Eurex to launch dividend futures on single stocks

Eurex to launch dividend futures on single stocks

22/12/09

The international derivatives exchange Eurex announced that it will offer futures contracts based on particular dividends of individual shares from 11 January 2010. Eurex will launch Dividend futures on the constituents of the Dow Jones EURO STOXX 50. Following the successful introduction of the index dividend futures on the Dow Jones EURO STOXX 50 in June 2008, Eurex further expands its offering. Thus, for the first time in Europe the pure dividend component of the underlying stocks of a benchmark equity index are available for exchange trading and clearing as a stand-alone product.

Peter Reitz, member of the Eurex Executive Board, said: “The listing of our new single stock dividend futures reflects the demand by investors for exchange-traded and centrally cleared products. With these new instruments investors can participate in the performance linked to the dividend element of a share and equity derivates trader can hedge against a substantial component of their risk. The growing interest in dividend products has already been demonstrated by the very positive response to our listed index dividend futures.”

Eurex is introducing these products to enable investors to hedge or trade the dividends that are announced and paid by the individual index constituents in each year. The separate exchange listing of this dividend element will improve possibilities for risk management and increases transparency on one of the fundamental elements determining a shares value.

Introduced in June 2008 the Dow Jones EURO STOXX 50 Index Dividend Futures currently trades around 10,000 contracts daily, year-to-date almost 2.5 million contracts were traded. Open interest stands at over 480,000 contracts (representing circa €5 billion of notional dividend value). BNP Paribas Arbitrage and Société Générale currently act as market makers in these futures; over 50 members in total are currently active and trading.

Eurex will initially introduce dividend futures on 25 of the constituent components of the Dow Jones EURO STOXX 50. Hence, investors can manage their exposure to the 2010 dividend period. Eurex will offer annual contracts in each name from December 2010 out to December 2014 that will settle to the value of the dividends paid in the annual period to that date. With the introduction of the dividend futures, Eurex aims to work closely with the current market participants and to attract new entrants to the asset class.