Financial regulations are driving market participants from an over the counter (OTC) market structure to an exchange-listed environment, shaping where investors search for instruments to manage exposure.
That’s according to new research by TABB Group, “Eurex Derivatives Markets: Renewed Growth as Sector Demand Emerges," which examines investors’ interest in trading European derivatives, with a particular focus on the growth in trading on Eurex’s STOXX Europe 600 (SXXP) and EURO STOXX (SXXE) sector indices. The research also examines use cases for these derivatives.
“Listed derivatives volumes in EMEA markets, especially in futures, have stayed strong amid volatility events resulting from Brexit, Italy’s December referendum on constitutional form, and other global regulatory mandates,” says report author Tom Lehrkinder (pictured). “Investors are increasingly gravitating to index products to manage portfolio exposure and futures products provide a natural fit. In fact, EMEA based stock-index futures volume is forecast to increase 17 per cent from 2015 levels.”
According to TABB, Eurex has become the dominant venue in Europe within the stock-index derivatives market due to its focus on Pan-European equities and its traditional appeal to institutional buy-side clients. Trading on Eurex’s exchanges accounted for 77 per cent of all European stock-index options volume and 52 per cent of all stock-index futures volume in 2015. Traders have exchanged about USD25.1 trillion Euros worth of derivatives on Eurex’s indices as of August 2016, with USD15.5 trillion of the total representing stock-index futures and USD9.6 trillion in stock-index options.
The report explains that while many equity traders already utilise exchange-traded futures and options contracts on stock benchmarks tracking regions and countries, they are increasing their use of broader benchmarks and sub-indices targeting specific European industries.
“Build it and they will come is the motto for SXXP and SXXE sector indices,” says Lehrkinder. “The unique characteristics of the indices have allowed investors to rely on a consistent, rule-based selection and calculation methodology across countries and sectors.”