Eurex Dividend Derivatives
The safe and flexible way to trade dividends
Amsterdam May 26, 2011
May 2011
Eurex Dividend Derivatives
Agenda
• Eurex Dividend Index Futures
• Options on EURO STOXX 50® Index Dividend Futures (OEXD)
• Single Stock Dividend Futures
• Applications of dividend derivatives
• Market-Makers
• Further information and contacts
• Appendices
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2
May 2011
Eurex Dividend Derivatives
Evolution of the dividend market on Eurex
Launch of Eurostoxx 50
Index Dividend Futures
(FEXD)
Launch of 50 single
stock dividend futures
(Eurostoxx 50)
Jun 2008
Jan/Mar 2010
Change of SSDF
multiplier from 100 to
1000 underlying
shares
Launch of 13 UK single
stock dividend futures
Oct 2010
Feb 2011
Eurex dividend derivatives
Jun 2009
Launch of 4 additional
index futures (SMI, DAX,
Eurostoxx Select
Dividend, DivDAX)
May 2010
Launch of options on
Eurostoxx 50 Index
Dividend Futures
(OESX)
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Nov 2010
Launch of 10 Swiss single stock
dividend futures
3
May 2011
Eurex Dividend Derivatives
Eurex EURO STOXX 50® Index Dividend Futures
600,000
700,000
500,000
600,000
500,000
400,000
300,000
300,000
Open Interest
Traded Contracts
400,000
200,000
200,000
100,000
100,000
0
0
Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr08
08
08 08
08 08
08
09 09
09
09
09
09
09
09 09
09
09
09
10 10
10
10
10
10
10
10 10
10 10
10
11 11
11
11
Order Book Volume
OTC Volume
Traded Contracts in 2011
Traded Contracts Total YTD (as of May 01)
Daily Average Traded Contracts (year to date)
Open Interest
Value of Open Interest
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Open Interest
3,600,000
1,232,000
15,000
644,000
€7.8 billion
4
May 2011
Eurex Dividend Derivatives
EURO STOXX 50® Index Dividend Futures (cont.)
The majority of business is in the agent acc, assumed to be end-customer business
Principal
22%
Market Maker
27%
Agent
51%
• Good balance of product users with agency business initiating over 50 % of trades
• More than 90 exchange members are now trading the Euro STOXX 50® Index Dividend Futures
• Open interest is distributed along the whole curve, with around 80% share in maturities up to 2014
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May 2011
Eurex Dividend Derivatives
Contract specifications – Index Dividend Futures
Reference Equity Index
EURO STOXX 50® Index
Dividend Futures
EURO STOXX® Select
Dividend 30 Index
Dividend Futures
SMI® Dividend
Futures
DAX® Price Index
Dividend Futures
Div Dax® Dividend
Futures
Underlying Dividend
Points Calculation
EURO STOXX 50® DVP
EURO STOXX® Select
Dividend 30 DVP
SMI® Dividend
Points Index
DAX® Dividend
Points Index
Div DAX® Dividend
Points Index
Eurex Product ID
FEXD
FD3D
FSMD
FDXD
FDVD
Contract Value
EUR 100 per index dividend
point
EUR 100 per index
dividend point
CHF 100 per index
dividend point
EUR 100 per index
dividend point
EUR 1.000 per index
dividend point
Price Quotation
in points, with one decimal place
Minimum Price Change
0.1 index points, equivalent to a
value of EUR 10
Settlement
Contract Months
Transaction Fees
in points, with two
decimal place
0.1 index points,
equivalent to a value of
EUR 10
0.1 index points,
equivalent to a value
of CHF 10
0.1 index points,
equivalent to a value
of EUR 10
0.01 index points,
equivalent to a value
of EUR 10
Contract is cash settlement, all values payable on the first exchange day following the Final Settlement Date
The ten nearest successive
annual contracts of the
December cycle
The five nearest successive annual contracts of the December cycle
Regular Transactions:
EUR 1.20
CHF 1.80
EUR 2.00
OTC Block Trades:
EUR 1.80
CHF 2.40
EUR 3.00
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6
May 2011
Eurex Dividend Derivatives
Liquidity overview- EURO STOXX 50® Index Dividend Futures
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May 2011
Eurex Dividend Derivatives
Options on EURO STOXX 50® Index Dividend Futures –
Volume & Open interest
60,000
240,000
210,000
50,000
180,000
150,000
30,000
120,000
Open Interest
Traded Contracts
40,000
90,000
20,000
60,000
10,000
30,000
0
0
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Order Book Volume
Nov-10
OTC Volume
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
Open Interest
• At the end of April 157.000 contracts had been traded in total, with an ADV of 2.100
contracts
• More than 30 exchange members are now trading the options
• On June 1, 2011 a new market making scheme will come into effect to further increase
liquidity
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8
May 2011
Eurex Dividend Derivatives
Contract specifications – Options on EURO STOXX 50®
Index Dividend Futures
Underlying
EURO STOXX 50® Index Dividend Futures with an underlying of the EURO STOXX 50® DVP (Dividend Points Index)
Contract Value
1 x Dow Jones EURO STOXX 50® Index Dividend Futures at EUR 100 per 1.0 index dividend points of the underlying
Settlement
Cash settlement
Price Quotation and Minimum
Price Change
The Price Quotation is in points to two decimal places. The Minimum Price Change is 0.01 points.
