Eurex expansion into FX derivatives Press Briefing 16 June 2005 - - PowerPoint PPT Presentation

Eurex expansion into FX derivatives

Press Briefing 16 June 2005 Chicago

2 Eurex expands into FX derivatives Press Briefing, 16 June 2005

Agenda

• FX Market and Opportunity for Eurex

(Rudolf Ferscha)

• Eurex FX Products Offering

(Satish Nandapurkar)

• Eurex Business Development in the U.S.

(Peter Reitz)

• Summary

(Rudolf Ferscha)

3 Eurex expands into FX derivatives Press Briefing, 16 June 2005

FX Market: Globally relevant

With increase in globalization and interdependencies, currencies are

influenced by multiple political and economic factors and in turn, affect interest rate and equity markets

Eurex is a market leader in interest rate, equity and index derivatives FX is the only major financial product and asset class that is not

represented on Eurex

Entering FX is a natural step for Eurex to expand its portfolio FX’s recent increase in popularity makes this a timely move

EuroSTOXX (6m) Bund Future (6m) EUR - USD Spot (6m)

4 Eurex expands into FX derivatives Press Briefing, 16 June 2005

FX Market: Large, global and growing

• In 2004, Bank for International Settlements (BIS) estimated the foreign exchange

market at $1.9 trillion daily notional turnover

• Turnover was measured to be distributed around the globe, with larger volumes

coming from Europe than North America and Asia

• Overall market growth is being driven by many factors:

– Increasing use of FX as an asset class – Dedicated currency management strategies becoming increasingly commonplace in Europe and the U.S. – Increasing use of electronic trading by financial institutions – Increasing number of market participants gaining access to interbank prices via electronic trading platforms

Growth In Foreign Exchange Market

200 400 600 800 1000 1200 1400 1600 1800 2000 1989 1992 1995 1998 2001 2004

Market Turnover (US$ bn)

Outright Forwards Spot Trades Foreign Exchange Swaps Foreign Exchange Futures

5 Eurex expands into FX derivatives Press Briefing, 16 June 2005 Tier II/III Banks Corporates Institutional Investors/CTAs Individuals/ Prop Firms Hedge Funds

Traditional buy-side

White labeled product

Liquidity takers Intermediaries Liquidity providers

IDBs Reuters EBS (Bloomberg)

Interbank Market

FCMs Futures Market

Forward prices as basis for Futures Market

Interbank market intermediaries

Prime Brokerage FX Sales Desks Multi-Bank Portals (e.g. Hotspot, FX All, FX Connect Single Bank Portals (exclusive distribution platforms)

Global Bank Global Bank Global Bank Market participants Intermediaries

FX Market: Fragmentation across multiple venues leaves development space for new distribution channels

6 Eurex expands into FX derivatives Press Briefing, 16 June 2005

Customer environment is changing rapidly and FX market is moving towards an Exchange Model

– Volumes are increasing as currency risk is more actively managed and FX establishes itself as an asset class on its own – Access to interbank prices is easier – Hedge funds and proprietary trading firms are beginning to import trading strategies into FX due to easier access and higher transparency – Demand for liquidity exceeds supply – Medium-to-small sized banks outsource liquidity provision and IT to large sell-side banks but continue to provide FX execution services to their clients via white labeling – Large global banks act as liquidity providers across numerous FX trading venues – Integration of fragmented electronic trading liquidity pools via front-end applications is leading to narrowing spreads/margins – Growing buy-side volume partially offsets margin compression and reduced profits – High portion of fixed IT costs requires increasing market share to stay profitable – Additional order flow is acquired by providing in-house platforms white-labeled to medium-to-small sized banks

Sell Side Buy Side

7 Eurex expands into FX derivatives Press Briefing, 16 June 2005

Substantial growth potential in migrating OTC FX markets to exchange traded futures platform

500 1,000 1,500 2,000 Spot Forwards FX Swaps Other Futures Traditional OTC FX Exchange Traded 2% $ BN per day

