Eurex, one of the top three derivatives exchanges in the world and part of the Deutsche Boerse Group, launched options on the Korea Exchange's (KRX) Kospi 200 option on August 30, as part of its expansion programme for Asia-Pacific. The new options will be available during European and North American trading hours.
With the listing of additional contracts based on the Bombay Stock Exchange’s Sensex index in early October, and a partnership with the Singapore Exchange (SGX) in the offing, FinanceAsia talks to Michael Peters, a member of Eurex’s executive board, about the company’s expansion in Asia.
Eurex has been very active in
Most recently, we launched our Eurex Kospi product, based on the KRX’s Kospi 200 option, the most liquid and most heavily-traded listed option in the world, with an average daily volume (ADV) of approximately 13.6 million contracts in the first quarter 2010. It is also considered the benchmark Asian contract among investors worldwide. A major advantage of the new Eurex Kospi product for all market participants is that they can benefit from longer trading hours established by the Eurex/KRX partnership.
For its part, KRX is very interested in extending the tradability of this contract for their retail investors, without investing in additional infrastructure. They were looking for a partner in another time zone where this contract is tradable. Eurex was the preferred partner for KRX, firstly because we are able to offer the infrastructure, but more importantly because we have the distribution capabilities and a broad customer base. Currently, we have about 420 member firms and about 8,500 traders, who are now able to access the Eurex Kospi product, in addition to KRX's own customers.
We are also going to list futures and options on the Bombay Stock Exchange's Sensex index in October; this is in response to demand by Asian investors for access to a leading Indian blue-chip index. We have also announced a partnership with SGX to promote the launch of SGX’s USD EURO STOXX futures and options on futures. These new contracts are the result of a licensing agreement between SGX and STOXX Limited, the global index provider jointly owned by Deutsche Boerse and the SIX Group.
What has the market reaction been?
We have been positively surprised by the market response to the Eurex Kospi product. We have a total of 18 KRX firms that have committed to start trading: 10 firms started quoting on the launch date of August 30, and the other eight will be ready by the end of the year. These firms represent a combined market share of between 40% and 50% of Korean retail institutions, which we think is a good start.
On the Eurex side, we have a total of 10 firms offering execution and clearing services for the Eurex/KRX link. Of these, three Eurex clearing members will facilitate execution business for their Korean customers, while the other firms will offer the product to their European customers.
While we have received a great deal of interest and support from our member firms, we also recognise that the link is a new approach for some market participants. As such, we expect that market participants will need to get used to the newly established trading and clearing set-up. The first few weeks will likely be used as a pilot period by some customers.
What does Eurex hope to bring to investors in
We have seen growing interest from Asian customers for our euro-denominated benchmark products as well as for the existing suite of euro-denominated asset classes. One of our primary goals is to be able to offer these products and services to Asian investors.
One way we do this is by creating partnerships with local exchanges and firms, such as with the SGX. As mentioned earlier, SGX decided to jointly launch the SGX EURO STOXX 50 index futures and options on futures with Eurex. This will be the first time derivatives contracts based on the EURO STOXX 50 index will be available in
In the first half of 2010, the euro-denominated EURO STOXX 50 index futures traded on Eurex recorded an average daily volume (
Eurex and Eurex Clearing see a lot of potential for further partnerships in Asia. These potential partnerships can offer opportunities and benefits for both the customers of the potential partners and the clients of Eurex. However, it needs to be taken into consideration that exchanges and clearing houses in several Asian countries are often fully or partially state owned, which means there are usually capital transfer restrictions in place. This can be a challenge when seeking regulatory approval of such co-operations.
Last but not least, in August we launched our training and education initiative in Asia. With this program, we aim to improve the knowledge and expertise of Asia-based investors about the European markets and products, as well as to introduce popular and widely-used products, trading strategies and trends.