Euronext, a wholly owned subsidiary of IntercontinentalExchange Group (NYSE: ICE), today announced that it will be the world’s first regulated market to launch a complete centrally cleared solution to facilitate the trading of Exchange for Physicals (EFP) on index futures. The service will be available in a first instance on CAC 40® and AEX-Index® Futures and is expected to be fully operational in the first quarter 2015.
This new EFP solution offers clients the ability to trade CAC 40 and AEX-Index® Futures simultaneously against their underlyings, concentrating liquidity in a fully transparent central order book supported by a market making scheme. The service is a fully automated straight-through process which totally eliminates the current administrative burden for customers and its related execution risk.
EFP trading on Euronext’s regulated market will use LCH. Clearnet SA as the CCP, thereby facilitating the clients’ post-trade obligations and reporting. Clients will have access to the facility through their existing connection to cash and derivative markets.
Adam Rose, Head of Financial Derivatives at Euronext, said, “We would like to thank all three supporters, BNP Paribas, Credit Suisse and Societe Generale, who contributed to this innovative project and successfully helped to bring it to fruition. The EFP solution eliminates execution risk and operational burdens for our clients while providing full price transparency and transfer of counter party risk. This is an important initiative for Euronext in our efforts to build out our derivatives business in order to respond to client needs, and we are very proud to be the first exchange to be able to offer this service on index futures.”
Background
- An Exchange for Physicals is a transaction involving the simultaneous exchange between two parties of a futures position and its underlying asset(s). EFPs based on index futures are transactions made on the basis of the difference between the index futures price and the spot price of the index
- Currently EFPs are traded OTC, and the futures leg of the transaction can be reported on Euronext’s Basis Trade Facility for the Derivatives markets, with reference to its associated cash legs.
- Euronext’s new EFP Facility for index futures will allow EFPs to be traded directly via UTP (Universal Trading Platform) on the Derivative Central Order book, operating a simultaneous trade in index futures contracts and the corresponding basket of shares on Euronext’s regulated Cash Markets.