Eurex
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Eurex is a major futures and options exchange for European benchmark derivatives featuring open and low-cost electronic access globally. Its electronic trading and clearing platform offers a broad range of products and amongst other, operates the most liquid fixed income markets. Eurex was established in 1998 with the merger of Deutsche Terminbörse (DTB, the German derivatives exchange) and SOFFEX (Swiss Options and Financial Futures).
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[edit] Chronicle
On December 13, 1996 Deutsche Börse AG and Swiss Exchange signed a memorandum of understanding to create a joint trading and clearing system.
Eurex was formed in September 4, 1997 when DTB and SOFFEX officially announced in Bürgenstock/Switzerland to create a joint platform. In 1998 the DTB (Deutsche Terminbörse) and SOFFEX (Swiss Options and Financial Futures Exchange) merged and became Eurex (European Exchange). Since September 1998 members of both exchanges trade by using a joint trading and clearing platform. Therewith both are one of the first exchanges providing access to derivatives markets by using a full electronic trading and clearing platform. Eurex, the futures and options exchange, is a subsidiary of Deutsche Börse AG and SWX Swiss Exchange. U.S. Exchange Holdings, Inc., Eurex Clearing AG, Eurex Repo GmbH and Eurex Bonds GmbH are subsidiaries of the Eurex Frankfurt AG.
Eurex Deutschland is the public law arm of Eurex. Eurex Release 1.0.: The new DTB software generation was installed in the middle of May 1998. The main innovation of this version is the multi-currency clearing facility to accommodate the introduction of SOFFEX products as well as the changes resulting from the Euro and the upcoming launch of currency products. The first released products, apart of those which were assumed by DTB and SOFFEX at Eurex, covered options on Euro-Schatz-Futures, three-month-EURIBOR-Futures, Euro-Buxl-Futures as well as Futures on the Dow Jones Euro 50. In 1998 over 248 Million contracts were traded by 313 registered members at Eurex.
Since 1999 Eurex provides its market participants a graphical user interface for trading. In the course of cooperation between Eurex and Helsinki Exchange Group Ltd. (HEX) new products on Scandinavian Indices and Single Stocks were released. In 1999 Eurex registered a noticeable growth of members (more than 400) and trading volume (around 380 Million traded contracts).
Through the year 2000 Eurex launched more and more options on Single Stock Futures on the Dow Jones EURO STOXX 50. Equally in the next months Eurex enlarges the range of products on futures and options on the Dow Jones EURO STOXX and the Dow Jones STOXX 600 sector indices steadily. For the first time options were tradable on the most liquid U.S. Single Stocks on Eurex. Beside the establishment of futures and options Eurex creates new OTC (over the counter) and clearing sections. Since October 2000 Eurex operates together with institutional market participants two new trading platforms Eurex Bonds and Eurex Repo, for government bonds trading and Repo trading on government bonds.
Through multitude of new products as well as steadily improvement of trading and clearing terms and conditions Eurex achieves a new record turnover: more than 674 Million traded contracts in 2001. A further milestone is the Initiation of trading in options and futures on exchange-traded index fund shares, so-called exchange-traded funds (ETFs) in 2002. In the same year a level of more than 800 Million contracts is reached through the enhanced range of sector products as well as options on more and more single stocks from all of Europe and USA.
With the beginning of 2003 Eurex expands its interest segment products for futures on the reference rate for overnight money, EONIA (European Overnight Index Average). The EONIA future is tradable worldwide from 648 member locations, 96 of them in the USA, making it one of the most important single markets for Eurex. Deutsche Börse AG and SWX Swiss Exchange renewed the contract for their joint derivatives market Eurex ahead until 2014. In December 2003 the limit of one Billion contracts is reached, on the whole, over 1.014 Billion contracts have been traded this year. In February 2004 Eurex started the derivatives exchange Eurex US and enlarged its business model to the trading and clearing of USD-dominated products in the US. With 1.066 Billion traded contracts in 2004 Eurex achieved another record, beating its previous year record contracts.
With the beginning of 2005, Deutsche Börse AG receives 85 percent of the joint venture proceeds, SWX Swiss exchange receives 15 percent. As the Asian market was focussed Eurex and Osaka Securities Exchange signed a memorandum of understanding to verify possibilities of cooperation; Singapore-based traders could now trade directly on the world's largest derivatives exchange Eurex. The range of products is enhanced by the implementation of Volatility Index Derivatives, which is for the first time offered for trading by a European Exchange, as well as the launch of all Single Stock Futures on the Dow Jones Euro STOXX 50, DAX to exclusive securities on Swiss SMI. The trading volume increased again to more than 1.25 Billion contracts.
