Eurex is introducing a new market making model for European equity options trading from 1 January 2005. Eurex will introduce continuous quotation for all European equity, index and EXTF options, with the aim of attracting additional order flow which is currently traded over-thecounter.
“Our new market maker model will further increase liquidity and transparency in pan-European equity options trading, resulting in tighter spreads and better execution,” says Rudolf Ferscha, CEO of Eurex. “Eurex offers investors the broadest spectrum of equity options, derivatives on Euro STOXX 50 components and the most comprehensive portfolio of European sector derivatives.”
Eurex offers equity options on 44 Euro STOXX 50 components. These equities account for about 86 percent of the market capitalisation of the index.
The new market making model consists of three tiers. In addition to the existing Regular Market Making, with market makers responding to quotes, Eurex will offer market participants Permanent Market Making and Advanced Market Making for all its European equity and equity index options. Permanent Market Making will require market makers to quote continuously for equity or equity index options. Currently, Permanent Market Making is available for selected equity and equity index options only.
The newly introduced Advanced Market Making entails continuous quotation for pre-defined groups of equity and index options. Market makers can opt for six packages:
Eurex Advanced Market Making Model:
Dow Jones Euro STOXX 50Option on Dow Jones Euro STOXX 50Equity options on Dow Jones Euro STOXX 50 index components
DAXOption on DAXAll equity options on DAX index components
SMIOption on SMIAll equity options on SMI index components
Dutch equity optionsAll Dutch equity options listed on Eurex
French equity optionsAll French equity options listed on Eurex
Italian equity optionsOption on Dow Jones Italy Titans 30 indexAll Italian equity options listed on Eurex
Options trading is supported by the electronic Strategy Wizard facility introduced in the latest Eurex software Release 7.0 in November.
“This functionality helps traders to better manage their options exposure and to create tailor-made options trading strategies,” says a Eurex spokesman. “Key parameters of each strategy can be defined in line with the specific trading needs. The Strategy Wizard facilitates trading of up to 45 predefined strategies.”