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Volatility Futures: Developments in the EU regulatory environment and adjustment to Eurex product parameters

Eurex has revised its trading parameters for volatility futures in response to the CESR's final advice on the inclusion of index-based derivatives in UCITS.

On January 26, 2006 the Committee of European Securities Regulators (CESR) published its final advice for the European Commission with regard to 'Eligible Assets for Investments of Undertakings for Collective Investment in Transferable Securities (UCITS)'.

1 CESR's Final Advice on Eligible Assets
According to CESR's final advice, taking into account Art. 1(2) in conjunction with Art. 19 (1) (g) and Recital 13 of Directive 2001/108/EC, those derivates may be considered 'financial derivative instruments' whose underlying values consist of:

  • Assets listed in Art. 19 (1) UCITS
  • Financial indices.

This means that a derivative on a financial index is principally UCITS-compatible, if the index fulfills certain criteria. This applies to the construction of the Volatility Future.

According to the prerequisites of Art. 22a (1) of Directive 2001/108/EC on which the CESR final advice is based, an index is admissible, if:

  • the index composition is sufficiently diversified
  • the index represents an adequate benchmark for the market to which it refers, and
  • the index is published in an appropriate manner.

Taking into account the principles already in effect, CESR determined which products belong to the scope of application. Financial innovations were considered as well, provided they guarantee sufficient investor protection (for detailed prerequisites see 'CESR's Advice on Eligible Assets' at

2 Adjustment of Minimum Contract Size for Block Trades
The Executive Board of Eurex Clearing AG decided in its session on February 1, 2006 to reduce the minimum contract size for Block Trades in Volatility Futures from 500 contracts to 100 contracts effective March 1, 2006.

Section 9.2 of the Conditions for Utilization of the OTC Trade Entry Facilities has been updated accordingly.

3 Adjustment of Designated Market-Making
Maximum Spreads for Designated Market-Making in Volatility Futures on the VSMI® Index (FVSM) will be reduced from 15 per cent to 10 per cent with effect from March 1, 2006.

For further details and exact parameters of the Designated Market-Making program, visit:

Forfurther information and related articles on Trading & Execution, please click here

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