Eurex pioneers equity total return futures to encourage on-exchange trading
10 December 2020 Germany
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Eurex is further facilitating the market鈥檚 transition from over-the-counter (OTC) to on-exchange trading by completing the first substantive basket trade in its new equity total return futures (ETRFs) product.
BNP Paribas and Goldman Sachs are the first banks to use the derivative following the recent completion of the pilot phase.
ETRFs are listed futures aiming to replicate returns of traditional, bilaterally-negotiated equity or equity index-based swaps. The basket trade functionality (BTRF) allows market participants to construct and modify a basket swap position in a set of underlying reference equities for the first time.
Eurex says that such swaps are important instruments in the financial world where two contracting parties exchange the performance of an equity basket for an agreed financing cost.
Compared to a bilaterally-negotiated swap, central clearing via Eurex Clearing allows cross margining, simplifies settlement and mitigates counterparty risk.
Lorenzo Pasquale Longo, head of Europe, the Middle East and Africa forwards trading at Goldman Sachs, says: 鈥淭he BTRF product represents an important development in the equity financing market by providing a listed product referencing standardised basket terms, as an alternative to a predominantly OTC traded product.鈥�
Longo adds that BTRF can offer market participants a way to optimise initial margin.
Eurex previously launched the total return futures (TRFs) segment in 2016 with the listing of the first TRF on the Euro STOXX 50 Index.
TRFs on 255 stocks and the new basket trade functionality followed in October 2019.
Since launch, Eurex has managed to migrate over 50 percent of the Euro STOXX 50 OTC market to its product.
BNP Paribas and Goldman Sachs are the first banks to use the derivative following the recent completion of the pilot phase.
ETRFs are listed futures aiming to replicate returns of traditional, bilaterally-negotiated equity or equity index-based swaps. The basket trade functionality (BTRF) allows market participants to construct and modify a basket swap position in a set of underlying reference equities for the first time.
Eurex says that such swaps are important instruments in the financial world where two contracting parties exchange the performance of an equity basket for an agreed financing cost.
Compared to a bilaterally-negotiated swap, central clearing via Eurex Clearing allows cross margining, simplifies settlement and mitigates counterparty risk.
Lorenzo Pasquale Longo, head of Europe, the Middle East and Africa forwards trading at Goldman Sachs, says: 鈥淭he BTRF product represents an important development in the equity financing market by providing a listed product referencing standardised basket terms, as an alternative to a predominantly OTC traded product.鈥�
Longo adds that BTRF can offer market participants a way to optimise initial margin.
Eurex previously launched the total return futures (TRFs) segment in 2016 with the listing of the first TRF on the Euro STOXX 50 Index.
TRFs on 255 stocks and the new basket trade functionality followed in October 2019.
Since launch, Eurex has managed to migrate over 50 percent of the Euro STOXX 50 OTC market to its product.
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