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Mezhgan Qabool is Head of Business Development and Sales APAC and Middle East at Eurex, supporting the growth of cross-border derivatives trading in APAC markets. Here, she explains how trading European exposures is becoming an integral part of APAC markets and how liquidity between the two regions will grow.
What benefits do European indices bring to Asian traders?
By going from 14 to 21 hours in December 2018 for select liquid futures, we made Europe more easily accessible to Asian investors. At the same time, we have significantly increased hedging and risk management capabilities and price discovery across time zones for our global customer base. Furthermore, we removed any proxy hedging strategies our clients might have used previously. Our markets are now open for investors to trade our products directly and they can react to market news, movements, geopolitical events and financial announcements in the same time zone that they take place.
Where do you see the most adoption of extended trading hours in Asia?
Adoption of the products in extended trading hours comes from across the Asia Pacific and globally and has various client types. 70% of the flow is from end clients, the buy-side, brokers, propriety trading firms, and banks. 30% of our volume is contributed via our liquidity providers, who ensure daily prices on screen and for size. As such, investors can trade in and out of their positions in a risk-managed manner.
How has the liquidity profile of extended trading hour sessions evolved?
Where we initially had an average daily volume (ADV) of 29,000 contracts in 2019, we are now close to 60,000 ADV in 2023, with an average compound annual growth of 14% year-on-year.
The highest volume contributors remain our benchmark indices — EURO STOXX 50®, DAX® and Mini-DAX®, and our fixed income futures on German and French government bonds.
Our MSCI franchise continues to dominate Asian futures activity, which has become a significant amount of the global market. We now observe that 35% to 40% of the global futures volume trades during core Asia hours.
In 2020, we extended additional products into the Asian time zone, including Micro-EURO STOXX 50® and Micro-DAX® futures. These are more targeted at individual professional investors who prefer smaller-sized contracts. We also launched futures on our STOXX® benchmarks, including our volatility index— the VSTOXX®—as well as STOXX® Europe 600 and EURO STOXX® Banks contracts. We are working with the market to further grow liquidity in these products, with active market makers providing price and size daily.
Another sign of our product variety is that our FX futures and options are open and trading during Asia hours. These can also be accessed via our sister company, 360T FX Platform. And, more recently, our Bitcoin Futures. They are available for trading during our core Asia session, and we foresee healthy growth in the coming months and years as we expand our digital and crypto offerings globally.
What are the opportunities that traders can capture trading European products from Asia and against Asian exposures?
The most important rationale for our extended hours is to enhance price discovery, risk management and hedging capabilities for our clients across the globe as they navigate the overwhelming geopolitical and economic events that affect our world today. A prime example of this has been the recent pandemic and its after-effects, including the current interest rate environment.
Having our products available around the clock provides various opportunities for European exposure with our benchmark equity index and fixed income products. We also offer global exposure via our MSCI franchise, where trading views can be taken in conjunction with domestic index futures.
Our VSTOXX® futures are designed to reflect investor sentiment and overall economic uncertainty by measuring the 30-day implied volatility of the EURO STOXX 50®, offering the most accurate and cost-effective access to European volatility.
Furthermore, our EURO STOXX® Banks futures are among the most liquid products globally, and the STOXX® Europe 600, our leading broad benchmark, provides a unique barometer for overall European market sentiment and a wide range of exposure to European sectors.
For any professional trader, or trading firm, Europe cannot be ignored as a region within global financial markets. To create more diversified and risk-managed portfolios, our clients have integrated our products within their strategies in Asia Pacific.
What products could be offered next in extended trading hour sessions?
We will continue to work with our clients to analyze further extension of our equity index and fixed income product suite into Asian time. This includes, as requested by market participants, option products being made available in the region.
We will also expand our crypto offering globally, which will be made available to our Asia-based clients.
Outside of the European benchmarks, Eurex is also working with our partners in the region to list more Asia derivatives to cater to our clients’ market needs. These will complement the existing Asia futures we already have available with our MSCI futures and our KOSPI derivatives, which have traded via the Eurex/KRX Link for the last 12 years.
In short, there is much more to come from Eurex as we expand in Asia. Stay tuned!
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