Eurex, the world's largest derivatives exchange, is considering launching futures on a European volatility index that STOXX is believed to be planning (DW, 3/1). An insider said the exchange is waiting to see the reaction to so-called VIX contracts, which are listed on the Chicago Board Options Exchange and measure implied volatility on the Standard & Poor's 500, before going ahead with the plan. Elizabeth von Werra, managing director at STOXX in Zurich, did not return calls and Candice Adam, spokeswoman at Eurex, declined comment.
The derivatives exchange, however, is already working on the fine print. The main sticking point is it would be problematic to have the futures expire at the same time as the daily closing of the planned vol index, the insider said. Traders looking to dump or snap up vol ahead of contracts expiring could lead to market disruption, he added. One banker suggested that the settlement of the futures should be based on an average of the implied volatility over a set period, for example, the hour before close, to avoid this.
Traders and investors can already execute positions on European implied volatility through over-the-counter derivatives, such as variance swaps. Although the listed market will remove counterparty risk and potentially lead to tighter bid/offer spreads, one trader was skeptical that there is enough demand to create a liquid futures product.
