Global Derivatives Awards 2022: European Derivatives Exchange – Eurex
Wave after wave of volatility has battered markets over the last year. Soaring inflation, a shifting rate environment and the return of conflict in Europe. But throughout huge price swings, the Eurex platforms proved a pillar of stability for financial markets. Excelling in terms of scale, integrity and innovation – the firm was a deserved winner of European Derivatives Exchange of the Year.
The largest derivatives exchange globally by open interest, Eurex continues to climb the rankings for traded contracts. The firm counts almost 7,000 registered traders across 350 members in 33 countries connected to its platform.
Eurex recognises its responsibility as Europe's primer platform provider. In a fractious world, interdependencies mean risks can relentlessly cascade across countries and sectors, says CEO Michael Peters. “We have a particular responsibility here because providing safe and functioning markets in which participants can transfer risks at any time is one of our key tasks.”
The fact that there were strong price movements and uncertainty prevailed in the markets was no reason to suspend trading. It is precisely such market phases that require open markets that ensure transparent, fair price formation as the basis for risk transfer and management, that takes place on derivatives exchanges and the CCP.
Protective mechanisms along the entire process chain, such as volatility interruptions, ensured orderly trading through uncertain and volatile trading phases. In 2022, the firm saw new all-time highs on its Eurex T7 system, processing over 5 billion order book updates on a single day in early March.
“The fact that there were strong price movements and uncertainty prevailed in the markets was no reason to suspend trading,” says Peters. “It is precisely such market phases that require open markets that ensure transparent, fair price formation as the basis for risk transfer and management, that takes place on derivatives exchanges and the CCP.”
Committed to staying at the forefront of electronic trading, the firm spent over a year designing a concept for next generation exchange-traded derivatives (ETD). Eurex went live with the first components of NextGen ETD in June this year, following changes across its entire value chain in trading, clearing, risk management and market data.
“NextGen ETD introduces a more flexible and sustainable design concept for exchange-traded derivatives,” says Peters, noting enhanced contract identification allows sub-monthly contracts. “More flexibility in the design of exchange-traded products enables us to offer long-demand trading strategies currently unavailable to our clients.”
The next step in NextGen ETD is rolling out new products to make sure of the updated infrastructure. Peters outlines three concrete initiatives that will leverage the additional flexibility.
The first is integrating weekly and month-end contracts to provide more diverse trading. The second is basis trading functionality for the firm’s MSCI product suite, and the third will allow users to trade volatility strategies in single stock options. These new functions will launch in February 2023, and Peters notes other initiatives are already in the works.
Growth is evident across a range of derivative products. By Q3 this year, the volume of index equity total return futures contracts was up over 300% and 400%, respectively, year-on-year. Total FX contract volumes were up over 150%. Eurex added seven new FX futures in Scandinavian currencies in 2021, and five new emerging market FX futures in 2022. In total, the platform now offers 25 FX futures.
Eurex has been a pioneer of listed ESG derivatives – launching its first equity index contracts in early 2019 – and continues to be the leading liquidity pool for sustainable derivatives worldwide.
In 2021, the firm extended its offering towards more enhanced ESG methodologies by integrating ESG scores and carbon metrics. Eurex also added ESG fixed income as an asset class that year, becoming the first exchange to offer listed derivatives on fixed income indices with an embedded ESG methodology. As of September 2022, ESG traded volumes on the Eurex platform were up over 30% year-on-year to €46.6bn.
“In February this year we broadened our coverage of screened MSCI benchmarks to include more regions and expanded the segment with MSCI Screened Options in November,” says Peters. “Looking forward, we will continue our move from pure screening and ESG integration and positive screening to more sophisticated methodologies like SRI Social Responsibility or Climate Transition and Paris aligned benchmarks.”
Eurex's business strategy is based on three key pillars: being the global home of the euro yield curve, becoming the leading platform for global benchmarks and thematic index derivatives, and staying innovative in global FX, sustainability and ESG.
"These considerations are reflected in multiple aspects of our business strategy," says Peters. "We also acknowledge the growing importance and disruptive potential of distributed ledger technology and decentralized finance and are committed to apply the added value in these ecosystems going forward."