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Blog Posts — October 12, 2023

25 years forging better markets: Eurex and STOXX celebrate unique partnership in index derivatives

Eurex’s and STOXX’s success stories have been intertwined since their inception, with both companies starting operations in 1998 and the iconic EURO STOXX 50® index playing a key role in their strategic positioning and business growth. 

In the past 25 years, the collaboration between the two firms has yielded some of the world’s most innovative and popular trading solutions, coinciding with a changing investment landscape and an ever-more sophisticated trading community. The latest joint product, daily options on the EURO STOXX 50, was launched only in August 2023. 

As this deep-rooted partnership reaches its 25th anniversary, we caught up with Michael Peters, CEO at Eurex, and Axel Lomholt, General Manager at STOXX, to discuss their expectations on index themes and growth areas. 

Michael Peters
Axel Lomholt

Michael, first of all, congratulations on the launch of the EURO STOXX 50 index Daily Options

Michael: “This launch represents an initial step in establishing a range of shorter-dated options. As a first step, Eurex and the clients established the necessary infrastructure. Acceptance post-launch has been impressive with regards to both volume and the diverse client base involved. In its first month of trading, almost 340,000 contracts exchanged hands, with nearly 50 market participants taking part. This is a strong signal of the huge appetite for flexible trading and risk-management solutions as investors seek to react quickly and precisely to specific market events.”

Axel, what do these new options bring to the EURO STOXX 50 trading ecosystem? 

Axel: “The product ecosystem around the EURO STOXX 50 constitutes a world-leading case in trading solutions. Through them, traders and investors of all sizes can access the European equity market in a liquid, transparent and price-efficient way, whatever their ultimate trading strategy may be. This ecosystem continues to grow in size and capabilities. More market participants can trade the EURO STOXX 50 benchmark and its ESG, dividends and volatility strategies, for example, through a growing list of exchange-traded derivatives, ETFs and structured products. At STOXX, we have a client-first focus, we are flexible, and we have an open architecture when it comes to integrating external data. All that enables us to partner with a variety of clients such as exchanges like Eurex as well as with asset owners, money managers and issuers, to come up with the best tailored solution.”

Please tell us a bit about the synergy and strong success story between Eurex and STOXX 

Michael: “The STOXX brand is inherently linked to the growth of Eurex as an exchange, and the EURO STOXX 50 is the European benchmark of choice for our international client base. Options and futures on the benchmark were among the first contracts listed on the newly established Eurex in 1998. Today, the numbers speak for themselves. Through September, nearly 190 million EURO STOXX 50 futures contracts traded this year on our exchange, accounting for more than half of our entire equity index futures segment’s volume. Options on the index represent about 60% of the volume in our equity index options segment. 

Both Eurex and the EURO STOXX 50 are placed at the heart of Europe, and they are the first choice when investors gain exposure to our region. The menu of joint solutions with STOXX has expanded significantly since 1998 — such as European sector index and volatility futures, to mention only a few — but futures and options on the Eurozone blue-chip benchmark remain our most popular products.”
 
Axel: “The launch of STOXX, EURO STOXX 50 and Eurex operations in 1998 was an important moment in the history of the integration of European markets, one that even preceded the introduction of the euro by a few months. I was involved in European financial markets at the time, as was Michael, and I remember fondly the birth of a flagship benchmark that would come to represent the fortunes of the continent’s economy and companies. Since then, the shared journey with Eurex has gone from strength to strength — to the benefit of market participants and stakeholders.”   

Michael, you mentioned the growing suite of joint solutions with STOXX. That seems to have gathered much pace in the last few years. Can you mention some of the highlights there?

Michael: “The last few years have brought tremendous innovation, and many of our “first” product milestones are linked to STOXX. Together, we launched Europe’s first ESG futures in 2019, with contracts on the STOXX® Europe 600 ESG-X index. As of September, over 1.3 million contracts have traded in 2023. We have also expanded that suite to cover the US market. We’ve seen only the first phase in the development of ESG, and this is a segment that will continue to gain in importance. 

Elsewhere, increasing appetite for factor-based and thematic strategies have also allowed us to break new ground. In March 2021, we expanded our equity index segment with new factor-based futures tracking the STOXX Industry Neutral Ax Factor indices and covering the Value, Momentum, Low Risk, Quality and Size factors.

As you can see, we work well together. I think design flexibility is a common trait of STOXX and Eurex, and thousands of clients rely upon us every day for our rules and transparency. That’s not surprising – we were, after all, born together and under a same parent, Deutsche Boerse Group. I expect much more of this teamwork in the future.”

This 25th anniversary celebration comes at a time of heightened uncertainty in financial markets. How does that affect your companies’ business? 

Michael: “We have a particular responsibility during times of uncertainty and market volatility because we can provide safe and functioning markets in which participants can transfer risk. High inflation, a shifting global interest-rate environment, and even war in Europe. But throughout huge price swings, the Eurex platforms have proved to be a pillar of stability for financial markets. Of course, our trading business isn’t correlated to the economic cycle, and indeed we can see increasing volumes at times of risk aversion.”  

Axel: “It’s interesting, because some of the most productive moments in terms of design and new launches have coincided with the less prosperous or more uncertain economic background of the past few years. We continue to see sustained demand for our indices, because investors more and more want targeted and tailored solutions, and advances in technology and data gathering have opened the doors for new possibilities. Additionally, I think that larger than any cyclical downturn, looms the structural active-to-passive shift that has benefitted the indexing industry for years now.”

What do you see going forward in your industries and in the market landscape?

Michael: “For us at Eurex, futurization will continue to be a major driver. The successful transition from OTC-traded swap markets to standardized derivatives, traded and cleared in a regulated environment, will provide the benefits of capital efficiency and appropriate risk management. In addition, we intend to expand the concept of daily options to the DAX family. 

We expect sustainability and factor products to keep outpacing growth in more traditional segments and see the strong trend in thematics carrying on. The shift to systematic and so-called passive strategies continues unabated, but we are also facilitating trading to active investors with new solutions that allow them to manage and hedge their portfolios, no matter their focus or tilt.

Despite a global pandemic and an economic slowdown, trading in derivatives has grown. As Axel has mentioned, our collaboration with partners such as STOXX has allowed us to innovate even in difficult market environments. I expect more of this in coming years. 

Finally, I’d like to say that we live in a time of great change. Political, technological, social and, of course, climate change. All these are big challenges but also great opportunities. The exchange operators and clearing houses will offer the needed risk-management functions and tools, and provide stable markets. Working on the principles of integrity and trust.”
 
Axel: “I fully agree. Both our and Eurex’s growth has come alongside the multi-decade boom in index investing, itself underpinned by the multiple benefits of low cost, transparent methodologies, and rules, as well as intra-day pricing and trading. But our companies are also at the center of breakneck technological change. Thanks to the spread of alternative data, and the consequential growth in systematic and quantitative investing, STOXX is not just an index provider, but an intelligent investments hub. Innovation broadens our possibilities; it pushes us to think outside the box and to come up with smart ideas that may have been unimaginable a few years ago. 

If the pace of change since 1998 is any guide, the next 25 years promise to bring even more transformation to the indexing and derivatives space.”