Eurex Exchange: Index Total Return Futures (TRF)

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Listed solution for implied equity repo trading via EURO STOXX 50® Index Total Return Futures (TESX)

Index Total Return Futures (TRF) are designed to offer a listed
solution for trading the implied equity repo rate. Index TRFs
aim to replicate the payoff profile of an Index Total Return
Swaps (TRS) in a cost efficient way. The first TRF product
launch will be the EURO STOXX 50® Index Total Return
Futures (Product ID: TESX). This future will allow to:

• Provide cost-efficient access to the total returns of Europe’s
  benchmark blue chip index whilst hedging the implied
  equity repo rate.

• Mitigate capital costs and collateral usage and the envisaged
  bilateral margining charges for non-cleared derivatives.

• Benefit from mitigation of counterparty risk with central
  clearing and margin offsets with listed equity index products.

Key benefits

• Fully fungible product aiming to provide cost-efficient
  access to the payoff profile of equity index TRS.

• Uses standardized trading convention – TRFs trade as
  a Spread expressed in basis points (+/–).

• Approximately 5 years exposure available via a single TRF
  product allowing single trades and calendar spreads.

• Price discovery and liquidity provided by market makers
  via the Eurex T7 trading system.

• Offsetting margin effects for Index TRF Equity Index
  Futures and Dividend Derivatives within the Listed
  Equity (Index) Derivatives Liquidation Group (PEQ01).

How they work

• Daily cash-flow structure with distributions and funding
  realised daily via the TRFs variation margin.

• TRF executed in spread in basis points via the order
  book or Trade Entry Services is automatically converted
  to determine the futures price in index points within
  T7 system.

• Order entry and execution is based on the TRF Spread
  which is determined by the implied repo rate.

• Order book and off-book trading within the Eurex T7
  trading system via two trade types :
  • Trade at Index Close (TAIC) with an equity strike level
    based on index close (e.g. EURO STOXX 50® Close).
  • Trade at Market (TAM) based on custom-defined equity
    strike level provided by the investor.

TRF versus TRS

– The new TRF futures contracts aim to replicate the payoff
profile of an equity index TRS:

– TRF contracts will represent the theoretical exposure to
the underlying index (i.e. its component basket) at trade
date assuming holding to expiry.

– The holder of a long position will additionally receive
the distributions associated with holding the cash basket,
against which they will pay the financing associated
with this purchase.

– The financing cost of will be made up by the overnight
benchmark/funding rate (Eonia®) and additionally the traded
TRF Spread. This spread represents the additional repo rate
required by the seller over Eonia® rate to expiry.

– The payoff TRS structure comparison with the structure
for Total Return Futures is: