Volatility Derivatives at Eurex Exchange - June 2020
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Volatility Derivatives at Eurex Exchange June 2020
Volatility Derivatives
at Eurex Exchange
June 2020
www.eurexchange.com
Volatility Derivatives at Eurex Exchange June 2020
Agenda
• The VSTOXX® Index & Eurex’s Product Offering
• Milestone Development
• A Path to Liquidity
• Hedging, Relative Value, Market Making, Retail
• Efficient Margining
• Appendix
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Volatility Derivatives at Eurex Exchange June 2020
EURO STOXX 50® Volatility – How the VSTOXX® Index is derived
The VSTOXX® is Europe’s volatility benchmark, it is designed to reflect investors sentiment and
economic uncertainty by measuring the 30 day implied volatility of the EURO STOXX® 50
How is the VSTOXX® Index calculated?
Market prices used in the VSTOXX® sub-index
• Eight sub-indices are calculated by using the market prices
of a basket of EURO STOXX® 50 Index Options within the
same expiry. The basket of options used is screened by the
following filters
– Option prices that are one-sided are screened out.
– Only options that are quoted within the maximum
spreads of 8% are eligible.
– “Cutting the Wings” – exclusion of option prices that
are too far OTM, ensures that prices used do not fall
short of a minimum value of 0.5 index points
• Each sub-index represents one expiration. Therefore the
first sub-index uses front month EURO STOXX® 50 Index
Options, the second sub-index uses second month options,
and so on
• The main VSTOXX® Index is designed as a rolling index at
a fixed 30-days to expiry that is achieved through linear
interpolation of the two nearest of the eight sub-indices
This model has been jointly developed by Goldman Sachs and
Deutsche Boerse
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Volatility Derivatives at Eurex Exchange June 2020
EURO STOXX 50® Volatility – The VSTOXX® index
Euro Stoxx 50 options
21 Term structure
20
• VSTOXX® Index is based on market prices of
Implied Volatility
EURO STOXX® 50 Index Options. 19
• The VSTOXX® index does NOT measure implied 18
volatilities of ATM options, but the implied variance
across all options of given time to expiry. 17
16
• The main index VSTOXX® is designed as a
rolling index at a fixed 30 days to expiry through 15
linear interpolation of the two nearest of the eight
available sub-indexes. Expiration
• The futures on the VSTOXX® index is the
expectation of where the 30 day implied volatility Euro Stoxx 50 options
Term structure
will be at the futures expiration date 21
• The change in the term structure of the EuroStoxx
50 options is the main driver for futures prices – 20
rather than the VSTOXX® index itself
Implied Volatility
19
18
EuroStoxx®
17 options
expiry
16
VSTOXX®
futures expiry
15
www.eurexchange.com 4
Expiration
Volatility Derivatives at Eurex Exchange June 2020
VSTOXX® Futures & Options on VSTOXX® Futures
Symbol OVS2 FVS
Product Name Options on VSTOXX® Futures VSTOXX® Futures
The VSTOXX® Index, a market estimate of expected volatility
Underlying VSTOXX® Futures that is calculated every 5 seconds by using real-time EURO
STOXX 50® option bid/ask quotes
Contract Value EUR 100 per index point of the underlying
Price Quotation and Minimum Price In points with two decimal places
Change
The Minimum Price Change is 0.05 points (equivalent to a value of EUR 5)
Contract Months The next eight successive calendar months
Staggered by Volatility Index Level:
= < 20 - 1 Index Point
Exercise Price Intervals ----
> 20 and =< 50 - 2.5 Index Points
> 50 - 5 Index Points
American-style; an option can be exercised until the end of
Exercise the Post-trading Full Period on any exchange day during the ----
lifetime of the option.
Settlement Physical delivery of the underlying. The underlying matures Cash settlement, payable on the first exchange day following
on the same exchange day and will be settled in cash. the Final Settlement Day.
