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"As a pioneer in the field of electronic trading, Eurex was quick to recognize the need for a modern, high-performance platform which brings transparency to the bond market and reduces both risks and costs for trading participants," said Rudolf Ferscha, CEO of Eurex, the world's largest derivatives exchange. As financial products become increasingly standardized, an increasing bond trading volume is being carried out on electronic platforms, added Ferscha. "Participants on Eurex Bonds profit from anonymity of trading, the netting of positions and margin requirements and enhanced straight-through processing."
Eurex Bonds started out with 12 trading participants, including the Deutsche Bundesbank. By the following year, the number of participants had risen to 22. In 2002, the German Finance Agency began trading on Eurex Bonds, and since then has performed all secondary market activities in German government bonds exclusively on the Eurex Bonds platform. 33 trading participants from six countries are now admitted to trading on the electronic platform.
"In future, we want to secure a broader international basis for Eurex Bonds, in terms of both products and participants," said Christian Klapproth, General Manager of Eurex Bonds. Market participants were supportive of Eurex Bonds from the very beginning. They have significantly contributed to the success of the trading platform, have advanced electronic bond trading and as shareholders, are co-owners of the company, continued Klapproth. "Custumer co-ownership was crucial for the success of Eurex Bonds". In addition to Eurex, eleven of the 33 Eurex Bonds participants are also shareholders in the bond-trading platform, including five German banks, four from the UK and one each from Spain and the Netherlands.
Parallel to expanding the number of participants, Eurex Bonds has continually broadened its product portfolio. Having launched with German government bonds and basis-trading instruments, Eurex Bonds introduced German Jumbo Pfandbriefe, German State bonds, and KfW bonds in January 2002. In October 2003, the company extended its product portfolio to treasury discount papers (so-called Bubills). In November 2004, the company has included issuers from outside Germany. European Covered Bonds from Spain, France, Ireland and the UK, as well as bonds issued by the European Investment Bank and liquid corporate bonds can be traded. Since June 2005, Eurex Bonds has also offered trading in Austrian and Dutch government bonds.
Also, the company has continuously expanded the functionality of its trading platform. The "pre-arranged trade" functionality, for instance, enables transactions that were concluded bilaterally between two trading participants to be settled via the central counterparty, Eurex Clearing. If a transaction is settled via the central counterparty, the risk of default is reduced and individual transactions are combined for settlement (netting), thus lowering the number of delivery transactions. In the end, this cuts costs for the trading participants.
Moreover, Eurex Bonds introduced an order book early on, making it possible for participants not only to trade on current quotes but also to set up limit orders. The order book facilitates order and position management for participants and enables new trading strategies. The system has also been expanded to include features such as yield trading for short-term paper (Bubills) or so-called "Iceberg orders". For those limited orders, the order book does not display the total order volume, but only a respective portion defined by the participant.
