more about our products and services, please do not hesitate to contact your local Sales representative, visit our website or follow us on Twitter @eurexgroup and LinkedIn.

 

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