Four new index futures based on Dow Jones-AIG Commodity Indexes to be introduced on 30 March
The international derivatives exchange Eurex announced today, that it will launch four new commodity index futures on 30 March. Europe’s largest derivatives exchange will be the first European exchange to enable trading in commodity index derivatives. The new futures will be based on the broad Dow Jones-AIG Commodity Index(SM), which comprises 19 different commodities and the three sub-indexes for Agriculture, Energy and Industrial Metals.
Peter Reitz, member of the Eurex Executive Board, said: “The launch marks another step in our strategy to continuously expand our product offering into new asset classes. The commodity index futures extend our existing suite of gold and emission rights derivatives, bringing new hedging and trading opportunities to our customers.” He pointed out, that over the last years, more financial players including pension funds moved into commodities, primarily to diversify their portfolios in a better way.
“The Dow Jones-AIG Commodity Indexes are a leading and widely trusted family of commodity indexes measuring the performance of the entire futures-based commodities market, single commodities such as crude oil and sector groupings such as the grain complex. This index family also includes forwards, currency hedged and spot versions and the composite index is calculated in multiple currencies including the Euro, Yen and British Pound“, said Michael A. Petronella, president, Dow Jones Indexes. “They enjoy widespread recognition, adoption by all the major commodity market participants and a robust methodology that includes the balanced weighting of 19 commodities, thus avoiding over or underweighting of a single commodity.” Now through the Eurex platform, traders and other market participants will have access to a superior set of commodity portfolio tools.
All four new Eurex futures will be denominated in US dollar and settled in cash using the Excess return version of the indexes. They will have quarterly expiration dates. To support order book trading, Market Makers will ensure on-screen liquidity. Eurex’s listed contracts will allow smaller levels of notional exposure as the standard contract size will be smaller than that normally traded OTC. This will allow better allocation across funds, economical access to smaller levels of risk and the ability to gain a more precise level of exposure. Until end of June, trading fees are waived to support the launch.
Additionally, the Eurex Clearing OTC wholesale facilities will enable market participants to enter bilaterally agreed futures trades into the central counterparty environment of Eurex Clearing, which mitigates counterparty risks. Most of the commodity index products currently traded bilaterally are swap transactions and imply a certain counterparty risk.
Depending on demand and market success, Eurex will introduce futures based on additional Dow Jones-AIG Sub-Indexes as well as options at a later stage. The Dow Jones-AIG Commodity Index family was introduced in 1998 and is a well diversified measure for commodities by using liquidity and production figures as a weighting scheme and certain cappings to limit the influence of individual products or sectors.