Determined during the closing auction of the respective
Daily Settlement Price Established by Eurex, determined through a binomial pricing
futures contract
model
Last Trading Day and
30 calendar days prior to the third Friday of the expiration month of the underlying options. This is usually the Wednesday
Final Settlement Day prior to the second last Friday of the respective expiration / maturity month
Final Settlement Price Average of the VSTOXX® values on the Last Trading Day between 11:30 and 12:00 CET
Block Trade Size TES 1,000 Contracts; Enlight Min Block 500 Contracts 1,000 Contracts
Bloomberg: FVSA INDEX OMON Bloomberg: FVSA INDEX
Vendor Codes
Reuters: 0#FVS2+ Reuters: 0#FVS:
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Volatility Derivatives at Eurex Exchange June 2020
Agenda
• The VSTOXX® Index & Eurex’s Product Offering
• Milestones
• A Path to Liquidity
• Hedging, Relative Value, Market Making, Retail
• Efficient Margining
• Appendix
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Volatility Derivatives at Eurex Exchange June 2020
Volatility® Derivatives past milestones since inception
Evolution of the VSTOXX® market segment and product portfolio
Introduction of
calendar spread
trading
Reduction of
functionality for
Listing of two minimum tick size
FVS – Increase in
ETN’s on from 0.05 to 0.025
liquidity in
Listing of FVS – CFTC Approval VSTOXX® by for OVS2 –
Calendar Spreads
Start and for FVS – Velocity Shares in measure aimed to
/ development to a
development of a Tradability out of the U.S (Delta one increase order
roll product
new asset class the U.S & Inverse) – book activity
2009 2012 2016 May 2017 2019
Eurex VSTOXX® Derivatives
2010 2016 Feb 2017 Aug 2017 Mar 2019
Listing non Launch of Listing OVS2 Change of trading Eurex increased
CFTC-approved updated market (Options on hours for FVS the minimum
OVS (Options on making scheme VSTOXX® (earlier start of block trade size
VSTOXX® for FVS (Entry Futures) and trading to 8am (MBTS) from 500
Index) – no level program / subsequent CEST) – more to 1000 contracts
market access increase delisting of OVS trading opportunity – measure aimed
for U.S number of MM) – CFTC approval during European to increase order
– increase 2017 for OVS2 / opening hours book activity
liquidity and U.S tradability
ADV
= past accomplishment
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Volatility Derivatives at Eurex Exchange June 2020
Agenda
• The VSTOXX® Index & Eurex’s Product Offering
• Milestones
• A Path to Liquidity
• Hedging, Relative Value, Market Making, Retail
• Efficient Margining
• Appendix
www.eurexchange.com 8
Volatility Derivatives at Eurex Exchange June 2020
A Path to Liquidity: Average Daily Volume and Open Interest Growth
FVS Monthly Volume By Trade Type
2,500,000 500,000 FVS ADV OVS/OVS2 ADV
2,250,000 450,000
2012 ADV 15,000 5,638
2,000,000 400,000
Monthly Contract Volume
2013 ADV 21,000 7,947
1,750,000 350,000
Open Interest
1,500,000 300,000 2014 ADV 27,500 13,380
1,250,000 250,000
2015 ADV 29,500 27,000
1,000,000 200,000
2016 ADV 38,200 19,000
750,000 150,000
500,000 100,000 2017 ADV 52,640 39,795
250,000 50,000
2018 ADV 61,176 33,794
0 0
2019 ADV 62,944 29,211
Orderbook Off-Book Open Interest
2020 ADV 62,398 28,628
OVS & OVS2 Monthly Volume By Trade Type*
1,500,000
1,650,000 Order book volume growth 2012 vs 2020
1,500,000 1,300,000
FVS 2012 2020
Monthly Contract Volume
1,350,000
1,100,000
1,200,000
Open Interest
1,050,000 900,000 Order book 71.93% 92.62%
900,000
700,000
750,000 OVS/OVS2 2012 2020
600,000 500,000
450,000 300,000 Order book 2.66% 31.86%
300,000
100,000
150,000
0 -100,000
Orderbook Off-Book Open Interest
*Values include OVS2/FVS volume and open interest starting January-2014.
