Eurex, the European derivatives exchange, is close to launching futures on VSTOXX, the European volatility index. One official close to the project said the instruments could be ready for launch as soon as next month--VSTOXX itself launched in April (DW, 4/1). Frank Hartmann, spokesman for Eurex in Frankfurt, confirmed the exchange is looking into futures but declined comment on when the instruments will launch.
Dealers said the futures could boost liquidity of Euro STOXX 50 options, which would be the underlying hedge of the futures. In the U.S., dealers noticed an uptick in trading of options on the Standard & Poor's 500, which the Chicago Board Options Exchange VIX futures reference, when the VIX futures contract launched. VSTOXX futures will also likely make OTC pricing more efficient, said one official, as traders will be able to source liquidity from the futures.
Key takers for the futures will likely be institutional fund managers, said dealers. "Over the last six months, I have noticed a tremendous interest in trading vol," said one equity derivative strategist, who has spoken to institutional clients about both variance swaps and futures on volatility indices such as the VIX and VSTOXX. Fund managers often already have regulatory and trustee approval to use futures, but not OTC instruments. Once managers get familiar with volatility trading through futures, it's possible they might push to use variance swaps and other OTC structures, added the strategist.
