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Eurex and Korea Exchange (KRX) recently announced the listing of Mini-KOSPI 200 index futures during Eurex trading hours. What is the advantage for market participants?
KRX’s KOSPI 200 Futures and Options contracts are one of the most liquid index derivatives and not only attractive for Korea but also a benchmark in the world. Since August 2010, Eurex has cooperated with KRX and launched the Eurex/KRX Link to offer an after-hours session for KOSPI 200 Options. This means that KOSPI 200 Options have become tradable during the main trading hours in Europe and North America on Eurex. Now that KRX has successfully introduced a Mini-KOSPI 200 Futures contract, Eurex will also offer the after-hours trading for the Mini-KOSPI 200 Futures. Starting from Monday, 28 November 2016, market participants will be able to trade Korea-related futures and options on the same platform.
Why is that important?
Many index investors use futures positions for hedging their options exposure. With both kinds of derivatives now traded and cleared on Eurex, such investors have a single point of entry to access futures and options on the KOSPI 200 index. This also may result in capital efficiencies as only one clearing house is required. The new futures make it also easier for our active liquidity providers in the Eurex/KRX Link to price the options, so that the new launch is likely to create even better conditions for the after-hours market for KOSPI 200 index derivatives as a whole.
How does the cooperation work?
Both Eurex KOSPI 200 Options and Eurex Mini-KOSPI 200 Futures trade from 6 pm until 4 am/5 am Korean time on Eurex under Eurex’s rules and supervision. However, they reflect all parameters of KRX’s KOSPI 200 Options and KRX’s Mini-KOSPI 200 Futures contracts. Hence the contracts are fully fungible between Eurex and KRX. The Korean brokers that participate in the Eurex/KRX Link can offer their customers a very similar experience as in KRX’s daytime market. Market Makers on the Eurex side provide high liquidity and attractive spreads. Open positions are transferred to Korea daily in the next morning and can be further adjusted on KRX.
Could you give us some figures around these products?
KOSPI 200 Options on Eurex achieved a daily average of over 90,000 contracts in the first three quarters of 2016, which corresponds to 6.44% of the daytime market on KRX. This is a very good percentage for trading in a different time zone in which the underlying index is not calculated. It shows that customers appreciate our cooperation products because it allows them to react to price changes in correlated assets in the European and North American markets.
Do you also support Korean investors who wish to increase their exposure to European markets?
In the framework of the cooperation, Eurex and KRX introduced EURO STOXX 50® Index Futures that are traded and cleared in Korean Won on KRX during Korean trading hours. The EURO STOXX 50® Index Futures is one of the most traded index derivatives globally. So KRX has listed a derivative product based on a global benchmark index for the first time in its history. The product specifications were designed to be as close as possible to EURO STOXX 50® Index Futures listed on Eurex. In addition, Korean investors can also trade major European fixed income and equity index derivatives on Eurex, such as Euro-Bund, DAX® and Mini-DAX® Futures.
The cooperation of Eurex and Korea Exchange started six years ago. What would you say has been the biggest achievement for Korean market participants?
Michael Peters: Based on Eurex’s vast distribution network in Europe, Asia and North America, both exchanges have been successful in creating a liquid fungible night session for KOSPI 200 Options, one of the most traded financial instruments worldwide. Trading around the clock provides investors with additional hedging opportunities. The 24-hours trading has not only supported market participants in their trading needs, but also contributed to attracting further foreign and institutional investors to the Korean market.