Wed, 11/06/2008 - 19:25
Single stock futures have continued to enjoy strong growth this year at international derivatives exchange Eurex, with trading volume rising by 196 per cent over the past five months compared with the same period of 2007. Up to the end of May, a total of 95 million contracts had changed hands, compared with 32 million between January and May 2007.
Eurex's share of the overall European market for European single stock futures is 55 per cent so far in 2008. Trading of single stock futures usually peaks during the dividend season in April and May, mostly via block trades. Eurex currently offers 573 futures from 17 countries in four currencies, euros, sterling, US dollars and Swiss francs.
Since March this year Eurex has been promoting this growth with a market-making programme, under which 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.
'The constant quotation of prices by our market-makers allows smaller-scale institutional and private investors to take advantage of this exchange-traded product via order book liquidity,' says Eurex executive board member Peter Reitz. 'Additionally, the order book also increases overall price transparency of single stock futures.'
Eurex says single stock futures are an efficient and cost-effective vehicle to manage short-term cash flows, and are also used in investment approaches such as 130/30 strategies. These can easily be implemented with single stock futures because they can be sold short without the need for a securities lending agreement, and thus represent a transparent and cost-effective means of benefiting from falling prices.
In addition, the exchange says, by contrast with alternative products, single stock futures also entail no counterparty risk as they are traded on the exchange, with the central counterparty Eurex Clearing acting as guarantor, and margin requirements are generally only a fraction of the nominal value of a futures contract, providing a leverage effect on the return on invested capital.
The Ucits III directive has made it easier for asset managers to invest in derivatives such as single stock futures within regulated retail funds in order to optimise their exposure to individual stocks, and the permanent quotation of prices in the order book since March 1 has simplified trading.
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