8 Eurex expands into FX derivatives Press Briefing, 16 June 2005

Eurex will leverage 23 hour trading capability on Eurex US for entry into the FX market at marginal cost

• Strong customer demand for Eurex to offer FX trading
• Eurex’s US regulated exchange already offers worldwide access with trading

from 5pm Chicago time to 4pm the next day

• The proven, highly reliable Eurex US platform provides all the functionality

FX traders need

• Eurex market model meets currently unfulfilled needs of FX traders

– Anonymous, all electronic trading and complete market transparency – Open access on a level playing field – Low fees for all participants across all geographies – Market practices synergistic with OTC market place

• The Clearing Corporation in Chicago, with its clearing member firms, will

provide clearing and settlement services

• Global Clearing Link functionality will expand European participation

9 Eurex expands into FX derivatives Press Briefing, 16 June 2005

Agenda

• FX Market and Opportunity for Eurex

(Rudolf Ferscha)

• Eurex FX Products Offering

(Satish Nandapurkar)

• Eurex Business Development in the U.S.

(Peter Reitz)

• Summary

(Rudolf Ferscha)

10 Eurex expands into FX derivatives Press Briefing, 16 June 2005

FX market entry strategy was based on feedback from many different customer groups

FX is a fragmented and growing marketplace with customers seeking greater

liquidity across multiple venues

Many firms today are in the process of establishing or expanding their FX

trading operations and have not yet decided on their trading platforms

Price discovery is primarily OTC today Deep liquidity is provided by a handful of global banks who stream prices to

multiple FX e-platforms and are supportive of a Eurex entry into the market

Physical delivery of the underlying is inexpensive and risk free Cost is a major factor in the choice of execution platform

11 Eurex expands into FX derivatives Press Briefing, 16 June 2005 Trading fees will be very competitive with OTC trading platforms and

significantly lower than other futures markets for both electronic trades and EFPs (especially on a per million $ of notional traded basis)

FX futures will launch September 23 and provide substantial benefits for end users

Futures contracts will be listed initially on the major G7 currencies A larger contract size of 250,000 notional, reflecting market demand, will

provide traders greater profit potential at less cost

Contracts will be quoted consistent with spot quoting conventions, increasing

transparency, with smaller minimum quoting increments reducing spreads for end users

Straight Through Processing of EFPs will be provided via remote access to the

CCorp ACT System

Fee Schedule

A generous multi-year incentive program will reward supporters who

consistently provide liquidity and proprietary order flow from the start

Eurex and Eurex US sales teams will coordinate to actively market the products’

attractiveness, liquidity and cost savings to end users and their combined membership bases worldwide

Market Readiness Product Design

12 Eurex expands into FX derivatives Press Briefing, 16 June 2005

USD Currency Pairs: Cross-Currency Pairs:

EUR/USD USD/CHF EUR/JPY GBP/JPY AUD/USD USD/JPY EUR/GBP GBP/USD USD/CAD EUR/CHF

Eurex will offer the most actively traded currency pairs

Contract specifications address customer demand for larger, more cost-efficient, OTC friendly products

– Contract size of 250,000 – Quoting conventions consistent with spot markets – Half ticks in the USD/GBP and EUR/GBP currency pairs – Electronic calendar spreads with the ability to roll in one fifth of a tick increments – Straight-through processing of EFPs with competitive pricing – Netting of settlements between currency and cross-currency pairs

13 Eurex expands into FX derivatives Press Briefing, 16 June 2005

All participants will benefit from attractive fees which will significantly lower their execution costs Multi-year incentive programs will reward early supporters

• End users and customers will be charged just 50c per contract side* which should bring

their all-in electronic execution costs down to $5-$8 per million notional traded

• Member firms will be charged 10c per contract side for their proprietary trading activities

with no membership purchase requirement

• EFP fees on Eurex US will be lowered to just $2 per million per side
• All fees for all participants will be waived in 2005

