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Topic of the week: Michael Peters on changes in investment behavior

Release date: 28 Feb 2019 | Eurex Exchange

Topic of the week: Michael Peters on changes in investment behavior

Our industry is in a period of rapid change, driven by shifting investor preferences, margin compression, regulatory developments and advancing technologies. All this has led to a paradigm shift in the investment behavior of professional investors. They are looking for alternative investments that provide them with long-term successful asset protection and stable revenues while sustainable and social aspects get more and more important. How do we at Eurex react to these developments? We spoke with Michael Peters, deputy CEO of Eurex Exchange.

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Michael Peters, Deputy Chief Executive Officer (CEO)
of Eurex Frankfurt AG

Michael, which impact did these developments have on Eurex Exchange?

These trends and developments drive our product portfolio mix with respect to new launches. We always seek to maintain a forward-looking perspective, and here we have observed the growing trend for ESG criteria being applied as an overlay by asset owners and asset managers. As a response, we listed three new ESG futures based on our existing benchmark equity index products on 18 February. We plan to extend this new ESG derivatives segment at the appropriate time as the sustainability theme continues to grow rapidly. Margin Compression is another area of research for Eurex, originally highlighted by ESMA under the EMIR obligations; here, it is our goal to make the trading and clearing environment as member-friendly as possible while paying close attention to risk mitigation.

How can we react to the changes?

We have to keep our finger on the pulse of these changes. We do this by staying in close contact with our members who are frequently the source of good ideas. We also achieve this by planning according to the calendar of regulatory deadlines. These dates affect clients and can lead to a demand for standardized exchange-listed products to address the increasing capital demands placed on the sell and the buy side when opening large OTC positions. The ETF market has become a good leading indicator for thematic investment trends; that is why we analyze inflows and the growth of assets under management (AuM) across all issuers to determine if a new derivative may complement an ETF launch.

Do we have the right product offering for this new type of investments?

Product design is an evolving space; there are numerous ways to standardize OTC products. Driven by customer demand, there are also a number of index providers with whom we can collaborate to launch new futures and options. The balance we look to strike here involves many stakeholders: bank member firms, end clients and market-making liquidity providers, each of whom has an important input into the product design process. By following this guiding principle, new product launches are well supported, and we ensure there is an equally strong pipeline of products in development.

Which changes in product design have been necessary to provide long-term alternatives to the market?

Here I like to point to the case study of our Euro STOXX 50? Total Return Future. We took inspiration from the OTC total return swap market where it is a convention to quote in a basis point spread notation at the trading layer, and then later, Eurex converts this into a standardized futures notation at the clearing layer. I believe that this familiarity with the prevailing market convention led to easy adoption by our members and that is evidenced by the excellent volume and open interest growth experienced throughout 2017, 2018 and already again in early 2019. Given the success of our Total Return Future, members can anticipate an expansion and extension of this innovative product segment.

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