Eurex continues to boost futurization with launch of Equity Total Return Futures

Migration of bilateral negotiated swaps into standardized futures / New functionality to trade baskets of ETRFs / Live since 7 October

Eurex has taken a further step towards futurization: On 7 October, the derivatives exchange introduced Total Return Futures on single equities. The new futures complement the Eurex suite of equity index derivatives and support the market in complying with new EMIR financial market regulation.

Eurex offers Equity Total Return Futures (ETRF) for 255 euro-denominated equities. Product structure and design are based on the Total Return Futures on the EURO STOXX 50 Index (TESX) launched in 2016.

ETRFs replicate returns on equity analogous to equity swaps. This allows to migrate traditional bilateral negotiated swaps into standardized futures contracts that are exchange-traded and centrally cleared.

Furthermore, a new Eurex functionality supports basket trades of ETRFs (BTRF) to construct and flexibly manage synthetic equity portfolios for the first time.

In line with OTC swap convention Eurex’s ETRFs are quoted in spread expressed in basis points. They reference to the new ECB short term rate €STR as underlying funding rate. Maturities are available from one month out to two years.

Michael Peters, Member of the Eurex Executive Board: “With introduction of ETRFs Eurex continues the push towards futurization of swaps. We thereby not only foster a regulated and safe environment for our clients’ Delta 1 business, but also allow them further operational as well as cross margining efficiencies. On top of this, the innovative basket trade feature facilitates replication of portfolio trading strategies using the ETRFs.”

Eurex has been the first exchange worldwide to offer an exchange-traded replacement for bilaterally traded total return swaps. Since its launch, Eurex has managed to migrate 50 per cent of the OTC market to its product. Current open interest stands at over 1 million contracts with a notional value of circa EUR 40 billion and over 2.5 million contracts traded YTD in 2019. In September, trading volume in Total Return Futures on EURO STOXX 50 peaked at over 433,000 traded contracts.

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