Eurex Bonds

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Eurex Bonds GmbH is an electronic communication network (ECN) that provides trade-matching, clearing, and settlement for the secondary over-the-counter (OTC) cash bond market, with linkages to the Eurex futures market. Cash trades are matched on the Xetra platform, while basis trades are executed on both the Xetra and Eurex platforms. Eurex Clearing acts as the Central Counterparty (CCP), while both Clearstream and Euroclear provide settlement. In 2007, Eurex Bonds matched trades representing a notional value of xx, up from xx in 2006.

Structure and History[edit]

Eurex Bonds was founded in 2000 as a joint venture between Eurex and ten European financial institutions. Eurex is a 50/50 joint venture between Deutsche Boerse AG and the SWX Swiss Exchange, and Eurex Bonds uses Deutsche Boerse's securities trade-matching engine, Xetra, to execute OTC trades, as well as the cash leg of basis trades (see Basis Instruments, below).

Products and Services[edit]

The Eurex Bonds trading platform is accessible on a pan-European network, offering a range of euro-denominated European debt instruments

Governments Whose Debt is Traded on Eurex Bonds[edit]

  • Austria
  • Belgium
  • Finland
  • France
  • Germany
    • Treasury Discount Papers (Bubills - the only products on Eurex Bonds traded in "yield terms". All others are traded in "price terms".
    • Federal Treasury Notes (Schatzanweisungen)
    • Federal Notes (Bundesobligationen)
    • Federal Bonds (Bundesanleihen)
    • Inflation-linked Government Bonds
  • Greece
  • Ireland
  • Italy
  • Portugal
  • Spain
  • Netherlands

European Covered Bonds Offered on Eurex Bonds[edit]

The European Covered Bonds Council (ECBC) defines covered bonds as "debt instruments secured by a cover pool of mortgage loans (property as collateral) or public-sector debt to which investors have a preferential claim in the event of default." Among the covered bonds listed on Eurex Bonds are:

  • German Jumbo Pfandbriefe
  • Mortgage-backed securities of issuers from France, Ireland, Spain and UK
  • German State Bonds
  • Slimbos

Agencies[edit]

Eurex Bonds also matches, clears, and settles trades in so-called "sub-sovereigns", which are bonds that are guaranteed by governments, but not necessarily issued by them. Among the sub-soverigns traded on Eurex Bonds are the following:

  • KfW (a German government-owned development bank formed with Marshal Plan funds)
  • European Investment Bank (EIB)
  • CADES (the French agency responsible for amortizing France's social security debt)
  • ERAP (a French private-public enterprise that acquire acquires equity in companies in the energy, pharmaceutical and telecommunications sectors on behalf of the government).

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Basis Instruments[edit]

Eurex Bonds also enables "basis trading" in German government debt instruments. This combines a securities leg and a futures leg in a single price. Buying the basis involves purchasing cash bonds on Xetra and simultaneously selling the equivalent on Eurex. The reverse combination is referred to as "selling the basis".

A basis trade on Eurex Bonds is based on German Government Bonds which are either deliverable or nondeliverable into the basket of the current front month contract of the Eurex Euro-Bund, Euro-Bobl or Euro-Schatz futures.

Financials and Corporate Bonds[edit]

Eurex Bonds also offers trading in corporate bonds. Among the corporates listed on Eurex Bonds are:

  • BNG
  • Nedwater
  • Bank of England

Trading Procedure[edit]

All market participants have equal privileges when trading bonds and basis instruments on Eurex Bonds. They may enter limit orders or quotes into the system.

A number of market participants have committed to act as Market Makers to guarantee sufficient liquidity in all products. Moreover, the German Finance Agency performs its market management and regulating operations via Eurex Bonds. Deutsche Bundesbank, the German central bank, is also a trading participant at Eurex Bonds.

Trading on Eurex Bonds is based on a market model, in which quotes and orders are entered into a central order book. During continuous trading, orders and quotes entered into the system are executed on the principle of price/time priority, where the sequence of order entry determines execution priority for orders or quotes with the same price limit. Orders or quotes which cannot be executed immediately are posted into the order book. Orders may be placed as good-for-day (valid for the current trading day only); good-till-date (valid until a specified trading date, subject to a maximum validity of 90 days); or good-till-canceled (valid until canceled, or until maturity of the bond or underlying futures contract).

Eurex Bonds Indices[edit]

The "eb.rexX" family of indices covers different maturity ranges and overall indices as well as price and performance indices. They are calculated throughout the trading day based on traded prices - the first indices to do so.

Key People[edit]

Shareholders[edit]

In addition to Eurex Frankfurt AG, the financial institutions listed below are shareholders of Eurex Bonds GmbH:

  • ABN Amro Bank N.V.
  • Banco Bilbao Vizcaya Argentaria S.A.
  • Barclays Bank Plc
  • Bayerische Hypo- und Vereinsbank AG
  • BNP Paribas
  • Commerzbank AG
  • Credit Suisse First Boston Zürich AG
  • Deutsche Bank AG
  • Dresdner Kleinwort Wasserstein Online Ventures Ltd. London
  • Morgan Stanley Dean Witter Fixed Income Ventures
  • WestLB AG

References[edit]

European Covered Bond Council