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A closer look at some of Eurex's volume growth leaders, STOXX® Europe 600, VSTOXX® and Mini-DAX®, throughout Brexit

21 Jul 2016

A closer look at some of Eurex's volume growth leaders, STOXX® Europe 600, VSTOXX® and Mini-DAX®, throughout Brexit

Top 20 days ranked by volume (2016)

STOXX® Europe 600 - Average Daily Volume on pace to double again in 2016

Broadly diversified with 600 components capturing most of the major European country specific blue chip equity indices shown through the high correlations in the graph below

Less volatile than some of the more concentrated equity indices such as the EURO STOXX® 50
1 year volatility 24.1 % vs 26.3 % of EURO STOXX 50®
3 year volatility 17.7 % vs 20.6 % of EURO STOXX 50®
5 year volatility 18.1 % vs 22.5 % of EURO STOXX 50®
(STOXX® data as of Jun.30, 2016 annualized returns and annualized volatility (standard deviation) figures are used.)

Entirely rules based index methodology, which makes it easier to track and predict future index changes than the approach of using a committee that decides on e.g. whether or not a constituent or country will be included

Decomposable in 19 sector equity index derivatives that are also available at Eurex Exchange

Strong Liquidity Growth in the Orderbook

  • Until June 2016 maturity, 5.7 mn contracts have been transacted (approximately 70% was traded via the order book)
  • ADV (y-o-y) grew by 148% to 48,000 contracts
  • 10 Market Makers are permanently supporting liquidity in STOXX® Europe 600 Index Futures

VSTOXX® - The European Benchmark for Volatility

Demand for the European benchmark for volatility continues to grow as demonstrated by the June volume. VSTOXX® futures captured two volume records in June: a daily record of 143K lots on Friday, June 24th and a monthly record of 1.2 million lots.

Liquidity in the orderbook also continues to grow. At all times during periods of heightened volatility caused by Brexit, the futures were 0.05 to 0.1 points wide, providing trading and hedging opportunities for whole of the market.

VSTOXX® proves to reflect market sentiment and the marcroeconomic environment and therefore a good tool to hedge outright exposure to the EU equity markets or spread against other regions. For instance, the inverse correlation between the VSTOXX® and the European benchmark indices increased throughout Brexit (see charts below). Additionally, the VIX/VSTOXX® spread continues to react dramatically to EU-specific events.

VSTOXX® negative correlation with European Indices Markets makes it the perfect hedging tool for Euro specific events.

  • VSTOXX® continues to offer a much more accurate hedge during Euro specific as observed once again during the Brexit vote
  • In the final week leading to the vote, negative correlation between the VSTOXX® and the EURO STOXX 50® moved from -0.56 to over -0.91

RELATIVE VALUE TRADE: Mispricing in the spread leads investors to further explore strategies

  • Historically, VIX/VSTOXX® spread has offered multiple opportunities to capitalize on macro divergences between Europe and the US
  • In 2016, VIX/VSTOXX® spread has continued to widen from its historical levels and spiked at 17.75 during the week preceding the Brexit referendum

Building on liquidity and a solid order book

Mini-DAX® - An easier way for retail participants to participate in the European markets
  • DAX® is a Performance / Total Return Index (where Dividends are reinvested).  With the positive stock performance in the last few years and DAX® rising to levels up to 12,000 points, the contract size of the DAX® Futures reached 300,000 EUR
  • With our new Mini-DAX® Futures (Eurex product code = FDXM), Eurex offers a regulated listed instrument suited for trading-affine retailers and smaller institutional participants that has quickly become the viable alternative to regional unregulated German CFDs or structured products
  • Notional size of only one fifth of the DAX® Futures allows for highly accurate hedging for investors
  • Aligned Daily Settlement Prices between the DAX® and Mini-DAX® ensure consistent price discovery across both products and support fungibility
  • Consistent trends measured both in terms of traded contracts and notional value traded confirm that new types of participants are utilizing the Mini-DAX® for trading regional German Equity exposure
  • A healthy mix of Agency (29%), Market Maket (52%) and Proprietary Trading (19%) participation supports liquidity:
    • Over 3.6 million contracts traded since October 2015 launch
    • 218 active Eurex members foster price discovery
    • Stable spread between 1 - 2 ticks
    • 2016 ADV of over 22,000 contracts

In the weeks leading up to the Brexit vote, negative correlation in the Eurex VSTOXX® Futures and Mini-DAX® Futures moved from -0.38 to over -0.90