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Volatility Derivatives at Eurex Exchange June 2020
VSTOXX® Futures & Options on VSTOXX® Futures Open Interest
Macro events gradually increase base open interest
French
election
Pre Brexit open Post Brexit open interest Post French election
interest open interest
Brexit
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VSTOXX® Futures
Eurex Liquidity Measure – Spread width & order book depth
700 1.2
600
1
500
0.8
400
0.6
300
0.4
200
0.2
100
0 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Average of number of futures Average of index points
• Eurex Liquidity Measure is a measure to identify the spread width and the book depth of a given market. It
accounts for the round-trip market impact cost of executing a market order (e.g. notional of EUR 10 million) against
the order-book in basis points.
• This can be translated into futures and index points by using the futures settlement price.
• Over time, you can trade an increasing amount of futures contracts at a smaller bid offer spread
• The addition of more Market Makers from 2016 onwards improved the liquidity situation substantially
www.eurexchange.com 11Volatility Derivatives at Eurex Exchange June 2020
Average ELM dynamics on different market order sizes (1/3)
Reduced round-trip market impact costs
• ELM provides a theoretical market impact for “aggressor” orders of different lot sizes. It is calculated daily and at
fixed time intervals, for different lot size classes.
• The liquidity in VSTOXX® futures has increased substantially in 2019 & 2020 compared to 2011, thereby
observing a decreasing trend in VSTOXX® futures ELM values.
www.eurexchange.com 12Volatility Derivatives at Eurex Exchange June 2020
A Path to Liquidity: Improve VSTOXX® Futures Orderbook
Order book spread improvements
VSTOXX Futures Orderbook, July 2020
• Bid/Ask spread on VSTOXX futures have widened by 196% in YTM 2020 compared to 2019 due to the coronavirus outbreak in
March but since have returned to more normal levels ; €0.4152 vs €0.1398
• Front months futures are usually quoted 0.05 to 0.1 points wide
www.eurexchange.com 13Volatility Derivatives at Eurex Exchange June 2020
Open Options on VSTOXX® Futures to US participants
Listing options on
• Current OVS2 underlying is the VSTOXX® index, new OVS2 underlying is the future on VSTOXX® index
futures”
• Option will be American style and could be exercised at any time
American-style
• Early exercise risk is considered extremely low since there are no dividend payments
• The settlement would change from “cash” to “physical”
• The underlying future expiring on the same day
• While the option will be physically delivered with the future, the future itself is cash settled.
Settlement • On the expiration day of both the option and its underlying future both products will expire in the
Process following sequence:
• 11:30 a.m – 12p.m. (CET) Determination of the final settlement price of the underlying index
• Noon Expiration of options and futures
• Afternoon Manual exercise of the options on VSTOXX® futures
• Night batch Delivery of exercised options: creation of futures positions
• Night batch Cash settlement of future positions
• The expiration process will work as follow:
• Normal Exercise: The exercise of an option on the OVS2 contract results in the creation of a
corresponding position in the VSTOXX® Futures for the option buyer as well as the seller to whom the
exercise is assigned. The position is established during the night batch of the exercise day, and is based
Expiration on the agreed exercise price. An option can be exercised up to the end of the Post-Trading Full Period
(20:30 CET) on any exchange day
• Last Trading Day: Close of trading in the expiring option series on the last trading day is at
12:00 CET
• Expiration: An option can be exercised on the last trading day until 20:30 CET
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Options on VSTOXX® Futures Liquidity
Increased order book liquidity and tighten spreads
• With the phasing out of the
cash settled VSTOXX 1600 1
options in 2017, we
0.9
increased the minimum 1400
quote size for Market Makers 0.8
in the remaining Option on 1200
0.7
VSTOXX futures (OVS2)
1000
0.6
• Thereafter, some of the
Market Makers voluntarily 800 0.5
increased their size even
0.4
further 600
0.3
• It is interesting that Market 400
Makers seem to have a 0.2
preference to sell OVS2 200
0.1
0 0
Average of Bid Volume Average of Ask Volume Average of Spread Absolute
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VSTOXX® - Volumes By Account Type
Mixed and healthy account structure
VSTOXX Futures Breakdown By Account Role - 2020
34%
45%
Market Maker
Principal
21% Agent
VSTOXX Options Breakdown By Account Role - 2020
36%
54%
Market Maker
Principal
Agent
10%
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Competitive Landscape
VSTOXX futures and options volume has increased dramatically, outpacing VIX futures and
options volume growth.
