Europe’s equity derivatives market has historically been “dominated by national exchanges each of which have primarily focused on their domestic market, requiring participants to connect to multiple exchanges and clearing houses to achieve pan-European coverage.”
Cboe Europe Derivatives (CEDX), which launched in 2021, has taken a different approach with the aim of lowering “the barriers to entry for firms wishing to trade European derivatives and reverse a decade or so of stagnant volumes in European products compared to those in other developed markets.”
Through one exchange and clearing house, CEDX offers “a single access point to pan-European products, helping to reduce operating costs and improve capital margin efficiencies.”
Furthermore, it is promoting the adoption of “more screen-based liquidity to attract new participants, particularly systematic firms, who have been deterred by the predominance of OTC style/off-screen trading in European options.”
CEDX launched with a range of futures and options “on Cboe Europe single country and pan-European equity indices. It expanded its product universe in November 2023 to include pan-European single stock options with the support of leading participants including ABN AMRO Clearing, All Options, Barak Market Making B.V., Goldman Sachs, Morgan Stanley and Susquehanna International Securities.”
In addition, Interactive Brokers has also “committed to connecting to CEDX to provide its clients with access to the suite of pan-European equity derivatives offered by the exchange, including single stock products.”
To continue its growth momentum, CEDX is collaborating with IPC “on multiple fronts to deliver further and greater efficiencies with respect to efficient market access.”
Iouri Saroukhanov, Head of European Derivatives at Cboe Europe, and John Owens, Director Global Exchange Relations at IPC to elaborate “on their industry collaboration.”
The overwhelming trend in European derivatives markets “over the past decade has been its poor performance compared to other major markets in terms of volumes and liquidity. Despite having similar levels of GDP, volumes in US options markets have surged over the last decade while those in Europe have remained flat.”
This creates problems for participants and end investors and “undermines the overall health of European capital markets.”
As noted in the update:
“We believe the reasons for Europe’s weak growth in derivatives are the fragmented nature of its market structure, predominance of off-screen trading and inability to attract retail investors in the same way as other markets. These factors have all contributed to an environment of high operating costs and weak capital and margin efficiencies. New entrants – particularly those accustomed to highly liquid options markets in the US and retail investors – have been deterred from coming to Europe.”
It is against this backdrop that CEDX came to fruition, “drawing on Cboe’s leadership position and expertise in US derivatives, our world-class technology and ownership of the largest pan-European stock exchange and most-connected CCP.”
These factors have allowed Cboe to create “a truly unique proposition for European equity derivatives in the form of CEDX.”
At the centre of CEDX’s value proposition “is its pan-European eco-system – in terms of trading, clearing, and market data – that simplifies access to and dramatically reduces costs for those wishing to access European derivatives products. This removes the need for market participants to connect to multiple domestic venues and clearers, streamlining operations and reducing complexities.”
IPC’s overarching focus and commitment is “to continuously enhance connectivity and communication in global financial markets. In collaboration with exchanges including CEDX, other trading venues and data services, IPC creates and builds solutions and services that enhance the trading experience of a ‘connected’ global trading network of more than 200,000 market participants in 70+ countries.”
IPC’s partnership with CEDX is focused “on a specific exchange strategy aimed at enhancing market access and user connectivity through data center colocation and associated services.”
The collaboration strengthens market participants’ ability “to navigate through – and capitalize on – the opportunities presented by the European equity derivatives markets.”