Latest news with #Eurex
Yahoo
5 days ago
- Business
- Yahoo
Quant Traders That Dominate US Options Market Move in on Europe
(Bloomberg) -- The option market makers that dominate US trading are taking a bigger share of volume in Europe. Billionaire Steve Cohen Wants NY to Expand Taxpayer-Backed Ferry Now With Colorful Blocks, Tirana's Pyramid Represents a Changing Albania Where the Wild Children's Museums Are The Economic Benefits of Paying Workers to Move NYC Congestion Toll Brings In $216 Million in First Four Months While the tariff-driven market turmoil in April boosted trading on both sides of the Atlantic, Europe remains far behind. Even with talks about the end of 'US Exceptionalism' and investment flows directed away from the country, Europe lacks the abundant retail demand that drives a robust, relatively transparent options market in the US. But despite the differences, in both places market makers are pushing in to service customers directly. More nimble, with more sophisticated quant models than traditional banks and comfortable hedging across markets, they already held 30% of the open interest in Euro Stoxx 50 Index listed options on Eurex in 2022, an Acuiti report found at the time. Their share is estimated to have grown further since then. 'Market makers have long been dominant players in the US options market, consistently making up the top three participants by volume,' said Josh Ward, an equity-derivatives salesman at Susquehanna International Group. 'This trend is now emerging in Europe.' While market makers have historically maintained a strong presence on screen, they're increasingly capturing share in off-screen volumes in Europe. Also known as principal trading firms, they're making up two of the top three participants in block trades on Eurex so far this year, Ward said. 'Principal trading firms now have very established relationships with the buy-side,' said Piebe Teeboom, secretary general of the European Principal Traders Association. 'Within the options space, the trend of buy-side firms seeking out PTFs on off-screen blocks is only likely to increase given how competitive those firms are on pricing.' It raises the question of how much the presence of quant firms can encourage more overall volume in Europe, especially from the smaller, non-institutional traders that have driven US growth. But they still face challenges in the region. A big one is the frequency of late cross trades that aren't initially visible to the wider market — where a placeholder is made at 6 p.m. UK time and the price is disclosed at 10 p.m. That reflects, at least in part, traders' concerns about information leaking out. The intensifying competition in Europe is a boon for buy-side clients, who despite stagnant volumes are able to trade big option blocks on index and single stocks. On any given day, several billion euros in notional value could be sourced on Euro Stoxx 50 options in a single ticket. 'The rise of dedicated market makers is a net positive for investors as it leads to more competitive pricing across asset classes, which our clients ultimately benefit from as end investors,' said Stefano Amato, senior fund manager at M&G Investments. 'It's also prompting banks to become more competitive and/or focus on certain segments where they have a particular strength, which again in aggregate contributes to bringing down the overall cost of trading for market participants.' While the European market has become increasingly competitive, some buy-side firms view the relationship with banks holistically: They're working with them across other asset classes, hence keeping a big portion of the equity-derivatives business with them. But daily options flow has always been highly commoditized and price sensitive, so even the most loyal clients may shift more orders to the market makers. Some market participants have noted that option auctions are at times so competitive that pricing becomes inverted, with some market makers willing to offer below the bid in order to win the business. 'We attribute the expanding footprint of market makers' direct client trading desks to their ability and willingness to consistently quote tighter spreads and larger sizes for their clients,' said Ward. 'Their conviction to do this is supported by significant resources, including advanced technology, balance sheet capital, specialist back-end infrastructure and larger, more experienced trading teams dedicated to their respective areas of market expertise.' The shift in options flow to firms like Optiver and Susquehanna is an extension of a gradual trend since the Great Financial Crisis of some banks focusing on more profitable businesses such as Quantitative Investment Strategies and light exotics. While they compete with market makers for buy-side clients, they still work together to offset risk. 'We continue to work closely with banks and see our role as complementary to the services they provide to their clients and to us,' said Edward Monrad, head of corporate strategy for EMEA at Optiver. 'There's still plenty of room for growth as well.' YouTube Is Swallowing TV Whole, and It's Coming for the Sitcom Millions of Americans Are Obsessed With This Japanese Barbecue Sauce How Coach Handbags Became a Gen Z Status Symbol Mark Zuckerberg Loves MAGA Now. Will MAGA Ever Love Him Back? Will Small Business Owners Knock Down Trump's Mighty Tariffs? ©2025 Bloomberg L.P. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
5 days ago
- Business
- Yahoo
Quant Traders That Dominate US Options Market Move in on Europe
(Bloomberg) -- The option market makers that dominate US trading are taking a bigger share of volume in Europe. Billionaire Steve Cohen Wants NY to Expand Taxpayer-Backed Ferry Now With Colorful Blocks, Tirana's Pyramid Represents a Changing Albania Where the Wild Children's Museums Are The Economic Benefits of Paying Workers to Move NYC Congestion Toll Brings In $216 Million in First Four Months While the tariff-driven market turmoil in April boosted trading on both sides of the Atlantic, Europe remains far behind. Even with talks about the end of 'US Exceptionalism' and investment flows directed away from the country, Europe lacks the abundant retail demand that drives a robust, relatively transparent options market in the US. But despite the differences, in both places market makers are pushing in to service customers directly. More nimble, with more sophisticated quant models than traditional banks and comfortable hedging across markets, they already held 30% of the open interest in Euro Stoxx 50 Index listed options on Eurex in 2022, an Acuiti report found at the time. Their share is estimated to have grown further since then. 'Market makers have long been dominant players in the US options market, consistently making up the top three participants by volume,' said Josh Ward, an equity-derivatives salesman at Susquehanna International Group. 'This trend is now emerging in Europe.' While market makers have historically maintained a strong presence on screen, they're increasingly capturing share in off-screen volumes in Europe. Also known as principal trading firms, they're making up two of the top three participants in block trades on Eurex so far this year, Ward said. 'Principal trading firms now have very established relationships with the buy-side,' said Piebe Teeboom, secretary general of the European Principal Traders Association. 'Within the options space, the trend of buy-side firms seeking out PTFs on off-screen blocks is only likely to increase given how competitive those firms are on pricing.' It raises the question of how much the presence of quant firms can encourage more overall volume in Europe, especially from the smaller, non-institutional traders that have driven US growth. But they still face challenges in the region. A big one is the frequency of late cross trades that aren't initially visible to the wider market — where a placeholder is made at 6 p.m. UK time and the price is disclosed at 10 p.m. That reflects, at least in part, traders' concerns about information leaking out. The intensifying competition in Europe is a boon for buy-side clients, who despite stagnant volumes are able to trade big option blocks on index and single stocks. On any given day, several billion euros in notional value could be sourced on Euro Stoxx 50 options in a single ticket. 'The rise of dedicated market makers is a net positive for investors as it leads to more competitive pricing across asset classes, which our clients ultimately benefit from as end investors,' said Stefano Amato, senior fund manager at M&G Investments. 'It's also prompting banks to become more competitive and/or focus on certain segments where they have a particular strength, which again in aggregate contributes to bringing down the overall cost of trading for market participants.' While the European market has become increasingly competitive, some buy-side firms view the relationship with banks holistically: They're working with them across other asset classes, hence keeping a big portion of the equity-derivatives business with them. But daily options flow has always been highly commoditized and price sensitive, so even the most loyal clients may shift more orders to the market makers. Some market participants have noted that option auctions are at times so competitive that pricing becomes inverted, with some market makers willing to offer below the bid in order to win the business. 'We attribute the expanding footprint of market makers' direct client trading desks to their ability and willingness to consistently quote tighter spreads and larger sizes for their clients,' said Ward. 'Their conviction to do this is supported by significant resources, including advanced technology, balance sheet capital, specialist back-end infrastructure and larger, more experienced trading teams dedicated to their respective areas of market expertise.' The shift in options flow to firms like Optiver and Susquehanna is an extension of a gradual trend since the Great Financial Crisis of some banks focusing on more profitable businesses such as Quantitative Investment Strategies and light exotics. While they compete with market makers for buy-side clients, they still work together to offset risk. 'We continue to work closely with banks and see our role as complementary to the services they provide to their clients and to us,' said Edward Monrad, head of corporate strategy for EMEA at Optiver. 'There's still plenty of room for growth as well.' YouTube Is Swallowing TV Whole, and It's Coming for the Sitcom Millions of Americans Are Obsessed With This Japanese Barbecue Sauce AI Is Helping Executives Tackle the Dreaded Post-Vacation Inbox How Coach Handbags Became a Gen Z Status Symbol Mark Zuckerberg Loves MAGA Now. Will MAGA Ever Love Him Back? ©2025 Bloomberg L.P.