VSTOXX vs. VIX Volume Growth
40
35
30
25
X 100 % Growth
20
15
10
5
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
VSTOXX Futures VIX Futures VSTOXX Options VIX Options
www.eurexchange.com 17Volatility Derivatives at Eurex Exchange June 2020
Agenda
• The VSTOXX® Index & Eurex’s Product Offering
• Milestones
• A Path to Liquidity
• Hedging, Relative Value, Market Making, Retail
• Efficient Margining
• Appendix
www.eurexchange.com 18Volatility Derivatives at Eurex Exchange June 2020
Hedging
The VSTOXX® Futures and Options for the Traditional Investor
• VSTOXX offers investors the ability to hedge and trade their European exposure with a Euro-
denominated index based on the European equity benchmark index on a European exchange.
• --> Marketing Message Grid
• With PRISMA, you also get the added benefit of cross margining your volatility hedge with your entire
European equity portfolio on Eurex. (distinguishes us from the VIX without having to explicitly say it on
three levels – basis risk to USD/US vol, liquidity during eu hours, portfolio margining).
• --> Marketing Message Grid
Value Propositions &
Message Grid for
Hedging??
www.eurexchange.com 19Volatility Derivatives at Eurex Exchange June 2020
VSTOXX® The European Volatility Benchmark
The VSTOXX® Futures and Options for the Traditional Investor
Hedge your exposure
• Hedge your exposure to equity, credit and options
• Volatility indexes have negative correlation with equity markets and can hedge a long-only portfolio and improve the efficient frontier
• VSTOXX® offers a cost efficient way to implement a tail risk hedge
12,000 Coronavirus 100
Price of European Equity Indices (in EUR)
Chinese Financial U.S. Dow closed 1175 Pandemic 90
French
Turmoil Brexit Election points down
10,000 European debt crisis Election
80
70
8,000
60
Price of VSTOXX
6,000 50
40
4,000
30
20
2,000
10
0 0
Euro STOXX 50 CAC 40 FTSE 100 VSTOXX
Correlations* EURO STOXX® 50 S&P 500 CAC 40 FTSE 100
VSTOXX® Index -0.9476 -0.9485 -0.9372 -0.9494
VIX® Index -0.9421 -0.9607 -0.9321 -0.9490
VCAC -0.9384 -0.9453 -0.9515 -0.9604
• January 1, 2020 – April 30th, 2020
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VSTOXX® & Asian Indices
The VSTOXX® Futures and Options for the Traditional Investor
Hedge your exposure
• Hedge your exposure to equity, credit and options
• Volatility indexes have negative correlation with equity markets and can hedge a long-only portfolio and improve the efficient frontier
• VSTOXX® offers a cost efficient way to implement a tail risk hedge
Asian Indices Price Movement Dow closed
4,000 Chinese Financial Turmoil U.S. French 1175 points Coronavirus 250
European debt crisis Brexit Election down Pandemic
3,500 Election
Price of VSTOXX, Nikkei and Nifty
200
3,000
Price of HSI Index (in EUR)
2,500 150
2,000
100
Indices
1,500
1,000
50
500
0 0
HSI Index VSTOXX NKY Index NIFTY Index
Correlations* EURO STOXX® 50 S&P 500 HSI NIKKEI 225
VSTOXX® Index -0.9327 -0.7967 -0.8158 -0.8947
VIX® Index -0.9228 -0.7913 -0.8062 -0.8844
VHSI Index -0.9055 -0.7934 -0.8326 -0.8964
NIKKEI Volatility Index -0.9325 -0.7733 -0.8150 -0.8930
• August 1, 2019 – April 30th, 2020
www.eurexchange.com 21Volatility Derivatives at Eurex Exchange June 2020
VSTOXX® The European Volatility Benchmark
The VSTOXX® Futures and Options for the Traditional Investor
Inclusion of VSTOXX® futures in the portfolio can construct a better efficient frontier
