Eurex

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Eurex
Logo eurex.gif
Founded 1998
Headquarters Frankfurt, Germany
Key People Andreas Preuss, CEO;

Jürg Spillmann, Deputy CEO

Products Derivatives exchange
Twitter @EurexGroup
LinkedIn Profile
Website www.eurexchange.com
Releases Company News

Eurex, based in Frankfurt, is one of the world’s largest and most diverse derivatives exchanges. It also provides clearing services for derivatives, equities, bonds and repos[1] and is the parent company of the International Securities Exchange.

Eurex ranked as the world's second-largest derivatives exchange by contract volume in 2012, according to the annual Futures Industry Association's survey of the world's leading derivatives exchanges.[2]

Contents

Background

Eurex was created in 1998 through the merger of the DTB (Deutsche Terminbörse, German Derivatives Exchange) and SOFFEX (the Swiss Options and Financial Futures Exchange), after nearly a decade of close cooperation between the two entities and their parent companies, Deutsche Börse AG and SIX Swiss Exchange. It was jointly operated by Deutsche Börse and the SIX Swiss Exchange with the German group holding 50 percent of the voting rights and 85 percent of the share capital. In January 2012 Deutsche Börse acquired the remaining shares in Eurex Zurich AG from SIX Group AG, making Deutsche Börse the sole owner of the Eurex derivatives exchange.

In December of 2007, Eurex expanded its options business with the acquisition of the International Securities Exchange.[3][4]

Eurex Euro-Bund futures ranked the world's fourth-largest interest rate derivative contract in 2012 and its EURO STOXX 50 futures and options were the fifth- and sixth-largest equity index derivative contracts, respectively.[5]

In Germany, Eurex is regulated by BaFin (the Bundesanstalt für Finanzdienstleistungsaufsicht, or Federal Financial Supervisory Authority), while its U.S. operations are subject to the regulation of both the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).

Contract Volume

Year Total Annual Volume* Percent Change World Ranking
2012 2,291,465,606 (-) 18.8% 2
2011 2,821,502,018 (+) 6.8% 3
2010 2,642,092,726 (-) 0.2% 3
2009 2,647,406,849 (-) 16.6% 3

Products and Related News

Eurex offers a wide range of proprietary exchange-traded financial futures and options products, commodity derivatives, as well over-the-counter (OTC) support services for exchange-traded derivatives and OTC services for cash products, such as bonds and repurchase agreements (repos).[6]

Exchange-Traded Products

Eurex's flagship product has long been and remains the Euro-Bund futures contract, but volume in the EURO STOXX 50 stock index futures and stock index options contracts now often beat that of the Euro-Bund on a monthly basis. The exchange has also beefed up its product mix by diversifying into credit derivatives and single-stock futures (SSFs), as well as by expanding its clearing of OTC instruments.

As part of its expansion into commodities, Eurex took an ownership stake in the European Energy Exchange (EEX), and EEX members have been able to trade EEX-listed carbon emission reduction products via existing Eurex infrastructure connections since December 2007.

Eurex owner company Deutsche Boerse (DB) began listing Exchange-Traded Commodities (ETCs) in November, 2006. These are securities based on "baskets" of commodities, not futures contracts. Therefore, they are listed on DB’s Xetra securities platform rather than on the Eurex derivatives platform.


Eurex OTC Products

Eurex also matches, clears, and settles over-the-counter transactions via its Eurex Bonds and Eurex Repo subsidiaries.

Distribution and Connectivity

Eurex has screens in 19 countries, among 389 participants.

The system can be accessed primarily via two access plans:

  • Standard Connections, which are used by all Eurex participants and
  • Socket-Based Services, which are targeted at the automated trading community and stripped down for speed. Users have the option of taking either the Enhanced Broadcast Solution, which enables direct input into algorithmic trading models, or the Enhanced Transaction Solution, which enables direct output from the trading models to the Eurex trade-matching engine, or both.