Contract Months
The ten nearest successive annual contracts of the December cycle
Last Trading Day and Final
Settlement Day
Last Trading Day is the Final Settlement Day. Final Settlement Day is the third Friday of each December maturity
month if this is an exchange day; otherwise the exchange day immediately preceding that day.
Final Settlement Price
Based on the final value of the underlying DJ EURO STOXX 50® Index Dividend Futures
Exercise
European-style; exercise until the end of the Post-Trading Full Period (20:30 CET).
Exercise Prices
At least nine exercise prices shall be available for each expiry for each call and put, such that four exercise prices are
in-the-money, one is at-the-money and four are out-of-the-money.
Option Premium/Margining
The premium is settled using the options style method – typical of Eurex Options on Indexes.
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May 2011
Eurex Dividend Derivatives
Permanent Market Making - Options on EURO STOXX 50® Index
Dividend Futures
Minimum Contract Size
100 contracts
Bid range (index points)
Maximum spread (index
points)
Bid up to 3.99
4.00 – 19.99
Bid > 20
 0.80
 20 per cent
 4.00
Maximum Spread
Required Coverage
50 per cent of the total trading period on a monthly
average for calls and puts in five out of nine strikes
around the current index level. Asymmetric quotation is
allowed.
Expiry Range
Initial four expirations have to be covered
Incentive
100 per cent free rebate for trades on M-account from
June 1, 2011 until December 31, 2011, for fulfilling
monthly obligations and 50 per cent fee rebate for trades
on M-account from January 1, 2012 until December 31,
2012.
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10
May 2011
Eurex Dividend Derivatives
Evolution of the Single Stock Dividend Futures on Eurex
Launch of 50 single
stock dividend futures
(Eurostoxx 50)
Jan/Mar 2010
Launch of 13 UK single
stock dividend futures
(Barclays, BP, BT Group,
Diageo, GlaxoSmithkline,
Rio Tinto, Tesco,
Vodafone, Anglo
American, AstraZenca,
BHP Billiton, HSBC,
Royal Dutch)
Change of SSDF
multiplier from 100 to
1000 underlying
shares
Oct 2010
Feb 2011
Eurex dividend derivatives
Nov 2010
Launch of 10* Swiss single stock
dividend futures (Nestle, Novartis,
UBS, Credit Suisse Group, ABB
Ltd., Zurich Financial Services AG,
Schweizerische
Rückversicherungs-Gesellschaft
AG, Swisscom, Compagnie
Financiere Richemont and Roch
Holding AG)
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11
May 2011
Eurex Dividend Derivatives
Single Stock Dividend Futures – volume & open interest
800,000
120,000
600,000
400,000
60,000
Open Interest
Traded Contracts
90,000
*
200,000
30,000
0
0
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Order Book Volume
Nov-10
OTC Volume
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
Open Interest
* The multiplier has changed from 100 to 1000 underlying shares, effective October 1, 2010
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12
May 2011
Eurex Dividend Derivatives
Contract specifications – Single Stock Dividend Futures
Underlying
Annual Dividends of the components of the EuroSTOXX 50® Index
Price Quotation
Price Quotation in €, to three decimal places.
