What is Eurex Exchange?
Eurex Exchange is a foreign exchange that offers trading in derivatives based in Europe offering a wide range of international benchmark products, operating one of the most liquid fixed income markets in the world, and providing open and low-cost electronic access to the market participants.
Eurex is a public company that is wholly controlled by Deutsche Börse AG. Eurex operates 3 platforms:
- The Eurex Exchanges,
- Eurex Clearing, and
- Eurex Repo.
Eurex Exchange is the largest player in the European futures and options market. The exchange deals with market participants connected from 700 locations worldwide. It witnesses a trading volumeTrading VolumeThe volume of trade is the overall measure of the number of securities, shares or contracts traded during a particular trading day. of over 1.6 billion contracts a year. Their global distribution network connects more than 400 institutions from 32 countries, with more than 8,000 admitted traders.
Since its inception in 1998, Eurex has continually set its name in electronic trading and clearing and is providing highly efficient liquidity pools, which is helping it in being successful in the market.
The Deutsche Terminbörse GmbH (DTB GmbH) was founded in 1988 and is based in Frankfurt. The DTB started trading on January 26, 1990. They started with trading options initially, later futures were introduced.
In the 1990s, Europe saw a lot of changes in its financial sector. London Financial Futures Exchange (LIFFE) started losing dominance to the Deutsche Terminbörse (DTB) in trading German government bonds futuresBonds FuturesBond Futures is a contract that puts liability on the holder to purchase and sell a fixed amount of bonds as specified in the contract agreement at a price which is predetermined by the contract holder where the other side is the exchange. It can be bought and sold in the exchange market, the price and dates are standardized at the time when an agreement is entered into by the holder. (The Bund).
DTB GmbH was integrated into the newly founded Deutsche Börse AG in the year 1993.
The DTB, being one of the pioneers in electronic exchanges, had spread its architecture across Europe and into the US. Since the DTB was in the midst of a tussle with its rival LIFFE to consolidate market share, it began considering merging with the Swiss Options and Financial Futures Exchange (SOFFEX).
In 1998, Deutsche Terminbörse GmbH merged with SOFFEX to form today’s Eurex .
Initially, both the Deutsche Börse and the SIX Swiss Exchange jointly owned Eurex with the DTB holding 50% of the voting rights and 85% of the share capital. Till January 2012, the joint partnership lasted after which Deutsche Börse purchased the balance shares in Eurex from SIX Group, giving Deutsche Börse the exclusivity over the derivatives exchange.
Eurex has nine representative offices across the globe.
The open outcry system of trading was existent at various places across the UK and the US when Eurex was brought into existence. Eurex Exchange has been a pioneer in fully electronic trading replacing the traditional forms, such as open outcry, helping buyers and sellers in transacting from distant places. It brought together the participants through an electronic trading platform and network.
The exchange’s platform is popular as the T7 trading architecture, launched in 2013. Deutsche Börse Group developed T7 bringing advanced electronic trading in derivativesDerivativesDerivatives in finance are financial instruments that derive their value from the value of the underlying asset. The underlying asset can be bonds, stocks, currency, commodities, etc. The four types of derivatives are - Option contracts, Future derivatives contracts, Swaps, Forward derivative contracts. at the forefront. This reliable and robust trading system bridges upwards of 7,700 traders in around 35 countries, translating into the trade of more than 7 million contracts on a daily basis.
Eurex Exchange: Trading Products
Eurex Exchange has a broad range of diversified products starting from Swiss and German debt instrumentsDebt InstrumentsDebt instruments provide finance for the company's growth, investments, and future planning and agree to repay the same within the stipulated time. Long-term instruments include debentures, bonds, GDRs from foreign investors. Short-term instruments include working capital loans, short-term loans. to European stocks and various stock indices. The product portfolio covers various asset classes as well as an extensive range of products, including some of the world’s most heavily traded derivatives contracts.
Exchange’s product basket comprises 9 asset classes or benchmark products such as:
- Interest Rate DerivativesInterest Rate DerivativesInterest rate derivatives are the financial instruments that track the fluctuations of the underlying interest rates. These underlying interest-bearing assets can be a single interest rate or a bunch of different interest rates.
- Equity DerivativesEquity DerivativesEquity Derivative is a class of derivatives whose value is connected to the price variations of the underlying asset & it is generally used for hedging risk or speculating moves in indexes. It has 4 major types, i.e., Forwards & Futures, Options, Warrants, & Swaps.
- Equity Index Derivatives
- Dividend Derivatives
- Volatility Derivatives
- Exchange-Traded Funds Derivatives
- FX Derivatives
- Commodity DerivativesCommodity DerivativesCommodity derivatives refer to those financial instruments that use the price or price volatility of the underlying commodities as the base for change in their price to amplify, hedge, or invert, in a way that the investors can track these underlying assets' performance. It includes commodity futures and commodity swaps.
- Property Derivatives
Eurex Clearing acts as the clearinghouse for all transactions executed on Eurex Exchange. Eurex Clearing operates as a central counterparty for multi-asset class clearing of the mentioned exchange-traded product range as well as over-the-counter traded products.
Rules of Eurex Exchange
It follows rules that regulate the organization of the options and futures exchange approved under German law.
The exchange has laid down rules and regulations with respect to the following:
Below are the following benefits.
- Integrity: Objectivity to the markets, a transparent and binding regulatory structure, and the supervision through the overseeing authorities is important, mainly in the volatile market.
The regulatory oversight of trading activities of market participants is enhanced by electronic trading. The supervision for both exchanges and their participants is improved by the transparency of processing in real-time.
- Discovery of Fair Price: Their liquid products and diverse trading participants ensure pricing which is transparent, competitive, and fair. Whenever market participants place their orders and quotes in the order books, those orders are matched against one another, helping in price discovery throughout the trading day.
- Unmatched market efficiency: Market participants enjoy efficient access to liquidity, a robust global distribution network, and unparalleled system performance, giving them direct access to a reliable world of performance, speed, and proximity.
- Efficient access to liquidity: Their fully automated markets provide the participants with swift access to a diverse option of international products, with proven resilience and high liquidity, mainly in volatile markets. They have Market MakersMarket MakersMarket makers are the financial institution and investment banks which ensures enough amount of liquidity in the market by maintaining enough trading volume in the market so that trading can be done without any problem. in all of their option markets. New product launches are supported by Designated Market Makers to ensure liquidity from the start of trading.
- System performance: The exchange anticipates developments in technology that might happen in the future by continually upgrading the T7-system to improve speed and performance while trading. They have time and again upgraded system capacity, enhanced information distribution on a real-time basis and improved interfaces to ensure smooth trading.
Eurex Exchange is one of the highly recognized exchanges for derivative products across the globe. Its rich product basket coupled with state of the art trading technology and the electronic platform has helped the exchange in its current recognition as is today.
This has been a guide to what is Eurex exchange. Here we discuss history, trading technology, trading products, and its rules along with benefits. You may learn more about financing from the following articles –