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Thomas Book: “Our Total Return Futures are a real-life example of futurization.”

Release date: 01 Dec 2017 | Eurex Exchange

Thomas Book: “Our Total Return Futures are a real-life example of futurization.”

 One year ago, Eurex launched EURO STOXX 50® Index Total Return Futures. We talked to Thomas Book, CEO of Eurex, about this successful product, which offers returns analogous to Equity Index Total Return Swaps, thus representing a functional replacement for these OTC instruments.

Thomas, one year ago Eurex launched its Total Return Futures. And already, the traded value exceeds 15 billion Euro. 

Yes, indeed. I have to say that the introduction of these products is clearly one of my highlights of the last 12 months. This is not only because of the fact that high trading volume in an innovative product is always good news. Here, it is more. We all heard a great deal of talk about futurization, and only a few months ago market observers could get the impression that this was just another buzzword. Now we know: it is not. Our TRF turn out to be a true real-life example for futurization. We estimate that 10 percent of the market has migrated to our listed product. On 30 November, we reached another important milestone: since the launch, 500,000 TRF contracts have been traded. This success shows that regulation opens up new potential for innovation. 

Can you elaborate the last point? 

Sure. Under the Basel III capital standards, banks face increased capital requirements when entering Over-the-Counter transactions. In addition, there are the bilateral margin rules on non-cleared swaps. This changes the structure of derivatives markets by supporting the trend to Exchange Traded Derivatives that regulators are aiming for. Eurex has years of experience in delivering innovative products, and we continue to best support the industry. 

Could you explain the nature of the product? 

The Total Return Futures contract design is aimed at replicating the payout profile of the funded purchase of a cash equities basket representing the components of the underlying index. In line with current market convention the Total Return Futures trade in „spread“ in basis points and allow the implied repo rate associated with cash basket replication to be traded for the first time. Going forward, we can broaden this product structure towards other indices, equity baskets or even other asset classes. 

How does Eurex design new products like Total Return Futures? 

We constantly observe market developments and trends, and we are in close contact with our customers as well as regulators. This is key for our objective to meet the market’s needs. Also, it is important to stress that we cannot innovate all alone. We work closely with our clients. For our Total Return Futures, BNP is one of our trusted partners who gives us valuable input and is one major liquidity provider – and therewith an important contributor to this success. 

You mentioned efficiency. What is the key driver for the efficiency of Total Return Futures? 

It is their standardisation. Contracts that offset each other can be netted out through clearing, offer cross-margining, and the processing of trades is greatly simplified. On top, Eurex Clearing acts as Central Counterparty, mitigating counterparty risks. That is one of the reasons why market participants adopted to the product so fast.


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