Enabling the future

Next Generation ETD Contracts

The implementation of next generation ETD contracts aims to introduce a more flexible set-up of Exchange Traded Derivatives (ETD) products. The new concept enhances contract identification and allows for more than one expiration per month on a product level (sub-monthly contracts). 

The three business initiatives – integration of weekly contracts, volatility strategies and basis trading – are launched to attach the new flexibility in setting up exchange traded derivative products with one big change. Further initiatives will follow in due course. We’re implementing this future-proof concept to stay best-in-class given the evolving market conditions. 

Integration of weekly expiries

Integrating the weekly products into a single product allows position rolling of sub-monthly and monthly contracts in one transaction. This smooth handling allows roll trading to be included in all strategy trades.

Volatility strategies

Due to the new contract logic, we can offer daily expiries of the physically settled single stock futures that can be used as a cash leg for the volatility strategies. This results in no basis risk, no corporate action and no dividend risk.

Basis trading for MSCI futures

To replicate basis trading, a calendar spread between the daily future and the quarterly future is traded. Market on Close (MoC) T+X allows fully automated and operational efficient basis trading via a calendar spread between the daily expiring futures and the standard target futures. The daily expiring contracts for MSCI futures can be used as a leg for a calendar spread for the date expiry and the standard monthly expiry. Market on Close (MoC) will be available for the full choice of MSCI futures tradable at Eurex.

Key benefits

  • Flexibility
    Allowing more expirations per month on a product level provides more flexibility in setting up exchange traded derivatives products.
  • Ease of execution
    Weekly expiries, OVS in Single Stock Options and Basis trades in MSCI futures are straight-through-processed in a single marketplace after the trade has been agreed. It doesn’t matter whether the basis for MSCI futures has been agreed on today’s, tomorrow’s or the day after close.
  • Full choice of trading channels
  • Weekly expiries, OVS in Single Stock Options and MoC T+X will be available for trading via Eurex EnLight, Screen trading or off-book, allowing the participants to choose the execution venue of choice.
  • Liquidity
  • Transparency
  • Risk prevention

Weekly expiries

  • Flexibility
    Allowing more expirations per month on a product level provides more flexibility in setting up exchange traded derivatives products.
  • Simplification of trading
    Integrating weekly options into the standard contracts allows smoother rolling activities and additional trading strategies and combinations across monthly, weekly, and month-end expiries.
  • Risk monitoring
    Risk monitoring and risk protection capabilities by Eurex can be applied to the overall exposure of instruments with the same contract specifications of an underlying instrument.
  • New expiry cycles
    The NextGen ETD concept allows for new expiry cycles such as Monday or Wednesday options to gain or hedge exact intra-week or weekend exposure.

Volatility strategies

  • Delta neutral trading
    The NextGen ETD concept allows trading and clearing of options volatility strategies (OVS) in single stock options within the Eurex risk framework. Daily settled Single Stock Futures with physical delivery will serve as an underlying instrument to eliminate delta risk.
  • Mitigate counterparty risk
    OVS in single stock options offers delta neutral trading without any additional counterparty risk or bilateral exchange of the underlying instrument. The trading process is fully replicated within the CCP framework and doesn’t require any additional KYC processes or risk limits on the client side.
  • No basis risk
    The daily expiring Single Stock Futures provides delta exposure without any additional dividend or corporate action basis risk exposure based on the same day expiration.
  • Ease of execution
    OVS in single stock options are straight-through-processed in a single marketplace after the trade has been agreed.

Basis trading

  • Flexibility
    You can either trade MSCI Futures in the order book at current market levels, based on certain assumptions of market participants for stocks that are currently closed, or you trade based on an index close. Now, the new Market on Close (MoC) T+X functionality allows you to do this either as a block trade or via an order book.
  • Ease of execution
    Just trade the calendar between the daily expiry (T, T+1 or T+2) and the standard quarterly futures, which you want to trade based on close and you’re done. All this happens within the same product and not a separate one for the basis. Therefore, no clearing operations are necessary to book from a basis product into the futures.
  • Reduced operational efforts
    No further price confirmations are needed, or additional tasks required after the index close is available. This also means that each trade only needs to be considered once. This has the positive side effect that the trade shows the correct trade date, namely when it was initially agreed.
  • Reduced margin
    You hold a delta-neutral position by trading the calendar between daily and quarterly futures until the daily leg expires. Therefore, minimal margin requirements and no separate margin model are needed for the basis – only for the standard legs.
  • Liquidity
    A Market Maker will support the basis (= calendar instrument) to make this type of trading liquid within the order books. For block trades, banks & brokers are facilitating trades on the close.
  • Transparency
    Market on Close (MoC) T+X will offer more transparency into basis trading as the calendar spreads are tradable via screen and/or off-book trading.
  • Risk prevention
    With a proper Trade at Close functionality, those trades can be booked immediately into a clearing house, mitigating counterparty and operational risks.

Find out more about our new business initiatives

Contacts

Thomas Winter
Head of Trading Design, Eurex

Mergenthalerallee 61
65760 Eschborn

T +49 69 211-1 47 69

thomas.winter@eurex.com


Philipp Schultze
Equity & Index Sales EMEA

T +41-43-430-71 26

philipp.schultze@eurex.com



Markus Schiller
Project Lead

Mergenthalerallee 61
65760 Eschborn

T +49-69-211-1 41 31

markus.schiller@eurex.com


Cora Springer
Marketing

T +49-69-211-1 36 42

cora.springer@eurex.com