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.
Explanation
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 volume 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.
History
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 futures (The Bund).
DTB GmbH was integrated into the newly founded Deutsche Börse AG in the year 1993.
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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.
Trading Technology
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 derivatives 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 instruments 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 Derivatives
- Equity Derivatives
- Equity Index Derivatives
- Dividend Derivatives
- Volatility Derivatives
- Exchange-Traded Funds Derivatives
- FX Derivatives
- Commodity Derivatives
- 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:
Benefits
Below are the following benefits.
Market Integrity
- 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.
Market Efficiency
- 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 Makers 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.
Conclusion
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.
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