• The graph shows a set of optimal portfolios that offers the highest expected return for a defined level of risk or the lowest
risk for a given level of expected return
• Sigma of the minimum variance set is effectively reduced from 1.9% to 1.1%, while retaining the same level of return*
• Allocation to VSTOXX® futures allows an investor to generate portfolios with more attractive risk and return combinations
Efficient Frontier of portfolios constructed with EURO STOXX® 50
5.00%
index underlying stocks
4.00%
Expected Return
3.00%
2.00%
1.00%
0.00%
0.0% 1.0% 2.0% Sigma 3.0% 4.0% 5.0%
Without VSTOXX Futures With VSTOXX Futures
*Calculation based on monthly price changes of all 50 underlying stocks of EURO STOXX 50 Index and front month VSTOXX Futures from July 2009 until January 31, 2020
www.eurexchange.com 22Volatility Derivatives at Eurex Exchange June 2020
Relative Value
The VSTOXX® futures and options for the Relative Value Trader
• The VSTOXX index calculation is based on a widely used 30-day implied index calculation, which
creates opportunities for the VSTOXX to be traded again other non-European implied volatility indices.
• --> Message Grid from Marketing
Value Propositions &
Message Grid for Relative
Value ??
www.eurexchange.com 23Volatility Derivatives at Eurex Exchange June 2020
VSTOXX® The European Volatility Benchmark
The VSTOXX® futures and options for the Relative Value Trader
Relative Value Trading opportunities
• Explore spreads between European and Non European Indices
• VSTOXX® and VIX use similar index calculation , however the VSTOXX® Index fundamentally valued at a premium to VIX
– More concentrated: Based on EUROSTOXX 50®: an index of 50 stocks as comparable to S&P 500 an index of 500 stocks.
– More volatile constituents: ~25% of the EUROSTOXX 50® is financials as compared to ~17.5% of the S&P 500
• VSTOXX®/VIX spread is volatile and mean-reverting, and breaks down especially during times of Euro and US specific crisis
– Since Jan 2014, the spread has averaged 3.80 points (VSTOXX® over the VIX)
– In 2016 the average spread jumped to 8.02 points due to European-specific volatility
– In June 2015, the spread went to 13 due to the Greek Crisis then went below 1.0 in August 2015 when US equities tumbled
– In June 2016, the spread went over 20 due to the Brexit
25
Brexit Coronavirus
20 Pandemic
15
U.S. Election
10 French
Election
5
0
-5
-10
-15 Dow closed 1175 S&P 500 entered
points down Bear Market
-20
Apr-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Apr-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Apr-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Apr-19
Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
Apr-20
Jun-16
Jan-17
Jun-17
Jan-18
Jun-18
Jan-19
Jun-19
Jan-20
May-16
May-17
May-18
May-19
May-20
Mar-17
Mar-18
Mar-19
Mar-20
Jul-16
Feb-17
Jul-17
Feb-18
Jul-18
Feb-19
Jul-19
Feb-20
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VSTOXX® The European Volatility Benchmark
The VSTOXX® futures and options for the Term Structure Trader
Term Structure Trading opportunities
• Volatility is a depleting asset (theta) and
therefore the cost to roll a position is
high. Therefore, hedgers use calendar
spreads to finance their positions and to
hedge longer dated risk in their equity
portfolios. As a result, the VSTOXX®
term structure has open interest and
volume throughout all eight expiries.
