Service Navigation

Promising market opportunities with Eurex ETF options

Release date: 09 Sep 2019 | Eurex Exchange, Eurex Clearing, Eurex Group

Promising market opportunities with Eurex ETF options

The European market for exchange traded funds (ETF) has grown substantially. Providing the broadest choice of ETF derivatives in Europe, Eurex offers interesting market opportunities to implement option strategies on this portfolio with more than 30 of the most liquid ETFs in Europe. We spoke with Matthew Riley, Equity & Index Sales EMEA, about possibilities and opportunities.

Matthew, ETFs have firmly established themselves on the market. What is the reason?

The move to low-cost passive investment strategies is well documented both for retail investors and increasingly for professional investors and provides a core allocation around which they can trade. Once invested in an ETF, the ability to trade around that positon, or indeed replace it, through options is vital to any sophisticated investor. At the professional investor level, our options offering is particularly relevant to UCITS funds as they have been forced to move away from US-listed 40 Act incorporated ETFs. The physical settlement inherent in an ETF option is attractive to any investor who prefers to match options exposure to their underlying physical portfolio without having to move through cash. 

What trends do we currently see on the market? What drives ETF options?

The trends within in the market are based around diversification. We are trading against a political backdrop of uncertainty, an ongoing low-level currency  and a trade war, that seems to improve or deteriorate with every tweet. That leads traditionally equity-focused investors looking to reduce their broad equity market beta via exposure to less correlated assets. In addition to the short-term situation we also have a longer-term trend of liability-driven investors seeking something to provide them with an inflation hedge in a Zero Interest Rate Policy (ZIRP) world. We have seen great success in our gold options and to expand within that asset we recently listed options on silver ETFs. We have also reworked our options on crude oil to make them more investable for the institutional player. We have seen decent pricing on screens in crude oil and expect to see increasing end user participation.  

What are the main benefits of Eurex ETF options?

One main benefit lies obviously in the Eurex infrastructure. Customers benefit from the quality of our Clearing House and the PRISMA risk system that sits behind it. Any options that you trade within the ETF options suite will offset against all your other positions held at Eurex Clearing, potentially offering substantial reductions in the margin required and capital employed. 

Which role do regulatory requirements play?

I have already mentioned the effect of the trend to incorporate UCITs funds and another significant user base are the European insurance companies who are subject to Solvency II. Here ETF options provide the possibility to reduce capital requirements and hedge positions within an exchange environment and as we move through the various phases of the uncleared margin rules, positions previously held OTC are increasingly moving on to the exchange. 

How can Eurex ETF options add to our client’s options strategy?

By offering diversity for those who may be currently trading our cash-settled options. The product suite enables our members to expand their range of investment options within a European UCITs-friendly context and to trade with some new counterparties. We expect that investors who have previously not been active in the equity derivatives market will be drawn in to the new asset classes that underly some of our ETF options, especially as the number of market participants increases.”