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Blog Posts — September 17, 2020

Q&A with Qontigo & Eurex: Impact of ICB Classification Changes

On Sep. 21 Qontigo will implement announced changes to the sectorial classification structure of STOXX indices following the first major overhaul of the Industry Classification Benchmark (ICB) in years. In a post last week, we covered some of the key changes that the ICB overhaul will bring about for STOXX indices. 

To find out more, Pulse Online caught up with Giulio Castelli, Head of Benchmarks, Strategies and Specialty Themes at Qontigo. We also talked to Zubin Ramdarshan, Head of Equity and Index Product Design at Eurex, to understand what the new indices mean for very popular derivatives. 

Giulio, how are the ICB changes affecting Qontigo’s indices?
“Sectorial indices will evolve in order to fulfil their objective of being a representation of the ICB categories. The new ICB classification leads to one new and three redefined Supersectors – taking the total to 20 Supersectors instead of the current 19. Thus, Qontigo is creating new STOXX indices covering the revamped Supersectors: Energy; Consumer Products & Services; Food, Beverages & Tobacco; and Personal Care, Drug & Grocery Stores.”

What will happen to existing indices?
“To facilitate the transition to the new classification, Qontigo will continue to calculate current, or legacy, indices within the EURO STOXX® Index and STOXX® Europe 600 Index linked to the three Supersectors whose definition is changing — Oil & Gas, Personal & Household Goods, and Food & Beverage. These six indices will keep the current names, identifiers and time series. Since a direct reference to those Supersectors definitions will no longer be possible, in order to retain the intended economic reality these indices will be built by making use of categories from the new ICB classification. This results in a combination of categories from the new ICB classification that allows to recreate as closely as possible the current index logic. Legacy and new Supersector indices will co-exist.”

Is there a relationship between the new indices’ starting values and the legacy indices? 
“The indices that will be newly launched are independent of any other index; they have their own names, identifiers, time series and base values.” 

Are the changes only affecting these Supersector indices, or are other indices impacted as well?
“Other indices that rely on the ICB classification for the purpose of selecting or weighting their constituents will be adapted to the new ICB framework. Among these, the EURO STOXX 50® Index, for example, will be based on 20 Supersectors instead of the current 19.”

Zubin, how are the ICB changes and the new STOXX indices affecting listed derivatives tracking STOXX indices? Which specific contracts will they have an impact on?
“Eurex is introducing futures and options on all new Supersector indices launched by Qontigo, both in their EURO STOXX and STOXX Europe 600 versions. In total, eight new futures and eight new options contracts will be introduced. Existing futures and options on EURO STOXX and STOXX Europe 600 versions of the Food & Beverage, Oil & Gas and Personal & Household Goods Supersectors indices will continue to exist.”

Does this mean investors and traders will have a choice of derivatives tracking new and legacy indices?
“In order to replicate the new ICB Supersector mapping, users should naturally use the newly introduced sector futures and options. Depending on their objectives, investors will also have the ability to trade in any of the legacy index-based derivatives.”

Will market participants need to switch their open derivatives position by any given date?
“The new derivatives will be launched on September 21. Market participants do not need to worry about switching positions on legacy index derivatives into the new ones on this date as the futures and options on legacy indices will continue to exist. Based on market demand and open interest, a review regarding derivatives on legacy indices is planned by mid-next year.” 

Find out more
– Dedicated ICB changes section on STOXX website
– STOXX rulebooks
– Eurex circular