• This has appealed to term structure
traders, like short term interest rate
traders, who are well versed in calendar
spread market making.
• VSTOXX® term structure moves from
contango to backwardation, primarily
driven by front month movement.
VSTOXX® term structure has been in
contango 70% of the time since 2011
• With the new T7, Eurex implemented a
fully integrated calendar spread trading
for term structure traders
www.eurexchange.com 25Volatility Derivatives at Eurex Exchange June 2020
VSTOXX® The European Volatility Benchmark
The VSTOXX® futures and options for the Term Structure Trader
Term Structure Trading opportunities
• Volatility is a depleting asset (theta) and
therefore the cost to roll a position is
high. Therefore, hedgers use calendar
spreads to finance their positions and to
hedge longer dated risk in their equity
portfolios. As a result, the VSTOXX®
term structure has open interest and
volume throughout all eight expiries.
• This has appealed to term structure
traders, like short term interest rate
traders, who are well versed in calendar
spread market making.
• VSTOXX® term structure moves from
contango to backwardation, primarily
driven by front month movement.
VSTOXX® term structure has been in
contango 70% of the time since 2011
• With the new T7, Eurex implemented a
fully integrated calendar spread trading
for term structure traders
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VSTOXX® Futures – Volume Breakdown by Hours and Trade Size
• In both options and futures on VSTOXX, US hours (14:00 Hours CET onwards) constitute majority of the trading day volumes (see
table).
Average
Average Average Average Trade Average Trade Average Trade
% Volume Notional Trade
Product Year Notional Trade Notional Trade Size (Contract) Size (Contract) Size (Contract)
During US Hours Size -
Size - Offbook Size - Total - Orderbook - Offbook - Total
Orderbook
2019 60.76% 24,564 1,653,343 26,753 15 1,030 17
FVS
2020 59.80% 22,933 2,921,534 24,504 8 1,245 9
2019 57.35% 370,978 4,507,995 1,124,693 170 2,294 557
OVS2
2020 58.01% 647,528 6,739,594 1,381,944 157 2,451 434
Note: a) 2020 data is until June b) Average Notional Trade Size is measured in Euros. c) Options stats include OVS2 starting February 2017.
• Charts below depict the trend of hourly volumes in 2020 for both FVS and OVS/OVS2. Increase in volumes is evident during US hours.
www.eurexchange.com 27Volatility Derivatives at Eurex Exchange June 2020
Market Making
The VSTOXX® futures and options for the Market Makers
• Eurex offers market making programs in VSTOXX futures and options in EU and US hours to build
liquidity on screen.
• --> Message Grid from Marketing
• 8-10 market makers are in VSTOXX futures and 4-5 market makers are in VSTOXX options willing to
show competitive pricing
• --> Message Grid from Marketing
Value Propositions &
Message Grid for MM??
www.eurexchange.com 28Volatility Derivatives at Eurex Exchange June 2020
2020 VSTOXX® Futures Liquidity Provision & Revenue Share
Scheme
Duration 1 January 2020 until 31 December 2020
Minimum contract size Scheme 1: 30 contracts / Scheme 2: 200 contracts / Scheme 3: 100 contracts
Scheme 1: Entry Level Liquidity Provider Scheme
Contract months 1-4: 0.30 volatility index points for bids up to 20 index points. 2% for bids greater than 20,
3% for bids greater than 30, 6% for bids greater than 40 and 9% for bids greater than 60.
Contract months 5-8: 0.45 volatility index points for bids up to 20 index points. 3% for bids greater than 20,
5% for bids greater than 30, 9% for bids greater than 40 and 14% for bids greater than 60.
Scheme 2: EU Hours Revenue Share
Contract months 1-4: 0.20 volatility index points for bids up to 20 index points. 1.5 % for bids greater than
Maximum spread 20, 2% for bids greater than 30. 4% for bids greater than 40 and 6% for bids greater than 60.
