.jpg)
Market briefing
The story of 2018 was the long-awaited mean reversion of equity market volatility, driven by geopolitical tensions. Volatility showed an early blip in Q1 which quickly petered-out as markets rallied to mid-year highs. In Q4, a repeat bout in volatility occurred as the major index benchmarks retreated into red territory. Overall, almost every major asset class stumbled in 2018. This was not the consensus at the beginning of the year. Hopefully, clients were able to enhance and protect their portfolio returns by the well-timed use of derivatives. As a result, Eurex volume grew YoY with particularly strong participation levels in our volatility and dividend segments. VSTOXX® futures were a natural hedge instrument in focus. We also saw double-digit growth in our EURO STOXX 50® and Banks index dividend futures where 2018 represented a breakthrough year for dividends as an asset class. Some of the newer products saw healthy increased activity, in particular, the iSTOXX® risk factor futures, Total Return Futures, ETF options and EURO STOXX 50® month-end options. In December, the trading hours extension went live. This extension aimed to increase participation amongst our Asia based members, specifically in our MSCI derivatives suite. Immediately, we witnessed notable volume increases in MSCI World, EM and EAFE futures, as well as the related options, with several individual MSCI country futures also seeing heavier volumes.
So, how will markets evolve from here? Given the performance of equity markets over the past quarter, uncertainty has visibly increased. This provides an impetus for Eurex to expand its range of product solutions offering a suitable selection of derivative hedging instruments. Here Eurex sees certain themes that will continue to trend throughout 2019. We expect ESG benchmarks to further complement traditional index-tracking products, as well as the continued growth of European ETF options liquidity. Additionally, we expect further MSCI futures and options adoption by Asia based institutional clients and, for the equity markets in general, a continued migration from physical to synthetic derivative transactions. The aftermath of volatility can lead to opportunities and here nimble investors may seek to profit. However, the bumpy ride may not be over as there is plenty of 2019 event risk to navigate. To name a few: the season finale of the Brexit soap, the now highly politicized Fed interest rate decisions throwing off a clear hike trajectory, the continued global trade tensions, the Trump presidency in general and the Mueller investigation in particular and a series of global elections in Argentina, Canada, Greece, India, Indonesia, South Africa and Thailand.
In addition to anticipated new product launches in 2019, members can expect Eurex to continually improve market structure and maintain our existing broad suite of products. Doing so, ensures that we enhance price transparency and liquidity provision, creating deep markets for investors all year round.
Zubin Ramdarshan, Head of Equity & Index Product Design, Eurex
Facts & figures
Round-ups of 2018
2018 was yet another record year for Eurex MSCI Derivatives. Futures volumes grew by 32% with more than 14.5 million traded contracts compared to 11 million in 2017. The open interest stood at 1.47 million following the December expiry compared to 1.37 million at the end of 2017. Options activity picked up even more with 1.4 million traded contracts (+68%) and an open interest of 507K at year-end (+99%). Most of the growth could be contributed to the Options on MSCI Emerging Markets and MSCI World. Including Futures and Options, Eurex Exchange has the highest global open interest figures in the MSCI segment. While the majority of business still takes place via block trades, both the MSCI World and Europe futures are developing well on screen and this is increasingly recognized by the buy-side community.
Extensive portfolio-theory research has shown that equity returns can be explained by risk factors that are supplemental to market risk. Launched in 2017, the Eurex futures on these six iSTOXX® Europe factor indexes shown its success, passing 563,900 traded contracts in 2018 and open interest exceeding 297 million Euro. Among the targeted premia of six well-documented sources of systematic risk (Momentum, Quality, Size, Value, Carry and Low Risk), the "Futures on iSTOXX® Europe Value Factor Index" was the most traded product in 2018. Watch the video to learn more about the advantages that Eurex iSTOXX® Europe Factor Index Futures bring to trading, as well as how the products offer exposure to the broad market and how a factor tilt can be achieved.
Launched on 2 December 2016, and designed in close cooperation with market participants, Eurex's Total Return Futures (TRFs) on the premier EURO STOXX 50® Index are an excellent showcase of how innovative products not just help to adapt to new regulation but can also help to open up a market to new participants.
The two-year statistics confirm a strong take-up from major market players with over 1.7 million traded contracts (EUR 61 billion notional, consisting mainly of TAM trades), an ADV of 6,741 contracts and a notional open interest in 2018 of more than EUR 26 billion. The number of participating members is continuously increasing and currently stands at 20 dealer banks and clearers, as well as 10 IDB's.
2018 has marked the 30th birthday of the DAX®, Deutsche Börse's blue chip index for the German stock market. Eurex offers Mini-DAX® Futures (FDXM) in parallel to the popular DAX® Futures (FDAX) with a significantly lower contract value of just EUR 5. More than 10.4 million contracts have been traded in 2018.
