Equity derivatives: Spain’s stock rules give derivatives exposure
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CAPITAL MARKETS

Equity derivatives: Spain’s stock rules give derivatives exposure

Funds are circumventing anti-concentration regulations with single-stock futures.

By John Ferry

Spanish regulations on the proportion of a mutual fund’s stock holdings that can be in a single company are inadvertently boosting exchange-traded equity derivatives volumes.

Mutual funds are limited to holding a maximum of 10% of a portfolio in a single company but are getting around this by taking exposures using single-stock futures (SSF) and other equity derivatives, say market participants. This is helping boost trading volumes on Meff, the Spanish derivatives exchange, and also on other European derivatives exchanges, such as Eurex.

“Spanish mutual funds have some constraints when it comes to cash market investments, and for this reason SSF are very popular in the Spanish market,” says a Eurex insider, who adds that the exchange’s own nascent SSF market – launched in October – is also receiving a boost from the activities of Spanish mutual funds.

Record volumes

Meff’s accumulated first-quarter trading volumes were up 45% to 16.3 million deals on the same period last year, with the number of stock futures traded up 64% to 7.6 million contracts and volumes on stock options up 55% to 4.7 million contracts. The exchange clears and trades futures and options on the Ibex-35 Spanish market index as well as individual Spanish stocks.

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