03 Sep 2021

Eurex Clearing, Eurex, Eurex Repo

EQDerivatives: MSCI, Eurex Grow Solutions in APAC, Global Demand for EM

This article was written by deputy editor Georgia Reynolds and published in EQDerivatives on 27 August 2021.


Eurex has grown its market share in the MSCI Asia underlying contracts this year to around 80% from 54% last year. Mezhgan Qabool, head of market development and equity and index sales in the APAC for Eurex, highlighted MSCI EM Asia as the biggest contract being traded with the highest interest from global investors. Other popular contracts include MSCI Japan, Australia, India, China Free and Taiwan.

Eurex’s market-share growth stems from the Singapore Exchange’s license with MSCI coming to an end last year. Qabool said Eurex was set to capture that shift as it happened thanks to its extended trading hours for MSCI in the Asia Pacific as well having the products already listed on the exchange with liquidity behind them. “We managed to capture nearly all of the business from SGX to Eurex, and that took a lot of work ensuring access and making it a seamless shift from one exchange to another during the roll,” she said.  

“The extended trading hours was one thing, but we also have a global counterparty network across regions and continents and have made structural changes with our clients over the decade that we have had MSCI products listed on our platform,” Qabool said. Smaller changes included the decimal places for the contracts and the decrease in fees. “Obviously cost of trading is important. So, from a margin and fee perspective, these things have to be aligned for the market,” she said.

Qabool said Eurex’s portfolio-based margining methodology (PRISMA) offers the highest levels of cross-margin offsets across equity derivatives and capital efficiency. In addition, Eurex Clearing has recalibrated the liquidity add-on for MSCI Derivatives resulting in substantially lower margin levels for bigger positions in individual products. Eurex offers a wide range of MSCI derivatives such as gross and net total teturn, price return, dividend, ESG and total return derivatives. “The combination of PRISMA, the liquidity add-on and the diverse global offering makes this product segment very interesting to international participants who are active across the global markets and segments,” she said.

In terms of usage, Qabool said flow is being driven by both block trades and order-book liquidity. “For some products, it is an off-book market at the moment, but liquidity is building in the order book, predominantly in the MSCI World and Europe, as well as healthy growth for on-screen liquidity in our Asia underlying such as MSCI Taiwan, India and China Free,” she said. “One focus area for the exchange is to build up the on-screen liquidity so that price discovery is more transparent. “[This is] something that is extremely important for our global clients including the buyside community,” she continued.

Emerging And Asia Pacific Markets

Qabool said she is seeing an increased client demand for emerging and Asian markets. She highlighted MSCI India, Japan, Taiwan, China Free, Thailand and Australia as the more exotic indices gaining in popularity among clients. MSCI Pacific Ex-Japan or more generally the MSCI Pacific index is also “doing very well”, while the MSCI Malaysia is continuing to gain interest. “Emerging markets are becoming more and more of a focus for our clients,” she said.

Qabool said the exchange has also listed new products, including MSCI China Hong Kong Listed Large Cap and MSCI Hong Kong Listed Large Cap futures and options, on the back of the executive order of [Donald] Trump — and now also [President Joe] Biden. In addition, Eurex has launched the MSCI China Tech 100 index future, which Qabool said has seen quite some demand from players in the Greater China area. “Buyside participants are already exploring opportunities to enter this market,” she said.

Among the global MSCI ESG product suite, Eurex has also launched Asian MSCI ESG contracts such as MSCI Japan ESG Screened, MSCI Japan ESG Enhanced Focus and MSCI Emerging Markets Asia ESG Screened futures. “Especially in markets such as Australia, Japan, Singapore and Taiwan we see increased interest in ESG derivatives,” she said.

Developments Ahead

Moving forward, MSCI emerging and developed markets derivatives in APAC is an area that is only going to grow, Qabool said. Over the next few years regulatory items such as uncleared margin rules are going to impact the buyside community. The buy-side will continue to move to the exchanges and listed solutions, she said. To make this transition smooth, Eurex is building the orderbook liquidity for key products. “A lot of these trades are executed off-book at the moment and so there is a market-wide desire to have these products trading more onscreen for price discovery.” Eurex is working with liquidity providers and banks to quote and trade more in the orderbook.

Eurex will launch MSCI Brazil and MSCI China contracts on Sept. 6, 2021. “While Brazil will be a new addition to the global product suite, Eurex will commence with the transition from MSCI China Free to the more broadly used MSCI China, since the composition and weighting of both indices are identical as China A-shares has been included into the Emerging Markets index by MSCI in 2018,” she said.

“MSCI isn’t just an Asia-driven suite of products and benchmarks, so we are looking at it from a global angle and being the global house for the MSCI derivatives ecosystem,” Qabool concluded.