Reuters
23-04-2025
- Business
- Reuters
Eurex to launch futures on joint EU bonds
LONDON, April 23 (Reuters) - Deutsche Boerse's derivatives arm Eurex said on Wednesday it will launch futures contracts on the European Union's joint bonds, marking a key step in boosting the bloc's profile as a borrower just as it eyes more debt to raise defence spending. Trading will start on September 10, Eurex said in a statement. The Reuters Tariff Watch newsletter is your daily guide to the latest global trade and tariff news. Sign up here. Futures contracts are derivatives through which investors buy, or sell, underlying securities at a future date. They make trading easier by boosting liquidity and allow investors to hedge their positions. The world's biggest bond markets, from the United States to Germany, are supported by futures markets, so the launch of an EU contract is seen as an important step as officials push for markets to treat the bloc on the same terms as a government borrower. The EU, which expects to raise over 700 billion euros ($803 billion) in common debt with the backing of member states by 2026 to finance a COVID recovery fund, has become one of the biggest borrowers in global bond markets in recent years. Its status as a borrower beyond 2026 remained uncertain until recently, but the bloc has proposed to jointly borrow up to 150 billion euros on the bond markets to finance loans that help member states raise defence spending. Matthias Graulich, global head of products and markets at Eurex, said the launch was "a strategic commitment to supporting European ambitions for greater autonomy at a time when the continent is relying on additional debt issuance and investors are seeking tailored tools to manage their exposure to EU debt." With tight budgets expected to constrain many member states' spending efforts, investors and economists say the EU may need to provide even more joint financing to give a bigger boost to defence spending and for it to rise more evenly across the bloc. Doing so would require the EU to issue even more debt. Eurex said the futures contracts would be based on EU bonds maturing in eight to 12 years and have the same 6% coupon as the exchange's 10-year futures on German, French, Italian and Spanish bonds. The launch follows New York Stock Exchange parent ICE, which introduced a futures contract on an index of longer-dated EU bonds in December. But inclusion in government bond indexes, which the EU has said was the most important step remaining for its debt to be seen on a par with those of governments, has proven tougher. Index providers including Bloomberg, MSCI and ICE have all decided against including the bloc's bonds. ($1 = 0.8719 euros)
Bloomberg
27-01-2025
- Business
- Bloomberg
Indices 2025 outlook: Fixed income
Building better beta As markets have evolved, our indices evolve as well. But replicability and transparency remain fundamental to benchmark construction. Fixed income has continued to grow in size, and the investment grade universe as measured by the Bloomberg US Aggregate Index now covers roughly 13,600 constituents with $28 trillion in market value (see below). In addition, assets in fixed income ETFs are expected to multiply in the coming years, so ensuring that clients can accurately track our indices continues to be a big focus. We have published a daily forward-looking Projected Universe for many years to facilitate portfolio rebalancing, and we will apply a month-end lockout period starting in March to freeze the membership two days ahead of month-end. This much-anticipated change will provide more stability in the index membership and certainty as to which bonds qualify for the Returns Universe prior to month-end. Other enhancements such as alternative pricing snaps and frequency of rebalancing are also under review. Another area of recent evolution has been the ways in which our clients can gain exposure to our indices. The explosion of ETFs has made it much easier for clients to trade hundreds of Bloomberg indices, but even the almighty ETF has weaknesses such as tracking error. Enter credit futures. Exchange-listed futures on Bloomberg's fixed income indices provide investors with the ability to more accurately and efficiently gain exposure to the corporate bond market and hedge their credit risk. We launched three futures contracts on CME in June 2024 and two additional contracts on Eurex in September 2024 to expand our offering across IG, HY and EM (see below). In particular, the duration hedged (DHI) futures are spread return products akin to other credit products widely used for hedging etc. Across the complex, we are approaching $100 billion in cumulative value traded since inception. We expect to see more listed contracts, providing a more diverse range of tools for those seeking local exposure and precision. Index trends From a fixed income index perspective, there were a few dominant themes throughout last year that we expect to continue into 2025. First, short duration and money market strategies were very popular given that risk-free rates were at the highest level in more than 15 years. Even though the Fed has started cutting rates, 'bill and chill' investing should continue to some extent until rates normalize. In fact, net flows in ultrashort bond ETFs have continued to be robust at $25.9bn over the last 3 months despite 100bp in cuts since mid-September. Bloomberg expanded coverage of 0-1 Year and created Hold to Maturity indices (see below) last year to meet this anticipated demand, and