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Launch of Inter-Product Spread Strategies in Fixed Income Futures – Information regarding production launch

Release date: 27 Aug 2019 | Eurex Exchange

083/2019 Launch of Inter-Product Spread Strategies in Fixed Income Futures – Information regarding production launch

Eurex Circular 083/19

1.    Introduction

Eurex Deutschland has decided to launch an initial set of Inter-Product Spreads (IPS) for Fixed Income Futures as a standardised futures inter-product spread strategy (e.g. Bund-Buxl spread), effective on 16 September 2019.

This circular contains information on the changed and updated sections of the relevant Rules and Regulations of Eurex Deutschland. It provides details for the launch regarding the products in scope and the setup and life-cycle of Inter-Product Spreads.

As indicated in Eurex circular 067/19 that entailed preliminary information, the Exchange Council of Eurex Deutschland decided on the changes to the Conditions for Trading at Eurex Deutschland for the introduction of the new products.
 

Simulation start: 14 June 2019

Production start: 16 September 2019

2.    Required actions

Inter-Product Spread Strategies will be available for all Exchange Members and Traders that are set up to trade both futures products from which a given IPS draws its leg instruments.

Maximum order size restrictions maintained on a Clearer, Member and Trader level for the futures contracts that comprise leg instruments of an Inter-Product Spread apply under consideration of IPS ratios of leg instruments.

3.    Details of the initiative

A standardised futures inter-product spread strategy is a combined instrument defined by the Management Board of Eurex Deutschland consisting of a defined number of instruments of two different futures products and a corresponding leg ratio that do not differ in maturity. Inter-Product Spread Strategies are two-legged products that ensure DV01 neutrality. IPS provide investors with a capital efficient hedge against a parallel shift of the yield curve and direct exposure to changes in the flatness and steepness of the yield curve. They also allow for trading of the spread between different European government bond futures without legging risk. Inter-Product Spread Strategies at Eurex Deutschland will trade in separate non-implied order books as common for standardised option strategies.

Eurex Deutschland will offer IPS for combinations of front month futures only. The cheapest-to-deliver (CTD) basket of a given futures maturity will be monitored to forecast the possible CTD basket composition due to new government bond issuances. The IPS leg ratios will be derived according to the most probable CTD bond. New IPS strategies will be available for trading from the Monday onward that follows the quarterly maturity of Eurex Fixed Income Futures. Trading in IPS strategies of a given expiration will stop on the first day the position limits become effective for front months futures contracts, i.e. three trading days prior to the last trading day.

IPS order books become available in trading as soon as both legs instruments are in trading. For example, trading in the Bund-Buxl IPS will start in the early morning trading session, as both futures are traded throughout the entire Eurex trading day. In contrast, Long-term BTP-Bund IPS and Schatz-Short-term BTP IPS will be tradable from 08:00 CET until 19:00 CET as the BTP futures legs of these IPS are not tradable during the full length of the Eurex trading day.

Trading Hours of the new products

Please refer to Attachment 3 of the circular for the trading hours of the new products as well as the IPS in Fixed Income Futures as of 16 September 2019.

Production and simulation schedule

IPS strategies were made available in the Eurex simulation environment effective 14 June 2019. Simulation for Eurex T7 Release 7.1 will be available until the end of August 2019. Thereafter, the simulation environment will only be available with version 8.0 starting 9 September 2019.

Inter-Product Spread Strategies for the combinations of Fixed Income Futures in scope will start trading in production on 16 September 2019.

Further IPS strategies are planned to be offered for Fixed Income futures following the launch of Eurex T7 Release 8.0.

Fees

IPS trades will be priced based on existing transaction fees for underlying futures contracts and transaction fees will be incurred on a decomposed leg basis. For example, an IPS trade in the Bund-Buxl Spread that is listed with a leg ratio of 5:2 will result in seven single leg futures transactions that are charged respectively.

The fee types „IPS Strategy Trade“ and „IPS Strategy SMP“ will be available at launch so that IPS transaction fees can be distinguished from non-IPS trades both in the daily reports CB165 and CB196, and in the monthly CB192 report.

Initially, IPS trades will not be included in the volume rebates calculations.
 

Attachments:

Attachment 1 – Updated sections of the Conditions for Trading at Eurex Deutschland

Attachment 2 – Updated sections of the Contract Specifications for Futures Contracts and Options Contracts at Eurex Deutschland

Attachment 3 – Trading Hours of the new products


Further information

Recipients:All Trading Participants of Eurex Deutschland and Vendors
Target groups:Front Office/Trading, Middle + Backoffice, IT/System Administration, Auditing/Security Coordination
Contact:

client.services@eurexchange.com

Related Eurex Circulars:029/19, 055/19, 067/19
Authorized by:Randolf Roth