The international derivatives exchange Eurex is to launch four new futures product based on the dividends of the SMI, Dow Jones EURO STOXX Select Dividend 30, DivDax and Dax Kursindex (Price Index) respectively as of 22 June 2008. The introduction allows the trading and clearing of the dividend component of these major equity indices on an independent basis. Eurex first introduced index dividend futures last year on the Dow Jones EURO STOXX 50 – this future currently has an average daily volume of almost 8,000 contracts and open interest of over 275,000.
Peter Reitz, member of the Eurex board, said, “Index dividend futures have enabled investors to segregate trading and hedging of dividends into a separate asset class. The listing of the dividend component of these additional indices improves risk management possibilities and increases transparency for one of the principal determinants of equity values.”
Eurex will initially offer annual contracts from December 2009 out to December 2013 that will capture the dividend stream in that annual period in the form of index point equivalents, making the product complementary to the underlying traded index derivatives. The index dividend futures will be cash settled based upon the ordinary gross dividends declared and paid in the shares of each individual constituent in the contract period. The final value of the dividend calculation will be undertaken by the respective index providers using the specifications noted in their dividend index points calculations.
With the introduction of the new dividend futures, Eurex aims to work with the current market participants, both in listed and over-the-counter (OTC) derivatives, to complement current OTC trading via the exchange with the advantages of standardized clearing and settlement. The main aim is deliver futures contracts that suit the purpose of both sell-side market makers and all buy-side participants.
