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Blog Posts — March 26, 2021

STOXX Indices to Underlie New Total Return Futures on Eurex

On March 29, Eurex will introduce total-return futures (TRFs) on the EURO STOXX® Banks Index and EURO STOXX® Select Dividend 30 Index, expanding the offering of a product type that has seen strong demand. 

The new TRFs follow in the footsteps of successful trading in EURO STOXX® 50 Index TRFs, which attracted record interest last year amid market volatility. 

A TRF holder receives the price performance of the underlying index or security plus 100% of its dividends. TRFs are a more efficient hedging instrument for banks selling structured products, relative to owning price futures or an entire basket of underlying equities, Eurex said in a press release. 

Having a TRF that’s traded on a regulated exchange and centrally cleared is also an advantageous alternative to over-the-counter derivatives at a time when the latter have been subject to increasingly demanding regulation, Eurex also said.

Underlying indices in focus

The EURO STOXX Banks Index tracks companies from the Eurozone’s Banks supersector and currently has 22 components. The EURO STOXX Select Dividend 30 Index has 30 high-yielding components from the Eurozone, stemming from various industries.

Cost-efficient access to total returns

The total-return products have less pricing sensitivity to dividends than do price-return futures, and was a reason why many traders turned to them last year amid rising volatility and uncertainty over dividend payments. Total return futures on the EURO STOXX 50 Index posted record demand as investors sought to hedge income returns amid widespread cuts in company payouts (Exhibit 1).

A TRF holder also hedges the implied equity repo rate. This rate is the profit earned from selling a futures contract and then buying the underlying shares and lending these out to the market for extra income.

Exhibit 1 – Monthly traded volume and open interest in EURO STOXX 50 TRFs 

Source: Eurex. Data from December 2016 through February 2021.

Eurex also offers TRFs on single stocks, baskets of shares and collateral indices. For more on the functioning of STOXX-linked TRFs, please visit a dedicated section on Eurex’s web site.