Market Makers Early Volume Adopters

• Requires continuous on-screen two-way quoting in multiple currency

pairs with a monthly volume requirement

• Thresholds increase over time
• Will receive full fee waivers and volume pro-rata revenue sharing
• Requires consistent trading volume on a daily basis
• Volume thresholds will increase over time
• Will receive 50% fee waivers and volume pro-rata revenue sharing
• There is no limitation to the number of firms participating

14 Eurex expands into FX derivatives Press Briefing, 16 June 2005

Diversified Order Flow is expected from the start from a variety of market participants globally

Market Makers

Global Banks and Automated Trading Firms provide streaming prices and

• rder book depth

Proprietary Traders Hedge Funds and CTAs Retail Traders Other End Users

15 Eurex expands into FX derivatives Press Briefing, 16 June 2005

Provide preferred U.S. regulatory environment and 60/40 tax treatment to U.S. customers Utilize connectivity to proven U.S. clearing infrastructure Provide USD product capability and an immediate launch environment for globally traded products on existing 23h trading platform Utilize experienced U.S. sales team to increase volume in U.S. and European products leveraging a U.S. membership community (145+ members), 40+ unique to Eurex US Leverage Eurex US relationships and connectivity with 25+ proven market making banks and trading firms for new product liquidity Provide greatly expanded U.S. remote clearing capability via ongoing promotion of Global Clearing Link Phase 1

Eurex will continue to leverage assets built in the U.S. to enhance the Eurex Global Liquidity Network

Clearing Access Distribution Liquidity Global Clearing Link Regulatory License Clearing Access Trading System Distribution Liquidity Global Clearing Link

16 Eurex expands into FX derivatives Press Briefing, 16 June 2005

• Existing Treasury products will remain listed but no new sales, marketing, or

incentive programs for US Treasury products will be initiated; Market maker stipends insuring good liquidity will remain in place until end of the third quarter

• Original risk sharing agreements with equity partners continue and

guarantee revenues of $18mn by the end of 2006

• Resources dedicated to US Treasury products will be eliminated or

reallocated to more promising opportunities

–

Overall headcount in Chicago has been reduced from 34 at launch to 26

• Eurex US will continue to pursue antitrust litigation against CBOT and CME

–

Predatory pricing

–

Attempting to preclude Eurex US from using CCorp as its clearinghouse

–

Illegal efforts to delay regulatory approval of the Eurex US exchange application, as well as the Global Clearing Link

Focus of resources will be on Index and FX products

17 Eurex expands into FX derivatives Press Briefing, 16 June 2005

• Utilizing proven CCorp infrastructure and services for clearing and

settlement

• Working with Eurex to consolidate technology so that both exchanges run
• n a single 23 hour capable platform with a single member network
• Coordinating with Eurex’s sales force in Europe to market U.S. products

to European customers

• Leveraging an experienced staff in Chicago with headcount of only a

dozen people beyond that of a Representative office

Eurex US will provide benefits to customers for costs just incrementally greater than previous representation in the U.S.

Eurex US is focused on sustaining the lowest fees for our customers in the products they desire

18 Eurex expands into FX derivatives Press Briefing, 16 June 2005

Agenda

• FX Market and Opportunity for Eurex

(Rudolf Ferscha)

• Eurex FX Products Offering

(Satish Nandapurkar)

• Eurex Business Development in the U.S.

(Peter Reitz)

• Summary

(Rudolf Ferscha)

19 Eurex expands into FX derivatives Press Briefing, 16 June 2005

Eurex is winning new clients through Eurex US - Direct US customers doubled in 2004

6 20 38 50 57 63 66 68

2

20 40 60 80 100 120 140 1996 1997 1998 1999 2000 2001 2002 2003 2004 124

20 Eurex expands into FX derivatives Press Briefing, 16 June 2005

Global Clearing Link allows Eurex to leverage CCorp’s customer connectivity in the U.S.

