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Eurex
In the burgeoning landscape of European single stock derivatives (SSD), Eurex is the go-to place for SSDs with nearly 70mn contracts in open interest, equal to roughly EUR 250 billion notional. How did Eurex's listed SDD segment become the better option for so many participants?
Europe's Single Stock Derivatives (SSD) market has matured into a diverse arena, offering investors a plethora of choices in OTC derivatives, structured products and listed derivatives, all tailored to specific investment needs. The landscape of listed SSDs moved from the traditional "home" exchange concept where derivatives were confined to national borders to today's continental offering. This evolution was propelled by investor demand and initiatives like TARGET2-Securities (T2S) in 2015, significantly enhancing securities settlement across Europe and increasing competition between exchanges.
Eurex stood at the forefront of this market change and now boasts the most extensive and liquid range of single stock options across Europe, featuring over 500 shares from 13 countries and a variety of American and European-style options with flexible expiration cycles.
Eurex boasts the most extensive and liquid range of single stock options across Europe, featuring over 500 shares from 13 countries.
Liquidity is key
Liquidity is the lifeblood of financial markets. Liquidity is also 'sticky'; it acts like a magnet for more volume, and investors are usually not easily convinced to change venues. Eurex believes that diverse factors contributed to building its liquidity depth and its success in competing with other exchanges.
By adopting a Pro Rata matching model in 2019, Eurex enhanced the visibility in its order books, facilitating the execution of larger trades. And, unique in its approach, Eurex also implemented Passive Liquidity Protection, attracting a wider spectrum of market makers, bolstering order books, and fostering efficient price discovery. Beyond the visible order book liquidity, margin efficiencies, through its Eurex Clearing Prisma margin methodology, also persuaded many market participants to switch to a single exchange for their European SSDs.
Market participants seek an exchange that ensures comprehensive connectivity, a diverse product range, transparency and a consistent adherence to rules, particularly in handling corporate actions.
Building on a unique offering
Maintaining the lead requires constant adaptation, innovation and listening to the client base.
Market participants seek an exchange that ensures comprehensive connectivity, a diverse product range, transparency and a consistent adherence to rules, particularly in handling corporate actions. Eurex excels in these areas, with an extensive network of more than 300 exchange participants and 175+ clearing members, and, by far, the broadest range of stock options in Europe. This, combined with a track record of more than two decades of applying corporate actions and its rulebook, makes Eurex a reliable and trusted partner. With its competitive pricing, innovative liquidity solutions, and innovations such as the introduction of delta-neutral strategies, it solidified and expanded its premier position.
Margin efficiencies
Eurex also has the largest liquidity pool of index, TRF and single stock products. This brings a less-discussed yet significant advantage to market participants, as having all your index and single stock positions on a single exchange can result in significant portfolio margin offsets. Through PRISMA, Eurex's advanced risk management system, participants can reach margin savings of up to 60 percent compared to holding them separately. Clients can always reach out to the exchange for portfolio margin analysis or use the tools provided to simulate their real portfolios and the impact different positions have on their margin.
Conclusion
Eurex's SSD segment caters to diverse investor needs, balancing the customization of OTC derivatives with the security of a CCP, which minimizes counterparty risk. The listed environment also comes with the added advantage of significant margin offsets, an important consideration amid Europe's implementation of UCM. Eurex also stands out as a highly connected trading venue offering an array of products and strategies, bolstered by a substantial collateral pool for optimized liquidity sourcing.
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