Merged entity set for global success
After a rough ride on the equity markets, investors are looking to diversify their portfolios in an increasingly global marketplace, according to Eurex, the world's leading futures exchange.
The company, formed in 1998 through the merger of Deutsche Terminborse (DTB) and Swiss Options and Financial Futures Exchange (Soffex), has seen turnover surge to 674 million contracts last year, a 48.7 per cent increase over 2000 and up more than 175 per cent on 1999.
Eurex, sponsor of the South China Morning Post Fund Manager of the Year Awards 2001, was on track for global success even before the formation of the merged entity.
Whilst futures trading has been allowed in the United States since the 1970s, it was only when changes to German law were enacted on January 1, 1990, that it became an option in Germany. DTB had been waiting in the wings for the changes. By January 26 of that year it began trading 14 equity options and in November it added German Bund, the 10-year German Government bond, previously the sole domain of the London International Financial Futures and Options Exchange (Liffe).
Since introducing index, equity capital and money market products, new records have been reached each year. By March 1998, DTB accounted for 70 per cent of all turnover in German Bund. By August 1998, after the merger of DTB and Soffex, German bonds were almost entirely traded on Eurex. The products remain available at Liffe, but investors hailed the integrated European platform with open arms.
By January 1999, Eurex had taken pole position, surpassing the Chicago Board of Trade as the world's biggest futures exchange in terms of trading volume.
Part of Eurex's success has been good timing. With the creation of a single European currency, there has been increasing demand for pan-European products via an integrated trading and clearing platform. Eurex has also relied on electronic avenues to handle higher turnover more efficiently than traditional open outcry systems.
While Eurex has yet to sign any members in Asia, it is connecting with several local brokers, offering them access to a complete diversified range of established global financial products.
Significant volumes are already being generated from the Asia-Pacific region via other locations. To sign up for membership, brokers do not need to purchase a costly seat on the exchange or pay high membership fees. They need only pledge a minimum transaction fee, based on the level of service and connection they choose.
With the Hong Kong Government about to make the offering of hedge funds to retail investors legal, Eurex is betting on growing demand from local fund managers looking to package alternative products. Derivatives and futures offer a means of diversifying away from traditional long equity funds - which can appreciate only when equity markets are rising - an appealing thought for anyone with a battered portfolio.