International derivatives exchange Eurex has signed an agreement with Investment Property Databank to license its European property indices to serve as underlying data sets for futures on
International derivatives exchange Eurex has signed an agreement with Investment Property Databank to license its European property indices to serve as underlying data sets for futures on the total returns of IPD indices.
The futures contracts will be launched in the first quarter of 2009. According to the two firms, the introduction of IPD property index contracts will represent the first time that derivatives based on commercial property, one of the world’s largest asset classes, have been available in an exchange environment within Europe.
‘I am very pleased that we will be the first European exchange to offer property derivatives to our customers,’ says Eurex executive board member Peter Reitz. ‘The scope and coverage of IPD indices, their consistency and transparency, make them the ideal provider of independent and comparable data on which to build exchange listed property derivatives.
‘Our offering will foster the property markets by adding liquidity, transparent pricing and effective risk management tools. Through our central clearing we eliminate counterparty risks.’
IPD’s co-founder and director Ian Cullen says: ‘Since the growth in the use of OTC property derivatives began in 2004, IPD’s central aim has been to support all market participants to the best of our abilities.
‘We have become convinced over the past months that this new market is now ready for the boost that can be provided by the introduction of standardised, homogeneous on-exchange products and services, and that Eurex will be a sympathetic partner in facilitating the next logical stage in the development of this market.’
Nick Scarles, chairman of the Property Derivatives Interest Group and group finance director at Grosvenor Group, adds, ‘This is a crucial milestone in the evolution of the property derivatives market. An active property derivatives futures market provides a forum for liquidity and transparent pricing, and all using standardised contracts.
‘This will facilitate the more efficient management of counterparty credit risk, with credit support being provided under an exchange’s rules, and with more effective netting of credit exposures. Market participants will be able to increase their property derivatives trading activity, while maintaining counterparty credit risk at acceptable levels.’
Eurex will initially introduce annual contracts that capture the annual returns on the IPD UK All Properties Total Return Index. With the introduction of the IPD index futures, Eurex aims to work with current market participants to provide the benefits of an exchange-traded contract to existing OTC derivative players and to attract new market participants and liquidity to this asset class.
Eurex, jointly owned by Deutsche Börse and SIX Swiss Exchange, is home to euro zone interest rate and equity index benchmark derivatives and its markets include the International Securities Exchange, the world’s largest equity options exchange. Eurex’s global liquidity network comprises some 400 direct exchange members in 22 countries worldwide.
IPD is a global business specialising in the measurement of commercial real estate performance, providing services including research, reporting, benchmarking, analysis, conferences and indices for funds, investors, managers and occupiers in more than 20 countries including most of Europe, the US, Canada, Australia, New Zealand, South Africa and Japan.
Launched in September 2005, the Property Derivatives Interest Group is part of the Investment Property Forum and aims to enhance knowledge and understanding of property derivatives amongst members of the property and financial services industries, in order to encourage the further development of an orderly and liquid market. Its steering group includes members of the banking, broking, property and specialist financial industries.
