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Germany

The recent merger of the German Futures Exchange DTB (Deutsche Terminbörse) and the Swiss Futures Exchange SOFFEX (Swiss Options and Financial Futures Exchange) created EUREX (European Exchange) as a single platform for pan-European trading and clearing of standardized futures and options under harmonized rules. EUREX is a fully electronic exchange based in Frankfurt and Zurich, with access points in Amsterdam, Chicago, London and Paris (and future access points in Helsinki, Madrid and New York).

EUREX is run by EUREX AG, a stock corporation owned in equal parts by Deutsche Börse and the Swiss Exchange. A 100% subsidiary of EUREX AG is EUREX Clearing, an automated and integrated joint clearing house for all products and participants. The EUREX product range includes equity products (options on 41 German equities, options on 17 Swiss equities, LEPO on Swiss equities), index products (futures/options on Dow Jones STOXX 50 and Dow Jones Euro STOXX 50, DAX futures/options, SMI futures/options, MDAX futures, VOLAX futures), money market products (one-month Euromark futures, three-months Euromark futures/options), fixed income products (SCHATZ futures/options, BOBL futures/options, jumbo Pfandbrief futures, COMI futures, BUND futures/options, CONF futures/options) and currency products (US dollar or Deutschmark options).

EUREX products listed in Deutschmarks will be converted into Euros on January 4 1999; the conversion methods were determined in close cooperation with market participants.

The EUREX clearing structure is comparable with the previous DTB structure, comprising clearing members (either general clearing members or direct clearing members) and non-clearing members. General clearing members are authorized to clear both their own trades and those of their clients, as well as trades by non-clearing members; while direct clearing members may only clear their own trades, those of clients and those of affiliated non-clearing members. All clearing members should maintain an account with the central bank and the central securities depository in their countries of origin, ie Germany and Switzerland. Non-clearing members must conclude an agreement with a general clearing member to be admitted as exchange members.

On EUREX, margin calls will be made in the local currency of the clearing member. Margin collateral is accepted by EUREX Clearing in various currencies. There will be variation margins settled on a daily basis (reflecting profits and losses of open positions resulting from price changes), and premium margins to be deposited by holders of short options positions (covering the implied loss if the position is closed out), and of course product-related fees. Margins must be deposited either in cash or in securities by clearing members, and collateral can be deposited in various currencies at one central securities depository. In determining the margin collateral, EUREX uses the risk-based margining method.

Jumbo Pfandbrief futures launched

On July 6 1998, EUREX launched the first German exchange-traded interest rate derivative product on issues outside the German federal government bonds sector: a futures contract on medium-term jumbo Pfandbriefe.

Pfandbriefe (mortgage bonds) are issued by private and public sector mortgage banks. In May 1997, the Federation of Public Banks in Germany and the Federation of German Mortgage Banks issued minimum characteristics for so-called jumbo Pfandbriefe: an issue must be at least Dm1 billion (US$556,000); any measures that could impair the liquidity of an issue are not allowed and subsequent increases of outstanding jumbo issues are only allowed in amounts of at least Dm250 million. Only straight mortgage bonds can be sold as jumbos, and each jumbo must have at least three market makers who undertake to quote two-way prices for lots up to Dm25 million during usual trading hours. Jumbo Pfandbriefe must obtain an official listing on a German stock exchange or be included in a regulated market of an exchange. In addition, coupons should be in fractions of no less than a quarter percentage point and the issuer should obtain an undertaking from the market makers not to exceed some specified bid/offer spreads when quoting two-way prices. Finally, an issuer should take measures to ease the international placement of the jumbo Pfandbriefe.

A special index for jumbo Pfandbriefe was launched in October 1997 called the JEX, a real time index based on a synthetic portfolio of 30 jumbo issues with maturities between one and 10 years and carrying coupons of 6%, 7.5% and 9%. A performance index, the JEXP, was also created.

The creation of a jumbo Pfandbrief future was the natural next step. The EUREX jumbo Pfandbrief future's contract standard is a synthetic jumbo Pfandbrief with a remaining term of three and a half to five years and a 6% coupon. Contracts will be available for trading with terms of three, six and nine months (with March, June, September and December as delivery month), and a minimum size of Dm250,000.

Strategic alliance of Deutsche Börse and the London Stock Exchange

In early July 1998, the London Stock Exchange and Deutsche Börse announced that they had signed a memorandum of understanding to form a strategic alliance with the goal of developing a joint electronic trading platform.

Before the introduction of the Euro on January 4 1999, it hopes to achieve a common access package for both exchanges and a single point of liquidity on the domestic exchange for blue chip companies still traded on both markets. In addition, within one year, harmonization of market rules and conventions should show significant progress. Later, it is intended to set up a 50/50 joint venture company. The new company should create a single electronic trading platform; and further cooperation opportunities are to be identified.

It is widely expected that these efforts will lead to the formation of a pan-European market with more than 300 blue chip equities, and create the nucleus of a single European stock market ultimately based on a common electronic trading platform. Therefore, the participation of other exchanges, including the French, will be welcomed.

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