Contract Value
Contract Value is the Dividends of 1000 underlying shares (1000 x dividends per share)
Contract Years and
Reference Period
5 annual contracts are to be available at any time.
All contract maturities are based on the EuroSTOXX 50® Index Futures December cycle (third Friday).
Last Trading Day and Final
Settlement Day
Last Trading Day / Final settlement day is the third Friday of December of each year.
Close of trading in the maturing futures on the last trading day is at 12:00 CET.
Final Settlement Price
Contract is cash settled.
Calculation of the final settlement price is the final value of the sum of underlying cash/cash equivalent ordinary
dividends paid during the annual reference period before tax.
Minimum Price Change
0.001 points, EUR 1
Trading Hours
8:30 – 17:30 CET (12:00 CET on the Last Trading Day)
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13
May 2011
Eurex Dividend Derivatives
Contract specifications – Single Stock Dividend Futures (cont.)
• Annual dividend period
– For each contract the relevant Annual Dividend Period will be from (but excluding) the preceding
third Friday of December, to (and including) the final settlement date.
– Each dividend is determined as paid on ex-dividend date.
• Corporate Actions such as share splits etc. (excluding dividends) do reference the procedures of the
equity option/single stock futures at Eurex and will be treated in the same manner in the adjustment of
contract sizes and issuing of new contract series where necessary.
– As an exception, Eurex targets “home market” (IDEM) treatment of corporate actions for Italian
names.
• Where any such dividend is declared in a currency other than the settlement currency, then such
dividend shall be converted at the rate declared by the issuer or, if no such rate is available, at a rate
determined by Eurex Clearing AG in accordance with standard market practices.
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May 2011
Eurex Dividend Derivatives
Dividend Futures – product description
Fixed Amount
« Swap Level » or « Future Price »
Dividend Buyer
Dividend Seller
Floating Amount
« ISDA Qualifying Dividends » = «EUREX Settlement Price »
• Flow :
Number of Shares x
d
t
t
• dt : “Qualifying Dividend Amount ”
• Dividend period : 1 year Dec to Dec (third Friday)
Mechanism
Mechanism
Mechanism
• Taxation: Dividend Gross considered (before WHT or Tax Credit)
►
Dividends Futures = OTC Div Swap * Discount Factor
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15
May 2011
Eurex Dividend Derivatives
Dividend Futures – which dividends count
•
100% of declared dividends, paid either in cash or shares
•
Each dividend is determined as paid on ex-dividend date
•
Stock dividends are usually included at the equivalent cash amount
•
Dividends declared special or extraordinary by the issuer are usually excluded
•
Return of capital – follows the related exchange rules
•
Share buy-backs usually don’t count
Qualifying
Qualifying
dividends
dividends
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16
May 2011
Eurex Dividend Derivatives
Dividend derivatives - Why is it easier to trade listed
futures than dividend swaps?
Listed
Listed
Futures
Futures
•
No counterparty risk/No documentation required
•
More liquidity and transparency comparing to OTC
•
Standardized corporate action methodology, applicable for all equity related products
•
Underlying index to monitor accrued dividend
•
Possibility to monitor the history of implied dividends across market events
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17
May 2011
Eurex Dividend Derivatives
Dividend Derivatives – potential uses & applications
• Income Protection – allows investors to lock in expected & implied dividends to assure
income returns
• Hedging of Dividend Risk, particularly for structured products and equity options
• Directional Views on Dividends – trading of house views on earnings and distributions
Dividend
Derivatives
• Isolation of Price Return/Capital Growth on Equities
• Dispersion / Correlation – Trading single stock v index dividends
• Curve Trading – terms structures /calendar spreads
• Underlying for Dividend Linked Structures
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18
May 2011
Eurex Dividend Derivatives
Further information
Factsheets:
• www.eurexchange.com > Documents > Publications >
factsheet_single_stock_dividend_futures.pdf
Flyer:
• www.eurexchange.com > Documents > Publications > flyer_index_div_fut_en.pdf
Article & Survey:
• www.eurexchange.com > Documents > Publications > study_djeurostoxx50_div_fut.pdf
Webinfos:
• http://www.eurexchange.com/trading/products/DID_en.html
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May 2011
Eurex Dividend Derivatives
Contact us
Buy Side Relations Continental Europe
Lothar Kloster
Dimitar Dimitrov
Nicolas Kageneck
Juan Martini
Eurex Frankfurt AG
Neue Börsenstraße 1
60487 Frankfurt / Main
Germany
Eurex Frankfurt AG
Neue Börsenstraße 1
60487 Frankfurt / Main
Germany
Deutsche Börse AG
Representative Office France
17, rue de Surène
75008 Paris
France
Eurex Zürich AG
Selnaustrasse 30
8021 Zürich
Switzerland
P: +49 (0)69 2 11-1 72 89
F: +49 (0)69 2 11-61 72 89
lothar.kloster@eurexchange.com
