Sharp rise in trading volume for single stock futures
Market-making campaign increases order book liquidity / Frequent use in investment strategies
(PresseBox) (Frankfurt am Main, )Single stock futures (SSF) have continued to enjoy strong growth in 2008 at Eurex. In the first five months, 196 percent more SSFs have been traded than in the same period last year. Up to the end of May 2008, a total of 95 million contracts changed hands in this segment (Jan to May 2007: 32 million). Compared to the overall European market, Eurex's share in 2008 is 55 percent, making Eurex the leading market for European single stock futures. Trading of SSFs usually peaks during dividend season in April and May, mostly via block trades.
Eurex offers 573 SSFs out of 17 countries and in four currencies (Euro, GBP, USD, Swiss Franc).
Since 1 March 2008, Eurex has been promoting this growth with a market making program, whereby market makers have been responsible for ensuring basic order book liquidity for the key components of the Dow Jones Euro STOXX 50®, DAX® and SLI benchmark indices.
Peter Reitz, member of the Eurex Executive Board, said: "The constant quotation of prices by our market markers allows smaller-scale institutional and private investors to take advantage of this exchange-traded product via order book liquidity. Additionally, the order book also increases overall price transparency of SSFs."
SSFs are an efficient and cost-effective vehicle to manage short-term cash flows. They are also used by investors pursuing investment strategies such as 130/30 strategies, which can be easily implemented with SSFs as they can be sold short without the need for a securities lending agreement. SSFs are thus a transparent and cost-effective way of benefiting from falling prices. As opposed to alternative products, SSFs also entail no counterparty risk as they are traded on the exchange, with the central counterparty, Eurex Clearing AG, acting as guarantor. Furthermore, the margin requirements are generally only a fraction of the nominal value of a futures contract. This has a leverage effect on the return on invested capital.
The UCITS III Directive makes it easier for investment companies to invest in derivatives such as SSFs, thereby optimizing their exposure to single stocks. The permanent quotation of prices in the order book since 1 March has simplified trading in SSFs, particularly for such investment companies.
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