Contract months 5-8: 0.30 volatility index points for bids up to 20 index points. 2% for bids greater than 20
3% for bids greater than 30, 6% for bids greater than 40 and 9% for bids greater than 60.
Scheme 3: US Liquidity Provider Scheme
Contract months 1-4: 0.40 volatility index points for bids up to 20 index points. 3% for bids greater than 20,
4% for bids greater than 40, 8% for bids greater than 40 and 11% for bids greater than 60.
Contract months 5-8: 0.60 volatility index points for bids up to 20 index points. 5% for bids greater than 20,
6% for bids greater than 30, 12% for bids greater than 40 and 17% for bids greater than 60.
Scheme 1& 2
75 per cent of the total trading period on a monthly average between 09:00 and 17:30 CET
Required coverage Scheme 3:
75 per cent of the total trading period on a monthly average between 14:00 and 22:00 CET
Maturity range All eight maturities must be covered.
All schemes:
100 per cent free rebate for trades on the M-account from 1 January 2020 until 31 December 2020, for
fulfilling monthly obligations.
Incentive For scheme 2:
10% of the net transaction fees will be distributed among the top three Market Makers on a monthly basis
pro rata based on M-account order book and off-book volumes) The first Market Maker will receive 5% of
the net transaction fees, while 3% and 2% of the net transaction fees will be shared with the Market
Makers ranked two and three. If only two MM fulfil, net revenues will be split 6% and 4%, and if only one
MM fulfils, that MM will receive the entire 10% net transaction fee pool.
www.eurexchange.com 29Volatility Derivatives at Eurex Exchange June 2020
2020 Options on VSTOXX® Futures Market-Making & Revenue
Share
Products included OVS2
Duration 1 January 2020 until 31 December 2020
Expiry 1-2 500 contracts
Minimum Quote Size Expiry 3-4 200 contracts
Expiry 5-6 100 contracts
Bid up to 2 max. spread 0.20 points
Maximum Spread for Expiries 1-4 Bids from 2 to 20 10 per cent of bid price
Bid > 20 max. spread 2 points
Bid up to 2 max. spread 0.30 points
Maximum Spread for Expiries 5-8 Bids from 2 to 20 15 per cent of bid price
Bid > 20 max. spread 3 points
Required Coverage 80 per cent of the total trading period on a monthly average for calls and puts in five out of eleven
strikes around the current index level. Asymmetric quotation is allowed..
Expiry Range The first six expiration months.
100 per cent fee rebate for trades on M-account in OVS2, for fulfilling monthly obligations.
All fulfilling Liquidity Providers participate; ranked according to each share of trading volume in M-
accounts (order book and off-book) of all fulfilling Liquidity Providers. All fulfilling Liquidity Providers
participate; ranked according to each share of trading volume in M-accounts (order book and off-book)
Incentive
of all fulfilling Liquidity Providers
.
www.eurexchange.com 30Volatility Derivatives at Eurex Exchange June 2020
Retail
The VSTOXX® futures and options for the Retail Investor
• Retail Trading Opportunity
• Due to the small tick size & value of the future on VSTOXX® (0.05 index points equal to 5 EUR vs 50
USD minimum tick value at CBOE), the product is also becoming more and more interesting for retail
investors and gives a more granular heding opportunity (when doing smaller size)
• --> Message Grid from Marketing
Value Propositions &
Message Grid for
Retail??
