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Eurex Exchange's Equity Index Derivatives highlights

Release date: 26 Jan 2017 | Eurex Exchange

Eurex Exchange's Equity Index Derivatives highlights

Market Briefing

Looking back over the final quarter of 2016, equity markets enjoyed strong performance post the uncertainty surrounding the US presidential election, with strong monthly gains realised in December for both the MSCI World and MSCI Europe Index. The EURO STOXX 50® and the DAX® - two of our largest contract benchmark indexes - closed at year-end highs. Realised volatility and correlation for the EURO STOXX 50® Index continued to grind lower into year-end leading implied volatility and skew to new lows.

The forward looking view for 2017 is dominated by several up-coming elections across Europe. The Netherlands hold general elections in March, followed by May presidential elections in France, and then in autumn Germany will vote for the country’s chancellery. Italy too is due to hold fresh elections, I expect renewed focus on their local bank NPL provisions and the impact on the European banks sector as a whole. Europeans await a clear roadmap for Brexit, this is yet to be defined by the UK prime minister.

Some older issues are also likely to take headline space again; such as Greece and its capability to remain on the path to meet their rescue terms, I also see further debate around possible tapering or calibration of the ECB quantitative easing programme. This combination of political events may be the catalyst for mean reversion upwards of volatility and correlation across European stocks and indexes.

Zubin Ramdarshan
Head of Equity and Index Product Research & Development

Global Macroeconomic Outlook 2017

Dr. Sylvain Broyer, Head of Economics, Natixis offers a brief outlook on the global macroeconomic perspective for 2017, touching on all areas from Brexit to Trump and inflation risks across the Eurozone.

Mr. Broyer holds doctorate degrees in economics from the Universities of Frankfurt and Lyon. In November 2012 he became member of the "ECB shadow Council", the Handelsblatt's panel of leading European economists.

Facts and figures

MSCI Derivatives

Our MSCI Derivatives volumes increased significantly in Q4/2016 compared to the fourth quarter 2015, which was due to the increase in emerging market based contracts. Overall volumes increased over 200% with more than 1.5 million futures and more than 168,000 options contracts traded. Correspondingly combined futures and options open interest ended the year at nearly 700,000 compared to 167,000 at the end of 2015.

To support the ongoing growth in 2017, we recently introduced a set of measures:

  • Expiration of all MSCI Futures has been adjusted to quarterly expirations; the maximum expiration is still 36 months.
  • Harmonization of the last trading day between country and regional MSCI products.
  • Introduction of a volume-based revenue sharing scheme.
  • Adjustment and extension of existing Market-Making schemes for 2017.

For more information please refer to circular 116/2016.

EURO STOXX® Banks Derivatives

The Eurozone banking sector has seen significant gains in the last quarter of 2016. Investors around the globe could express their views by trading futures and options on the benchmark EURO STOXX® Banks Index. It was the strongest quarter to date, where a total of nearly 20 million contracts changed hands. With 11.1 million traded contracts, futures volume more than doubled, and with 8.7 million traded contracts, options volume increased fourfold, compared to the same quarter last year. The end client share is robust, with 50% of the volume generated on the Agency account.

VSTOXX® Derivatives

The VSTOXX® continues to strengthen its position as the European benchmark for volatility thanks to its unique characteristics and behaviour. Especially December was a very strong month for our VSTOXX® Futures (FVS) with an ADV of 50,234 traded contracts and an average open interest fluctuating between 250,000 and 300,000 contracts. Throughout the year FVS also crossed the mark of 10 million traded contracts in the last week of 2016.

2016 was a great year for our entire volatility offering as well - the volume grew by 10% to more than 15 million traded contracts vs 13.9 million traded contracts in 2015.

2017 promises to be even more interesting in light of the potential decorrelation between the US and the European economies bringing the VSTOXX® at the forefront of relative strategies.

New initiatives

Introduction on CFTC-certified Options on VSTOXX® Futures

Eurex is launching new CFTC-approved VSTOXX® Options (OVS2), starting on 1 February 2017. The new product will initially trade side by side with the existing VSTOXX® Options (OVS) but the listing of new expiration months for this contract will be discontinued. As each new OVS2 expiration month is introduced, OVS will be gradually phased-out during the eight-month period. By the end of the eight months OVS will be completely replaced by OVS2.

Major market participants are welcoming this launch and expect the new options to attract more liquidity.

For more information please also refer to circular 098/16 and the latest edition of our VSTOXX Outlook newsletter.

Eurex research

TABB Group report: Renewed growth as sector demand emerges

TABB Group examines key growth trends in the STOXX® broadbased and sector derivatives and the volume drivers behind them. Use the link to our website to get a copy of the report.

EURO STOXX 50® Index implied repo trading

New content item
Listed solution for implied equity repo trading via EURO STOXX 50® Index Total Return Futures complement the Eurex suite of equity index derivatives and support the market in complying with new financial market legislation.

Eurex Total Return Futures are designed to offer listed solutions for trading the implied equity repo rate. Index TRFs aim to replicate the payoff on an index total return swaps (TRS) in a cost efficient way. This research paper focuses on the inseparable relationship between implied repo rates and equity index total return swaps.

Written by Stuart Heath, Director Equity and Index Product Research & Development at Eurex this research paper covers the various aspects and calculations of both repo rates and the TRS.


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