Subsidiaries

Eurex, despite its affiliation with DB and Clearstream, clears its exchange-traded derivatives business through its own clearing entity, Eurex Clearing AG[8], which was formed to act as a central counterparty (CCP) for derivatives participants and later expanded to include equities.

Eurex does, however, use Clearstream for settlement of Eurex OTC products, such as government bonds and repurchase agreements (repo), which are matched via Eurex subsidiaries Eurex Bonds and Eurex Repo.

Eurex itself owns 100 percent of the U.S.-based International Securities Exchange (ISE), which was sealed on Dec. 20, 2007, as well as an interest in the European Energy Exchange (EEX).

John Lothian News Videos

Restoring Customer Confidence -- Customer Segregation: A Clear View
Moving excess customer funds to a clearing house is one way to reduce the amount of capital at risk. Byron Baldwin, SVP, Buyside Relations at Eurex, says his exchange developed segregated account services that can be as wide or granular as needed. Published Nov. 27, 2012.[9] Watch at JohnLothianNews.com


Byron Baldwin of Eurex Discusses OTC Clearing, Portfolio Margining and Individual Segregation
Byron Baldwin is senior vice president of buyside relations for Eurex. He moved to New York from Eurex’s London office to in February 2011 in order to promote the firm’s listed products, connectivity for high frequency trading firms, and to promote Eurex’s move into OTC clearing. Baldwin spoke with John Lothian News Editor-at-Large Doug Ashburn about regulatory changes across jurisdictions, mandatory clearing of OTC derivatives, margin and collateral efficiency and Eurex’s individual segregation model. Published Oct. 18, 2012.[10] Watch at JohnLothianNews.com


Have Liftoff: Wolfgang Eholzer on the New Eurex Trading Platform

Wolfgang Eholzer, head of Eurex Trading IT, has seen his share of technology changes to exchange platforms. The latest, and biggest of his career, was the creation of a brand new trading platform for Eurex, called T7.

In this video, Eholzer spoke with John Lothian News editor-in-chief Jim Kharouf about building the new system and the thought process that went into the project, which has been rolled out gradually beginning in December 2012 and is now complete. In Eholzer’s view, the goal for T7 was to deliver three major benefits: more capacity, lower latency and improved functionality. While most exchanges like to tick off those three items, Eholzer said a lot of thought went into that. For one thing, the goal was “to make life easier for our members.”

The feedback on the new platform has generally been very positive, he said. The system is very stable and the technology is living up to its billing. On average, the system is 14 times faster than the prior platform. For options trading, trades are executed up to 40 times faster and four times faster on futures trades.

Next up, Eurex has one major upgrade this fall, on its market data interface. For futures, it will feature an order-by-order feed so members can see individual orders. Next year, Eholzer will focus on the next big task at hand – a replacement of the Eurex Clearing platform, which is due in mid-2014. The goal is to make its clearing platform more flexible and robust as well. A good idea given the push of OTC products through clearinghouses. [11]

Management

All members of Eurex's management board also sit on the executive boards of of Eurex Zürich AG and Eurex Frankfurt AG. Eurex's CEO is Andreas Preuss, and the other members of the management board are:

Battle of the Bund

The DTB was one of the world's first electronic exchanges, and by 1997 had distributed its screens across Europe and into the United States. As the merger with SOFFEX was being announced, DTB was in the midst of a battle to wrench liquidity in the Bund contract away from its chief cross-continental rival, the open outcry London International Financial Futures Exchange (LIFFE). On Oct. 22, 1997, the DTB captured 52 percent of Bund futures liquidity, and never looked back. The incident represented the first time that an existing, established liquidity pool had ever been wrestled away from its home venue.

That led to a stunning announcement in March 1998, that Eurex and the Chicago Board of Trade (CBOT) would form a linkage between Eurex and the CBOT's electronic platform, Project A, by the end of the year, with the aim of creating an electronic trading platform for the leading benchmark derivatives products of Europe and the United States.[12]

The project, however, ran into resistance from the CBOT’s old guard, who saw it as a threat to the trading floor. Eventually the various factions came to enough of a compromise that the new joint electronic trading platform a/c/e (alliance/cbot/eurex) launched in August of 2000.