we also created Cash Deposit indices across 9 currencies with 1m, 3m and 6m tenors which can be found on the IN CASH function. Second, fixed maturity indices continued to gain momentum across regions and assets classes. Out of the nearly 400 fixed income ETFs launched in 2024, over a quarter of them (28%) seek to invest in bonds that mature in a specific calendar year. Since the introduction of fixed maturity ETFs in 2015, assets now exceed $50 billion across the two largest suites of ETF products. Bloomberg has created dozens of fixed maturity benchmarks for passive ETFs and recently published a series of standard fixed maturity indices for US Corp, Euro Corp and US Treasury. We expect this trend to continue as more clients enter the space and further customization is employed. Lastly, customization and finding new sources of beta has been a long-term theme that we continue to see growing into 2025 and beyond. Our team has been customizing indices for decades on behalf of clients, and the Index Factory platform unlocks additional datasets and more flexibility to help our clients put their exciting new ideas into an index strategy. In fact, we published almost 500 new bespoke indices last year alone. Fixed income outlook In addition to tracking historical returns, we can also look at performance expectations through an index lens, although past performance is not indicative of future results. In general, one would expect for US fixed income to perform well in a tightening cycle as rates decrease. Our colleagues in Bloomberg Intelligence (BI) expect modest but volatile Treasury returns, wider spreads in IG Credit to offset projected declines in Treasury yields, and the best performance since 2019 for MBS in our base case. On aggregate, that would roughly equate to a performance of 4.9% for the US IG market as measured by the Bloomberg US Aggregate Index (see below). However, slower Fed cuts and inflation uncertainty could weigh on bond returns. Looking ahead After a year of milestones and major index launches, we are looking forward to more of the same in 2025. We are always looking at ways to expand our coverage and make our index suite more comprehensive. Following the introduction of our Bloomberg US Leveraged Loan index, we are planning to publish a European version in the first half of the year. Additionally, our Local EM indices will undergo a significant update as India will be included over a 10-month period starting in February. Once fully phased in, India is expected to be the third largest country in the EM Local Currency Government Bond Index. Lastly, we expect to rollout multiple pricing snaps later in the year. One key use case will be for early close dates so clients can select either 2pm or 4pm as the official index close. Even after more than 50 years of indexing, we are more excited than ever about the coming opportunities and challenges. We appreciate the partnership of our invaluable clients and look forward to celebrating many more milestones together. BLOOMBERG, BLOOMBERG INDICES and Bloomberg Compact Index Series (the 'Indices') are trademarks or service marks of Bloomberg Finance L.P. Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited, the administrator of the Indices (collectively, 'Bloomberg') or Bloomberg's licensors own all proprietary rights in the Indices. Bloomberg does not guarantee the timeliness, accuracy or completeness of any data or information relating to the Indices. Bloomberg makes no warranty, express or implied, as to the Indices or any data or values relating thereto or results to be obtained therefrom, and expressly disclaims all warranties of merchantability and fitness for a particular purpose with respect thereto. It is not possible to invest directly in an Index. Back-tested performance is not actual performance. Past performance is not an indication of future results. To the maximum extent allowed by law, Bloomberg, its licensors, and its and their respective employees, contractors, agents, suppliers and vendors shall have no liability or responsibility whatsoever for any injury or damages – whether direct, indirect, consequential, incidental, punitive or otherwise – arising in connection with the Indices or any data or values relating thereto – whether arising from their negligence or otherwise. This document constitutes the provision of factual information, rather than financial product advice. Nothing in the Indices shall constitute or be construed as an offering of financial instruments or as investment advice or investment recommendations (i.e., recommendations as to whether or not to 'buy', 'sell', 'hold', or to enter or not to enter into any other transaction involving any specific interest or interests) by Bloomberg or a recommendation as to an investment or other strategy by Bloomberg. Data and other information available via the Indices should not be considered as information sufficient upon which to base an investment decision. All information provided by the Indices is impersonal and not tailored to the needs of any person, entity or group of persons. Bloomberg does not express an opinion on the future or expected value of any security or other interest and do not explicitly or implicitly recommend or suggest an investment strategy of any kind. Customers should consider obtaining independent advice before making any financial decisions. © 2024 Bloomberg. All rights reserved. This document and its contents may not be forwarded or redistributed without the prior consent of Bloomberg.