On 19 April 2006 Andreas Preuß was appointed to CEO of Eurex, he succeeds Rudolf Ferscha as chief executive officer. So called Weekly Options enhanced the product segment, so the band of Equity Derivatives is expanded consequently for short term maturities. The successful launch of Index Futures on the MDAX and the SMIM, as well as Spanish and Swedish underlyings further expand Eurex’s portfolio of Mid Cap products. The efforts for the Asian market make an impact: the first Eurex-connection of a member in Singapore is implemented. From 1 October 2006 MAN Group assumes 70 percent of Eurex US continue proceedings under the name of USFE (US Futures Exchange). In 2006, over 1.5 Billion contracts were traded on Eurex, which made it by far the world’s largest international market organizer for the trading and settlement of futures and options on shares and share indices, as well as of interest rate derivatives. The trading volume and clearing of derivatives market products increases year-on-year: Eurex-customers traded 1.526 Billion contracts, which are 22 percent more than in the previous year (1.248.8 Billion contracts). Sales increased about 19 percent up to 597.8 Million Euros.
On 30 April 2007 Eurex and International Securities Exchange (ISE) announced that they have signed a definitive agreement under which Eurex will acquire ISE for approximately USD 2.8 Billion in cash or USD 67.50 per share. The combination will be implemented by way of a merger and is subject to approval by the holders of a simple majority (50 percent plus one share) of ISE outstanding common stock at a special shareholder meeting to be held as soon as practicable, receipt of regulatory approval by the U.S. Securities and Exchange Commission and other customary closing conditions. ISE’s Board of Directors recommends to shareholders to vote in favour of the transaction.
[edit] Products
Eurex offers a full range of Stock equity, Equity index, Volatility index, Exchange Traded Funds, Credit derivatives, Interest rate derivatives, Inflation Derivatives and CO2 Derivatives.
[edit] Equity Derivatives
In the equity segment, investors can choose between nearly 200 options on Dutch, Scandinavian, French, German, Italian, Russian, Spanish, Swiss, and U.S. equities. With Single Stock Futures Eurex offers futures on individual equities on all component issues of the European benchmark indexes Dow Jones EURO STOXX 50 and DAX, on all EUR- and CHF-denominated Dow Jones STOXX 600 constituents, as well as all components of the Swiss SMI. The number of Single Stock Futures on equities which can be traded has grown constantly up to around 400.
[edit] Equity Index Derivatives
Equity index products include futures and options on leading global, pan-European and national blue chip indexes, pan-European and national mid cap and various sector indexes.
Products in detail:
- Futures and options on the Dow Jones EURO STOXX 50 Index
- Futures and options on the Dow Jones STOXX 50 Index
- Futures and options on the Dow Jones STOXX 600 Index
- Futures and options on the Dow Jones STOXX Mid 200 Index
- Futures and options on the Dow Jones Global Titans 50 Index
- Futures and options on the Dow Jones Italy Titans 30 Index
- Futures and options on the DAX, MDAX, and TecDAX
- Weekly options on the Dow Jones EURO STOXX 50 Index, DAX, and SMI
- Futures and options on the OMX Helsinki 25 Index
- Futures and options on Dow Jones STOXX 600 Sector Indexes
- Futures on RDXxt USD
[edit] Volatility Index Derivatives
In 2005, Eurex introduced volatility index futures as a new asset class. With this product innovation, investors can build up pure volatility exposure or can hedge volatility risks of equity market positions. The Vola Futures are based on the volatility indexes VSTOXX, VDAX-NEW, and VSMI, covering pan-European, German, and Swiss equity markets. Products in detail:
- VDAX-NEW Futures
- VSTOXX Futures
[edit] Exchange Traded Funds Derivatives
In November 2002, Eurex launched its new EXTF segment with futures and options on eight Exchange Traded Funds. The underlying instruments are:
- DAX EX
- Dow Jones EURO STOXX 50 EX
- iShares Dow Jones EURO STOXX 50 EX
- XMTCH on SMI
[edit] Credit Derivatives
Eurex has introduced the world's first exchange-traded credit derivatives contracts on March 27. Credit derivatives offer market participants the opportunity to hedge against credit events such as corporate defaults, failure to pay or restructuring:
- futures based on the iTraxx Europe 5-year index series (equally weighted portfolio of the 125 most liquid European investment grade credit default swap (CDS) entities an equally weighted portfolio of the 125 most liquid European investment grade credit default swap (CDS) entities)
- iTraxx Europe HiVol 5-year index series (equally weighted portfolio of the 30 entities with the highest spread from the iTraxx Europe 5-year index)
- iTraxx Europe Crossover 5-year index series (equally weighted portfolio of 50 European sub-investment grade entities. All iTraxx indexes are provided by International Index Company Ltd. (IIC))
The Eurex iTraxx credit futures will closely mimic the risk structure of credit default swaps traded in the over-the-counter (OTC) market. The products will be cash settled, with reference to the iTraxx index values of IIC.