Behind the scenes at Eurex, however, there was friction between Franke and Deutsche Boerse Chief Executive Werner Seifert, leading Franke to announce his resignation in August 2000, the same month that a/c/e was launched. Departing with him was co-managing director Andreas Preuss, who had been coordinating the effort to build a/c/e in Chicago. Preuss would later return to Eurex as chief executive.

Ferscha Era

Franke was followed by Rudolf Ferscha, a mergers and acquisitions specialist and former non-directional trader who took the reins in December, 2000. Frustrated with direction of the a/c/e project in Chicago, he changed the direction of Eurex’s expansion into the United States, culminating with the 2004 formation of Eurex US.

He also continued to expand the international stock option offerings in Frankfurt, and was able to capitalize on hardware glitches in the Amsterdam segment of cross-continental rival Euronext to gain a leading position in Dutch options for a time.

Several projects that had been initiated on Franke’s watch bore fruit during Ferscha’s term. One example of this is the launch of the European Energy Exchange (EEX) in March of 2000. That exchange eventually merged with Leipzig Power Exchange, keeping the EEX name, but leaving Eurex with an ownership interest.

But media attention focused on Ferscha's falling out with CBOT leadership and renewed competition from LIFFE, which had introduced a credible electronic trade-matching engine LIFFE CONNECT after shuttering its trading floors.

Eurex’s medium-term interest-rate product, the Bobl futures contract, was perceived as vulnerable due to a limited supply of deliverable five-year German bonds, which made it possible for deep-pocketed banks to gobble up available deliverable supplies and squeeze the market at delivery time. Eurex responded with fines, but did not change the contract. In the end, the German Federal Bank, the Bundesbank, agreed to make other deliverable bonds available in the event of a squeeze, and the threat faded. LIFFE’s rival product, Swapnote, found its niche, but never threatened the benchmark status of the Euro-Bund or Euro-Bobl.

With European unification approaching, the EURO STOXX 50 Index futures contract was gaining on the DAX in volume terms, supported by a growing number of options on non-German shares that were also components of the index. The exchange also added options on U.S. shares that year, but Ferscha bucked the global trend towards single-stock futures – repeatedly dismissing them as a niche product, and saying that there was simply no demand from market participants.

Divorce, Chicago Style

By the end of 2001, Eurex and CBOT had formally entered a dispute resolution process, with Eurex charging that the CBOT had violated their agreement by not paying for a software upgrade and balked at allowing U.S. options onto a/c/e.

In 2002, Eurex introduced futures and options on exchange-traded funds (ETFs). Overall volume on all Eurex products topped 800 million contracts, but the big story continued to be Ferscha's ongoing feud with the CBOT old guard, which heated up even as volume migrated to the a/c/e platform.

By year-end, the CBOT was threatening to dissolve the a/c/e project in favor of implementing the LIFFE CONNECT trading platform.

In January 2003, CBOT made good on its threat, and Ferscha announced plans to launch a rival exchange as soon as the a/c/e agreement expired. Over the course of the year, Ferscha cut a deal with the former Chicago Board of Trade Clearing Corporation (BOTCC, since renamed the Clearing Corporation) to clear trades for the new exchange, but also faced intense lobbying on the part of both the CBOT and the Chicago Mercantile Exchange against his efforts to gain regulatory approval as a non-American exchange.

Meanwhile, Deutsche Boerse AG and SIX Swiss Exchanged renewed the Eurex joint venture for another decade, and Eurex continued to add new products – most notably Eurex One-Month EONIA futures and options, which are based on the reference rate for overnight money, (European Overnight Index Average). Volume for the year crossed the one billion contract threshold in December, and finished at just above 1.014 billion.