Remote Clearing introduced Global Clearing Link launched 3 13 14 20 28 63 10 20 30 40 50 60 70 80 90 100 2000 2001 2002 2003 2004

Number of Eurex Remote Clearing Members CCorp Clearing Participants

Phase 1 of Global Clearing Link established direct access for CCorp Clearing Participants to Eurex

21 Eurex expands into FX derivatives Press Briefing, 16 June 2005

U.S. expansion is a major factor in driving Eurex benchmark products to record levels

January through May 2005: Bund futures/ options on Bund futures/ Schatz futures Dow Jones EuroSTOXX futures and options DAX futures and options Equity options May 2005: Bund, Schatz & Bobl futures/ options on Bund futures Dow Jones EuroSTOXX futures and options DAX options Equity options

Volume Records Open Interest Records

22 Eurex expands into FX derivatives Press Briefing, 16 June 2005

U.S. Participants’ Market Share of Dow Jones EuroStoxx 50 Future Contracts

4.000.000 8.000.000 12.000.000 16.000.000 20.000.000

1 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 91011121 2 3 4 5 1999 2000 2001 2002 2003 2004 2005

0% 5% 10% 15% 20% 25% 30%

US

• ther countries

share US Linear (share US)

23 Eurex expands into FX derivatives Press Briefing, 16 June 2005

Turnover potential from the U.S. through extension of trading hours

Customers are demanding time zone extension and the Eurex system is now capable of covering additional hours

20.000 40.000 60.000 80.000 100.000 120.000 140.000 160.000 3 p.m. 4 p.m. 5 p.m. 6 p.m. 7 p.m. 8 p.m. 9 p.m. 10 p.m.

CET # of traded contracts per hour

20.000 40.000 60.000 80.000 100.000 120.000 140.000 3 p.m. 4 p.m. 5 p.m. 6 p.m. 7 p.m. 8 p.m. 9 p.m. 10 p.m.

CET # of traded contracts per hour

Current Eurex Trading Hours* Extension 11 p.m. 11 p.m. Current Eurex Trading Hours** Extension

Intraday volume distribution S&P 500 Future Intraday volume distribution 10yr Treasury Future

31 % of daily volumes of S&P 500 futures executed after close of business on Eurex 22 % of daily volumes of 10yr Treasury futures executed after close of business on Eurex

* Eurex Trading Hours for equity index products ** Eurex Trading Hours for European fixed income products

24 Eurex expands into FX derivatives Press Briefing, 16 June 2005

Successful start of Russell index products

Overall market share vs. CME in Russell products is averaging 8%, with

Russell 1000 market share averaging 41% and Russell 2000 averaging 7%

Joint marketing with retail futures brokerage firms to promote Russell products

• n Eurex US established

Continued cooperation with retail and introducing brokers as well as

institutional clients

25 Eurex expands into FX derivatives Press Briefing, 16 June 2005

Global Clearing Link – Benefits for Eurex

Lower clearing costs for U.S. based participants of Eurex

– Reduction of overall transaction costs will create further volume growth from the US

Lower entry barriers for U.S. participation due to direct clearing access

via U.S. clearing house

– Additional U.S. members for Eurex will further stimulate growth on Eurex’s markets – GCL offers greater flexibility for global players, while reducing market entry barriers for smaller firms. – GCL allows extension to 23hr trading of Eurex products – GCL allows local jurisdiction access to trading and clearing global benchmark products

Phase II of the Global Clearing Link will

– Create for the first time a fully fungible market across the Atlantic – Allow members of Eurex Clearing to clear all products traded at Eurex US and use

• ne common collateral pool to portfolio-margin European and U.S. products

FX products will benefit from Global Clearing link through broadened

participation

26 Eurex expands into FX derivatives Press Briefing, 16 June 2005

Agenda

• FX Market and Opportunity for Eurex

(Rudolf Ferscha)

• Eurex FX Products Offering

(Satish Nandapurkar)

• Eurex Business Development in the U.S.

(Peter Reitz)

• Summary

(Rudolf Ferscha)

Eurex expansion into FX derivatives

Press Briefing 16 June 2005 Chicago