P: +49 (0)69 2 11-1 82 33
P: +33 (0)155 2 76-7 76
F: +49 (0)69 2 11-61 82 33
F: +33 (0)155 2 76-7 50
dimitar.dimitrov@eurexchange.com nicolas.kageneck@eurexchange.com
www.eurexchange.com
P:+41 (0)58 3 99-28 14
F:+41 (0)58 4 99-24 66
juan.martini@eurexchange.com
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May 2011
Eurex Dividend Derivatives
Index dividend product construction
• Dividends included for the futures product are the gross ordinary cash dividends (or cash equivalent)
declared and paid by the individual equity components of each index, according to the index providers
rules
• Items described or determined as special dividends, extraordinary dividends and return of capital
payments etc. where the underlying price index is adjusted by the index provider are excluded from the
index dividend calculation.
• In the cases where the index is adjusted for only a part of the gross dividend amount, that portion
excluded from the adjustment will be included in the index dividend calculation (as would be the case of
the withholding tax element of special dividends with STOXX Ltd)
• The index divided futures contracts will be settled to the calculations of constituent dividends of the
relevant index. These dividend amounts will be calculated daily in terms of index point equivalents. The
calculation of dividends in index point terms will be, per individual constituent equal to:(gross ordinary cash dividend per share in the specified period) x (free-float adjusted shares*)
official index divisor**
• The final annual settlement value will be the summation of the index point equivalents for the days
relevant to that contract period. The dividend value will be calculated and published daily by the index
providers on a cumulative basis and the futures contract will cash settle to the determined final annual
value
• As noted the calculation is performed on a daily basis so constituents paying multiple dividends in an
annual period will have the index points calculated on each ex-dividend date based on the free-float
adjusted shares and the official index divisor relevant on those dates
* Where applicable a cap value as used in the index will also be applied
**The official index divisor is the SMI® Index for example is that as calculated and published by SIX Swiss Exchange Limited
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May 2011
Eurex Dividend Derivatives
Index dividend product construction
• Dividend Period - Index constituents generally pay all eligible ordinary cash dividends on an annual
basis. Thus the most suitable period is an annual contract (on a calendar basis) covering all ordinary
gross cash dividends paid in each calendar year. To equate to other Index Futures on Eurex the best
matched period for exchange trading is from the 3rd Friday in December to the 3rd Friday in December of
the following year. An investor seeking to replicate dividends for say a three year period would do so by
entering into a strip of the three annual contracts
• The Index Dividend Amount – will be calculated on each day during the term of the contract period i.e.
from but excluding the 3rd Friday in December to and including the 3rd Friday in December of the
settlement year. The calculation for ordinary dividends will be based on the following formula:
n
Index Dividend Amount, DAt =
Σd
it
. sit . ffit . cfit
i=1
where:
t = day/time on which the amount is calculated (every business day)
n = the number of companies in the index
i = individual company being a constituent of the index
dit = the cash dividends (or the declared cash equivalent as announced) (d) in respect of each share of company i which
is a constituent of the index paid on that day t or that day (t) being an ex-dividend date as appropriate, or zero if
no amount is applicable
sit = the number of shares outstanding in company (i) in respect to that day (t)
ffit = the free float factor of company (i) in respect of that day (t)
cfit = [if any] weighting cap factor of company (i) at day (t)
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May 2011
Eurex Dividend Derivatives
Index dividend product construction
• Index Dividend Points – the Index Dividend Amounts calculated on this daily basis as noted above are
then converted into index point equivalents in respect of each day, by dividing the daily Dividend Amount
by the Index Divisor. Index Dividend Points are calculated on the following formula:
DAt
Index Dividend Points DPt =
DAt =
Dt =
Dt*
the dividend amount on that day (t)
the official index divisor as calculated and published by the index provider at day/time (t)
Note: where STOXX Ltd makes an adjustment the Dow Jones Euro STOXX 50® index for part of a dividend value, the
unadjusted part of that dividend value is still included in the final settlement. For example if a dividend has a gross value of
4.0 index points and STOXX Ltd makes a net adjustment of 3.2 index points, only the unadjusted amount of 0.8 index
points will be incorporated into the final settlement value of the index dividend contract
• The Final Settlement Value of the futures contract is the summation of the calculated Index Dividend
Points for each day (t) during the contract period i.e.
