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Equity Index Highlights - September 2017 Edition

Release date: 13 Sep 2017 | Eurex Exchange

Equity Index Highlights - September 2017 Edition

September Edition

Market briefing

"Despite August coming narrowly close to being the first down month this year, the MSCI AC World continued its upward trajectory. Over the past year other strong performing global benchmarks where Eurex offers derivatives include MSCI Emerging Markets and MSCI EAFE indexes. This remarkable run of monthly gains over the first eight months of the year is a first for the MSCI AC World since inception 30 years ago. Volatility has taken a significant uptick in August as measured by the VSTOXX®, this coincided with rising tensions on the Korean peninsula, which resulted in a jump in trading activity over KOSPI 200 Options listed on Eurex.

Away from the strong volumes experienced during the month across our major index suite, we also saw healthy increased activity for STOXX® Europe 600 Index Futures, Mini-DAX® Futures, as well as, Dividend Derivatives. We have also recorded early futures roll trading across our MSCI Futures segment, likely driven by members wishing to neutralize risks well ahead of the typhoon season in Asia. On a supportive note for European stability, polls are suggesting that Angela Merkel will retain her position post German elections, though we've all long since become alert to over reliance on polls. Despite now reaching the third round of Brexit talks, the EU and UK appear to have made little progress, though the equity market is absorbing this saga without concerns so far.

Possible clouds on the horizon have literally formed in the shape of the unexpected costs from hurricanes Harvey and Irma. Markets may also turn their attention to the US debt ceiling which could re-emerge as a problematic issue towards year end. Looking at the US treasury market for any cues, the term structure whilst not yet inverted, is possibly heading down that path and the subsequent interpretation is that a recession may be about to arrive, thus volatility does appear to have found a short-term floor."

Zubin Ramdarshan
Head of Equity and Index Product Research & Development

Facts & Figures

 

MSCI Derivatives segment has seen a new record, with the first non-roll month to trade over one million contracts. With the roll starting earlier in Asian index futures, contracts like MSCI EM Asia and MSCI China Free have made it to the top 10 equity index futures on Eurex.

We also witnessed for the first time in August, pricing of our Total Return Futures turn negative for the front month contract, implying equity repo became positive; usually a sign of increased short demand over European blue chips. Following a record month with nearly 48,000 contracts in August, the overall volume mark has raised to 216,000 contracts since launch.

The VSTOXX® Futures and Options were among the strong performing products, both recording double digit growth year on year. The early opening in VSTOXX® Futures is utilized by end users, an average of 400 lots was traded before 9:00 a.m. in August. Peaks were on 11 and 14 August, where nearly 2500 lots were traded ahead of the general opening.

Product news

Eurex supports electronification with Market-on-Close Futures

As of Monday, 30 October 2017, Eurex Market-on-Close (MOC) Futures will be providing a concept to trade index futures at a price level directly linked to the underlying cash market index close, prior to its actual publication. MOC Futures represent the basis, e.g. the difference between the current futures price and the current index cash price.

MOC Futures are designed to boost efficiencies and to further support the regulatory agenda by facilitating the migration from OTC instruments to the transparent on-exchange environment. Initially MOC Futures will be launched on EURO STOXX 50® Index Futures, Europe's leading blue chip index for the Eurozone covering 50 stocks from 11 Eurozone countries. Read more.


EURO STOXX 50® Index Dividend Futures: Introduction of two additional Designated Market-Making schemes

Eurex recently introduced two additional Designated Market-Making schemes for EURO STOXX 50® Index Dividend Futures. The new Scheme II and Scheme III are offered for the period from 1 September 2017 to 31 December 2017. Applications to these Designated Market-Making schemes are accepted up to and including 20 September 2017.

The cap to be implemented on SMI®, the blue chip index of SIX Swiss Exchange, in September 2017 marks an important change. The maximum weight of each constituents in the SMI® will be limited to 18%. The reason for this change is that the existing SMI® does not comply with the UCITS Directive. As a result, the usage of the SMI® for index funds or index derivatives in the EU was constraint. SIX Swiss Exchange is now adapting the SMI® to comply with the European requirements and meet market demand.

The first significant date is Monday, 18 September 2017, when the maximum weighting of 18% will be introduced in the SMI®. The cap will be applied gradually. The weight is reduced by up to 3% per quarter until the maximum weighting of 18% per component is reached. If the target level is not reached yet in September, another reduction of up to 3% per share will be applied in December. Once all the constituents have reached the maximum weighting of 18%, the weighting of any constituent may exceed 20% between the quarterly index reviews. However, if two constituents are over 20%, an ad-hoc adjustment will be made to 18% after the market close.

Financial products linked directly to the SMI® will automatically follow the new methodology of the capped SMI® as of 18 September 2017. These products will benefit from improved diversification within the SMI® and compliance with the UCITS Directive. For more information please see SIX Swiss Exchange's website.

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