03 Dec 2024
Eurex
Northern exposure
Activity in exchange-traded derivatives increasingly centers around regional trading centers. The hub structure of pan-European exchanges offers market participants a simplified one-stop shop model to access regional exposure.
In this article, Taras Markiv, Equity & Index Product Design at Eurex, helps you explore the Nordic derivatives landscape.
As each hub agglomerates exposure to the geographies and sectors within a region, transactional liquidity deepens, and other benefits, such as cross-margining, emerge. In Europe, Eurex has positioned itself as the strongest continental hub. With its standing as the home of euro trading, it provides the full range of equity, credit, interest rates and FX derivatives denominated in euros.
However, while euro activity will always remain the cornerstone of a pan-European derivatives hub, Europe’s other currencies are also a fundamental part of the offering.
This truth made Nordic derivatives a key pillar of Eurex’s offering, with the listing of 29 Swedish Krona stock options in September 2023 marking the beginning of a Nordic options roll-out across the venue. Danish single stock options followed in the summer of 2024, becoming the 14th country on Eurex’s offering, see Table 1
Adoption of the Swedish options suite has been quick, with more than 140,000 contracts traded since launch. Nordic listed derivatives constitute a competitive market, but Eurex has made a successful entry into the segment supported by a competitive fee structure and commitment from market makers to quote the products on screen. Eurex believes trading activity in Nordic options has the potential to grow into millions of contracts per year.
The emergence of the investment theme “GRANOLAS” fostered interest in the Nordics. The acronym, first coined by Goldman Sachs, refers to eleven prominent European companies. With the listing of Danish Krona-denominated Novo Nordisk single stock options, Eurex completed access to the full basket of GRANOLAS. Eurex was also the first European exchange to offer weekly options on Novo Nordisk, in addition to the longer-dated maturities of up to 5 years.
However, the main advantage of trading Nordic exposure on Eurex is cross-margining, with Eurex members achieving significant portfolio margin savings against their other Equity & Equity Index positions at the exchange.
Margin efficiencies of combining short STOXX® Europe 600 futures with a long single-name call position on several GRANOLAS constituents, for example, can achieve savings of 67%, as can be seen in Table 2 below. Alternatively, combining long futures and long put options to offer protection on the single constituencies would yield similarly high margin offsets. This is a significant attraction for the buy-side community and an essential part of Nordic equity markets. With many of these funds based in the UK, a majority are also already active market participants at Eurex.
Eurex plans to continue onboarding clearing members in this segment, enabling more clients to execute their option strategies at Eurex and benefit from the margin efficiencies of keeping the equity and index derivatives portfolio at one clearing house.