The Chicago exchanges managed to stall the launch of Eurex US until February of 2004, which meant there was a one-month gap between the time the CBOT transferred its products to the LIFFE CONNECT platform and the time Eurex US launched on the Eurex platform.

Eurex U.S. never managed to achieve significant volume, but its arrival in the United States was credited with forcing the Chicago exchanges to shift to electronic trading. Meanwhile, Eurex itself continued to thrive with 2004 volume topping 1.066 billion contracts.

Eurex U.S. was later sold to Man Financial, with Eurex maintaining a minority interest.[13]

Seifert Ousted

The year 2005 was another pivotal time for the exchange, as shareholders ousted Deutsche Boerse AG chief executive Werner Seifert. For Eurex, it eventually also meant the elimination of Ferscha and the introduction of single-stock futures, as well as the downsizing of Eurex US.

After Seifert’s ouster in May 2005, Ferscha’s business plan came under increasing pressure. In September, he announced the introduction of single-stock futures, and in October he said he was “open to offers” of partnership or takeover on the Eurex US platform.

Also in 2005, the joint venture agreement governing Eurex was adjusted to give Deutsche Boerse 85 percent of the income from Eurex, and the exchange began expanding its distribution in Asia. Numerous memorandums of understanding (MOUs) with Asian exchanges were signed, and the groundwork was laid for direct access for Singapore-based traders, which finally bore fruit in 2006.

On the product front, Eurex introduced its volatility index products. Despite the turmoil, Eurex remained a critical profit center for Deutsche Boerse AG, and trading volume increased again, to more than 1.25 billion contracts.

On Apr. 19, 2006 Ferscha resigned, and by month-end the Eurex board had approved a plan to let another exchange take a stake Eurex US, but named no takers.

Preuss Era

Ferscha's departure heralded the return of Andreas Preuss, who had been co-managing director under Joerg Franke. Preuss vowed to focus more on new product development, technology, and global distribution geared towards high-speed algorithmic trading.

Early product introductions, however, involved projects begun under Ferscha: Launched before he left were weekly options, futures and options on the MDAX and SMIM, and futures and options on Spanish and Swedish underlying products. In July 2006, Preuss announced the return of another DTB veteran, Brendan Bradley, who became global head of product strategy in August.

At its meeting on June 16, 2008, the supervisory board of Deutsche Börse AG appointed Preuss deputy CEO of the executive board and also extended his board membership contract by five years starting Apr. 1, 2009.[14]

On Oct. 1, 2006, less than six months after Ferscha's departure, Eurex sold 70 percent of Eurex US to Man Group, which changed the name to the US Futures Exchange (USFE). However, in December of 2008, MF Global, one of the three principal shareholders of USFE along with Man Group, announced it was actively seeking a buyer for USFE.[15] Since no buyer was found, USFE ceased all exchange operations in December 31, 2008.[16]

Resources

References

  1. Press release. Eurex.
  2. Fi-2012 Volume Survey. FIA.
  3. Eurex buys ISE. Waters.
  4. ISE: A Pricey Plum for Eurex. Business Week.
  5. FI-2012 Volume Survey. FIA.
  6. Products. Eurex.
  7. Single Stock Futures at Eurex Exchange. Eurex.
  8. "Clearing Services”. Eurex.
  9. Customer Segregation: A Clear View. John Lothian News: Restoring Customer Confidence.
  10. Byron Baldwin of Eurex Discusses OTC Clearing, Portfolio Margining and Individual Segregation. John Lothian News.
  11. We Have Liftoff: Wolfgang Eholzer on the New Eurex Trading Platform. John Lothian News.
  12. Chicago Board of Trade and EUREX Announce Strategic Global Alliance. Eurex.
  13. US Futures Exchange. Eurex.
  14. Press Release. SFOA.
  15. MF Global to exit USFE; exchange up for sale. Reuters.
  16. End of Line For Futures Exchange. WSJ.com.
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