Exchange-traded credit derivatives disappoint

The world’s first exchange-traded credit derivatives, which were listed by Frankfurt-based Eurex on March 27, have posted lacklustre trading volumes, with only one major dealer making markets in them.

The three futures contracts are referenced to the Frankfurt-based International Index Company’s iTraxx Europe, Crossover and HiVol five-year credit default swap indexes. The contracts, which are cash-settled, trade in increments of €100,000. They pay a fixed coupon and have semi-annual maturity dates in March and September.

Société Générale Corporate and Investment Banking (SG CIB) is the only confirmed market-maker in the new products. Lionel Gibert, the bank’s London-based head of European credit trading, said trading had been “very slow”. By the end of trading on April 3, Eurex reported just under 15,000 contracts changing hands. Of these, 14,019 were referenced to the standard five-year iTraxx Index, while 476 were linked to the Crossover Index. So far, no contracts have been traded on the HiVol Index.

“We are still seeing very few contracts traded, but we’re watching it,” observed Gibert. He said SG CIB would be looking at whether volumes picked up, and whether the contracts are attracting a new type of customer to the credit markets.

A Eurex spokesman confirmed some dealers, such as Deutsche Bank and JP Morgan, were not trading the contracts. Their launch will be watched closely by other derivatives exchanges also looking to list credit derivatives, such as the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE).

The CME plans to begin trading in credit derivatives on May 7 via its electronic platform, Globex. They will be linked to a proprietary index of 32 high-volatility investment-grade North American names. Meanwhile, the CBOE is awaiting regulatory approval to list both single-name and basket credit default options, which it expects to launch during the second quarter of this year.

See also: CBOE, CME and Eurex race to launch first exchange-traded credit derivatives