Taking advantage of its recently gained status as a recognized overseas clearing house, Eurex, the derivatives exchange owned by Deutsche Börse and SWX (Swiss Exchange), announced plans to begin offering sterling-denominated single-stock futures on UK-listed shares in May.
In doing so, Eurex will for the first time be competing directly against Euronext.liffe’s single-stock futures contracts on the same underlyings, called universal stock futures.
The single-stock futures planned by Eurex will cover Royal Dutch Shell and the 16 sterling-denominated components of the Dow Jones Stoxx50 index and will include some of the largest UK companies, including Barclays, BP, HSBC, Lloyds TSB and Vodafone, that count for the bulk of the volume of UK single-stock futures trading.
The move, according to Eurex, is aimed more at developing its existing product range to improve clients’ cross-margining opportunities on Eurex than at trying to take market share from Euronext.life. Nevertheless, Euronext.liffe’s wholesale service for registering equity derivatives contracts, called Bclear, announced one week later that it would slash its fees for registering UK and US universal stock futures by 40%.
"Launches of new contracts will increase pricing competition, bringing further liquidity to the market," says Agnès Lerouge, global head of Delta 1 products sales at SG-CIB. "Clarity and transparency on aspects like corporate actions, contracts settlement type and point value are also critical for the development of the single-stock futures market."
Single-stock futures are among the fastest-growing segments of the equity derivatives market, thanks in part to the growing popularity of 130:30 investment strategies in which investors balance going short on 30% of positions with long positions equivalent to 130%.
The volume of contracts traded on Eurex in the first quarter of 2007 was up 114% on the first quarter of 2006.