News review : Futures & derivatives

EUREX GETS GREEN LIGHT FROM CFTC FOR ESG FUTURES.

Eurex, one of the world’s largest derivatives exchanges, has received approval from the Commodity Futures Trading Commission (CFTC) to offer its sustainable futures in the US. This gives US based investors that apply environmental, social and governance (ESG) criteria direct access to hedging instruments for their portfolios. The new futures will be available in the US starting 8 April.

The exchange first launched ESG futures in Europe in February. They have since grown to around 20,000 contracts while open interest currently amounts to almost 15,000 contracts. There are currently five market makers offering onscreen prices for all three contracts.

These new types of futures help market participants address the challenges and opportunities of ESG, which has become increasingly popular in investment decision-driven asset management. The futures are based on the STOXX benchmarks and cover ESG exclusions, low carbon and climate impact.

At the time of the launch STOXX head of product, Inderpal Gujral, said that climate change is not a short-term trend, but a long-term commitment by governments, the financial industry and investors globally. “At STOXX, we provide both benchmarks and underlyings for exchange traded futures that offer an ESG norm, meeting the market’s needs,” he added.

Michael Peters, member of the Eurex executive board. Also noted that “the importance of ESG information is constantly increasing as sustainable investing is becoming more attractive for investors worldwide,” he says. “This is why we went ahead with our ESG derivatives launch to enable us to manage sustainable risks. We are so far very pleased to see several buy-side firms embracing our new products.”

He added, “ESG futures listed in the Nordics have been successful but they are mostly considered as a regional product. STOXX indices are European benchmarks with a strong footprint within the buy side community. The underlying ESG indices for the Eurex futures are highly correlated to the EURO STOXX 50 and EURO STOXX 600 indices, hence the listed ESG futures have the potential to become European benchmarks in the ESG space.”

He said, “We are pleased about the CFTC approval as the growing trend for ESG investing has been gaining momentum, not only in Europe but across the globe, becoming the most widely used strategy by socially responsible investors. “They allow us in a credible and cost-effective way to further manage unwanted sustainability risks, seek additional alpha and better meet our various investment mandates,” says Magnus Linder, head of derivatives at Swedbank Robur.

©Best Execution 2019

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