Equity Index market briefing June 2023

Being a bear has always been a game of patience; the equity market resilience, with the macro-economic backdrop still gloomy, surprised many. Most noticeable is the concentration around a handful of stocks contributing to this positive return for benchmark indexes. The sideways and moderately positive equity performance has seen subdued realized volatility. Despite this environment, some Eurex products observed strong trading interest.

The EURO STOXX® Banks futures and related dividend futures were active. The EURO STOXX® Select 30 dividend future saw a large jump in volume and the underlying price return index is popular for structured products issuance. There were some larger block prints in the STOXX® Europe 600 ESG-X index futures and options, demonstrating that an ESG derivatives focus persists. The other notable volume jump came in our benchmark DAX, SMI, STOXX® Europe 600 and KOSPI options, and also in VSTOXX® derivatives. There will be a renewed effort to grow ADV on a more ambitious level here. Members can expect to see details on this initiative shortly. Another data point worth highlighting was the strength in specific MSCI index futures: India, Japan, Canada, EM EMEA and South Africa. The MSCI World options also benefitted from some large block activity. A number of sector products also saw some robust futures trading: Autos & Parts, Real Estate and Utilities. The Industrial Goods & Services and the more familiar Banks sector saw larger options volumes in May.

There was a leap in activity for our Basket Total Return Futures segment. We anticipate the additional participation of new institutional members should act as a catalyst for further volume growth. A single BTRF trade executed early in May of almost EUR 300m notional kicked off the positive trend. This basket was executed for short coverage purposes across several Italian names. With EUR 2.8bn notional, over 2m contracts were traded in May, a trifold increase compared to April. The largest volume traded on Equity TRFs for UniCredit with almost EUR 400m notional, followed by Enel in EUR 300m and ING for EUR 200m notional. Current open interest reached the EUR 2.6bn notional mark for the first time.

At the end of the summer break in August, members can offer their clients trading in daily expiring EURO STOXX 50® index options. Unlike the typical US CCP approach, Eurex Clearing operates a near real-time recalculation of Initial Margin requirements with ad-hoc margin calls. From the moment the options are traded, the exposure is added to the participant’s portfolio and IM is recalculated. Therefore, thanks to this robust risk management framework, members can confidently trade these new daily index options.