www.eurexchange.com 31Volatility Derivatives at Eurex Exchange June 2020
Agenda
• The VSTOXX® Index & Eurex’s Product Offering
• Milestones
• A Path to Liquidity
• Hedging, Relative Value, Market Making, Retail
• Efficient Margining
• Appendix
www.eurexchange.com 32Volatility Derivatives at Eurex Exchange June 2020
The effects of the Eurex portfolio margin system (PRISMA)
Diversified portfolio comprising one long front-month EURO STOXX 50® futures
and a long/short combination of VSTOXX® futures with different expiries
Initial Margin Prisma 4.0 Initial Margin Prisma 4.0 Initial Margin Prisma 5.0
RBM Total Margin [€] Relative Margin Change
[€] + RBM [€] [€]
40,305.30 343,504.00 383,809.30 76,750.00 -80.0%
500
Thousands
400
300
-80.0%
200
100
0
Initial Margin Prisma 4.0 + RBM [€] Initial Margin Prisma 5.0 [€]
www.eurexchange.com 33Volatility Derivatives at Eurex Exchange June 2020
The effects of the Eurex portfolio margin system (PRISMA)
Diversified portfolio comprising one long front-month EURO STOXX 50® futures,
EURO STOXX 50® calls and puts across different strikes and maturities
and a combination of VSTOXX® futures and options
Initial Margin Prisma 4.0 Initial Margin Prisma 4.0 Initial Margin Prisma 5.0
RBM Total Margin [€] Relative Margin Change
[€] + RBM [€] [€]
6,468,522.96 17,785,006.80 24,253,529.76 4,850,000.00 -80.0%
30
Millions
25
20
15 -80.0%
10
5
0
Initial Margin Prisma 4.0 + RBM [€] Initial Margin Prisma 5.0 [€]
www.eurexchange.com 34Volatility Derivatives at Eurex Exchange June 2020
The effects of the Eurex portfolio margin system (PRISMA)
Diversified portfolio comprising 100 long EURO STOXX 50 futures, 1000 short VSTOXX futures and
1000 long VSTOXX calls options (strike 20) with 6 month maturity
Margin Requirements
FESX 100 Long FVS 1000 Short OVS 1000 Long Call (Strike 20)
241,975.49 287,505.39 301,088.72
Standalone Margin Requirement Prisma Margin Requirement Relative Margin Change
830,569.60 372,161.89 -55.2%
900
Thousands
800
700
-55.2%
600
500
400
300
200
100
0
Standalone Margin Requirement Prisma Margin Requirement
www.eurexchange.com 35Volatility Derivatives at Eurex Exchange June 2020
Contact us
Sales Global/USA Sales UK
Matthew Riley
Eugen Mohr
Deutsche Börse AG
Eurex - Chicago One Canada Square, Canary Wharf
233 South Wacker 24th Floor London, E14 5DR
Chicago, IL United Kingdom
USA
P: +44 (0)207 862-7213
P:+1 312 5 44-10 84 F: +44 77-6923-5229
eugen.mohr@eurexchange.com Matthew.riley@eurexchange.com
Sales Asia & Middle East
Jan Thorwirth
Eurex – Hong Kong
2904-7, 29/F
Man Yee Building 68 Des Voeux Road
Hong Kong
P: +852 2530 7807
F: +852 2530 7887
jan.thorwirth@eurexchange.com
www.eurexchange.com 36Volatility Derivatives at Eurex Exchange June 2020
Appendix
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Average ELM dynamics on different market order sizes (2/3)
Reduced round-trip market impact costs
• ELM provides a theoretical market impact for “aggressor” orders of different lot sizes. It is calculated daily and at
fixed time intervals, for different lot size classes.
• The liquidity in VSTOXX® futures has increased substantially in 2019 & 2020 compared to 2011, thereby
observing a decreasing trend in VSTOXX® futures ELM values.
www.eurexchange.com 38Volatility Derivatives at Eurex Exchange June 2020
Average ELM dynamics on different market order sizes (3/3)
Reduced round-trip market impact costs
• ELM provides a theoretical market impact for “aggressor” orders of different lot sizes. It is calculated daily and at
fixed time intervals, for different lot size classes.
• The liquidity in VSTOXX® futures has increased substantially in 2019 & 2020 compared to 2011, thereby
observing a decreasing trend in VSTOXX® futures ELM values.
www.eurexchange.com 39Volatility Derivatives at Eurex Exchange June 2020
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