[edit] Interest Rate Derivatives
The interest rate derivatives cover the German yield curve from one day to 35 years and the Swiss yield curve from eight to 13 years:
- Euro-Schatz Futures (notional short-term debt instrument issued by the Federal Republic of Germany with a term of 1.75 to 2.25 years)
- Euro-Bobl Futures (notional medium-term debt instrument issued by the Federal Republic of Germany with a term of 4.5 to 5.5 years)
- Euro-Bund Futures (notional long-term debt instrument with a term of 8.5 to 10.5 years)
- Euro-Buxl Futures (notional long-term debt instrument issued by the Federal Republic of Germany with a term of 24 to 35 years)
- CONF-Futures (notional long-term debt instrument issued by the Swiss Confederation) with a term of eight to 13 years)Options can be traded on Euro-Schatz, Euro-Bobl, and Euro-Bund Futures.
Further products in the interest rate derivatives segment:
- One-Month EONIA Futures (underlying instrument: EONIA interest rate)
- Three-Month EURIBOR Futures (underlying instrument: European Interbank Offered Rate)
- Options on Three-Month EURIBOR Futures
The interest rate derivatives add up to approximately half of the trading volume at Eurex.
Euro-Bund Futures are the dominant contracts as they generate – with more than one million traded contracts per day – the highest turnover.
[edit] Eurex Bonds and Eurex Repo
The Eurex Business Model does not only include futures and options, but also OTC (over the counter) cash market transactions.
[edit] Eurex Bonds
Eurex Bonds was launched in October 2000 as an ECN for off-exchange, “wholesale” trading in cash bonds and is a joint initiative of Eurex Frankfurt AG and 11 leading financial institutions in Europe. It offers an electronic platform for ex-pit trading and clearing of:
- all fixed income treasury bonds of the Federal Republic of Germany (Federal Treasury Notes, Federal Notes, Federal Bonds)
- Interest-free Treasury discount papers (Bubills) of the Federal Republic of Germany
- European government bonds
- Bonds (Agencies) of supranational institutions and government guaranteed bonds
- German Jumbo Pfandbriefe (Jumbo Mortgage Bonds) of German issuers, fixed income treasury bonds of the German federal states as well as so-called “Slimbos”
- Covered Bonds from various European issuers
- Selected European Corporate Bonds
- Underlying instruments for all bonds of the Federal Republic of Germany which are deliverable to Fixed Income Futures (Euro-Schatz, Euro-Bobl, and Euro-Bund Futures)
- Underlying instruments for selected fixed income bonds of the Federal Republic of Germany which are not deliverable to Fixed Income Futures (Euro-Schatz, Euro-Bobl, and Euro-Bund Futures)
Through the basis trading and the connection to the clearing system of Eurex Clearing AG, Eurex Bonds offers a direct link between the cash market and the futures market. This enables electronic basis trading via a central order book.
[edit] Eurex Repo
Eurex Repo is the electronic trading solution for repos (sale and repurchase agreements). In its Euro segment, standardized baskets for the General Collateral (GC) market, the German GC Basket, the German Jumbo Basket and the German KfW/Laender Basket (bonds issued by the Kreditanstalt für Wiederaufbau and the German federal states) are offered. Market participants can also trade Repos with Austrian Government Bonds and Treasury Bonds of the European Investment Bank as securities The German GC Basket comprises all German government bonds and bonds issued by the privatization agency (Treuhandanstalt). The German Jumbo Basket comprises Jumbo Mortgage (Pfandbrief) bonds issued by German companies. The KfW/Laender Basket comprises KfW bonds and bonds of the German federal states.
Eurex Repo operates the Swiss Franc Repo Market and the Euro Repo Market.
The Euro Repo Market allows financial service providers across Europe to access a full range of refinancing instruments using European securities. With Eurex Repo, financial institutions are able to use defined GC (General Collateral) baskets to optimize their liquidity management, as well as to benefit from the market transparency that is inherent to an electronic trading system.
Over a hundred international banks use the Swiss Franc Repo Market to manage their liquidity. Market participants from Switzerland as well as from abroad can execute their funding and collateral management operations directly in the Swiss Franc interbank market and take part in the liquidity-auctions conducted by the Swiss National Bank (SNB), which take place almost daily.
Eurex Repo stands for the seamless integration of trading, clearing and settlement of repo transactions in the European and Swiss repo market. Eurex Clearing AG acts as the central counterparty between buyers and sellers, thereby guaranteeing anonymity, efficient risk management and swift settlement at all times.
Participation in the Eurex Bond and Eurex Repo Market is generally open to all banks and financial service providers. Participants must be subject in their country of domicile to a financial market supervisory authority. For private investors, trade at Eurex Repo is not possible at present, as it is a mere interbank market.
