17 SEPTEMBER 2019

Borsa Italiana Focuses on Derivatives Innovation

Nicolas Bertrand, head of equity and derivatives markets at the London Stock Exchange Group, said Borsa Italiana’s derivatives business will focus on product innovation as it tries to close the gap with Deutsche Boerse and Liffe.

Link

IDEM, the derivatives segment of Borsa Italiana which marked its 20th year in business in 2014, reported total trading volumes of 38.9 million contracts in 2014. Average daily volume last year was 155,535 contracts with daily turnover of €4.8bn, 54.1% higher than in 2013.

Bertrand told Markets Media that derivatives trading volume in Italy increased 21% last year, one of the highest growth rates in Europe. “The first months of 2015 are confirming that trend of growth with an average of 168,000 contracts traded per day, and strong growth in index derivatives on a year-by-year basis for January and February.”

He said that one of the reasons for growth last year was the strong interest from institutional investors as the exchange worked to increase liquidity and introduce products that met their needs.

Last October Borsa Italiana launched weekly single-stock options allowing investors to take positions on specific shares with a shorter-term horizon. In May 2013 IDEM had launched new futures on the dividends of single European blue-chip stocks.

“We had a program of engagement with the market and launched new products such as the weekly single-stock options, that in the last few weeks have started to generate volumes,” added Bertrand. “In the last few days trading activity has been more than 1,000 lots per day, which is around 10% of the daily volumes of the respective underlying.”

Borsa Italiana’s derivatives segment also includes IDEX, a market for electricity derivatives and Agrex, a segment for agricultural derivatives which currently trades futures in durum wheat, used to make pasta.Trading and clearing fees on the new weekly single-stock options were waived until the end of this month.

Bertrand said that the exchange is looking to introduce new agricultural products to complement the durum wheat futures. It is also possible that Borsa Italiana could launch derivatives in new asset classes.

“We are always looking for opportunities for new asset classes but at the moment the fixed income market is concentrated in the Bund and Euribor,” he added.

Derivatives trading in Europe is currently dominated by Eurex at Deutsche Boerse and Liffe at ICE.

“This year we will be focusing on product innovation and there are many assets that the group can leverage. Inevitably there will be an element of experimentation but we are confident we will find contracts that attract strong interest in London as we have in Italy,” he said.

Bertrand believes that IDEM will also benefit from its large retail market, where Italian brokers were early adopters of online trading. For example, Directa, an Italian broker, celebrated its 20-year anniversary by opening trading on the London Stock Exchange in February. Directa had begun to provide Italian retail customers with trading services using a non-internet modem-based proprietary system in March 1996.

“In 2015 we have a comprehensive set of derivative products for Italian stocks and our aim is to increase liquidity in these products and develop membership,” said Bertrand.

He added that at least half of the trading activity on IDEM comes from remote members who connect from overseas and so the Italian exchange benefits from being part of the wider London Stock Exchange Group.

The London Stock Exchange Group is changing its year-end from March to December and said in its results last week that the UK derivatives market has received regulatory approval to offer stock, depositary receipt and index options to US investors.

Analysts at Barclays said in a report following the results that the exchange’s adjusted operating profits of £558m, up 16% year-on-year were in with their forecast of £556m. “The company’s strong top-line growth continues to impress with 12% organic revenue growth but only 5% organic cost growth. We believe the recent improved diversification in the name is attractive and growth prospects into 2015 are strong,” added Barclays.

The analysts said the group is well positioned to build on its success with increased product range and geographic reach such as the new portfolio margining service between listed and cleared over-the-counter rates products, the partnership with CBOE to launch US index options on Russell and FTSE Indices and the increase electronic fixed income trading.

Barclays said that between 2009 and 2014, the London Stock Exchange group’s proportion of revenues coming from Capital Markets has fallen from 54% to 26% while over the same time period the Information and Post Trade division’s revenues have grown from 43% to nearly 70%.

“Open-access clauses of MIFIR which take effect from 2016 could be very important in allowing LCH to compete in the exchange traded clearing pools of Liffe and Eurex,” added Barclays.