T
Index Dividend Value =
Σ DP
t
t =1
where:
T = Contract period (in days)
Note: each annual contract period runs from (but excludes) the third Friday in December of the preceding year to (and
includes) the third Friday in December of the expiry year)
* Official Index Divisor
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May 2011
Eurex Dividend Derivatives
© Eurex 2011
Deutsche Börse AG (DBAG), Clearstream Banking AG (Clearstream), Eurex Frankfurt AG, Eurex Clearing AG (Eurex Clearing) as well as Eurex
Bonds GmbH (Eurex Bonds) and Eurex Repo GmbH (Eurex Repo) are corporate entities and are registered under German law. Eurex Zürich AG is a
corporate entity and is registered under Swiss law. Clearstream Banking S.A. is a corporate entity and is registered under Luxembourg law. U.S.
Exchange Holdings, Inc. and International Securities Exchange Holdings, Inc. (ISE) are corporate entities and are registered under U.S. American
law. Eurex Frankfurt AG (Eurex) is the administrating and operating institution of Eurex Deutschland. Eurex Deutschland and Eurex Zürich AG are in
the following referred to as the “Eurex Exchanges”.
All intellectual property, proprietary and other rights and interests in this publication and the subject matter hereof (other than certain trademarks and
service marks listed below) are owned by DBAG and its affiliates and subsidiaries including, without limitation, all patent, registered design, copyright,
trademark and service mark rights. While reasonable care has been taken in the preparation of this publication to provide details that are accurate and
not misleading at the time of publication DBAG, Clearstream, Eurex, Eurex Clearing, Eurex Bonds, Eurex Repo as well as the Eurex Exchanges and
their respective servants and agents (a) do not make any representations or warranties regarding the information contained herein, whether express
or implied, including without limitation any implied warranty of merchantability or fitness for a particular purpose or any warranty with respect to the
accuracy, correctness, quality, completeness or timeliness of such information, and (b) shall not be responsible or liable for any third party’s use of
any information contained herein under any circumstances, including, without limitation, in connection with actual trading or otherwise or for any errors
or omissions contained in this publication.
This publication is published for information purposes only and shall not constitute investment advice respectively does not constitute an offer,
solicitation or recommendation to acquire or dispose of any investment or to engage in any other transaction. This publication is not intended for
solicitation purposes but only for use as general information. All descriptions, examples and calculations contained in this publication are for illustrative
purposes only.
Eurex and Eurex Clearing offer services directly to members of the Eurex exchanges respectively to clearing members of Eurex Clearing. Those who
desire to trade any products available on the Eurex market or who desire to offer and sell any such products to others or who desire to possess a
clearing license of Eurex Clearing in order to participate in the clearing process provided by Eurex Clearing, should consider legal and regulatory
requirements of those jurisdictions relevant to them, as well as the risks associated with such products, before doing so.
Eurex derivatives (other than EURO STOXX 50® Index Futures contracts, EURO STOXX® Select Dividend 30 Index Futures contracts, STOXX®
Europe 50 Index Futures contracts, STOXX® Europe 600 Index Futures contracts, STOXX® Europe Large/Mid/Small 200 Index Futures contracts,
EURO STOXX® Banks Futures contracts, STOXX® Europe 600 Banks/Industrial Goods & Services/Insurance/Media/Personal & Household
Goods/Travel & Leisure/Utilities Futures contracts, Dow Jones Global Titans 50 IndexSM Futures contracts, DAX® Futures contracts, MDAX®
Futures contracts, TecDAX® Futures contracts, SMIM® Futures contracts, SLI Swiss Leader Index® Futures contracts, Eurex
inflation/commodity/weather/property and interest rate derivatives) are currently not available for offer, sale or trading in the United States or by United
States persons.
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