Eurex Bonds

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Eurex Bonds GmbH
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Founded 2000
Headquarters Frankfurt
Key People Laurent Ortiz, Managing Director
Website www.eurex-bonds.com

Eurex Bonds is a provider of an electronic trading platform and is approved as a Multilateral Trading Facility (MTF) according to MiFID. The company provides trade matching, clearing, and settlement for off-exchange wholesale trading in cash bonds. While basis trading provides a direct link between the Eurex Exchange (futures market) and Eurex Bonds (cash market) within one trade. Eurex Clearing acts as the central counterparty (CCP), while both Clearstream and Euroclear provide settlement.

Products and Services

The Eurex Bonds offers a broad range of Euro-denominated European debt instruments

Government Debt Traded on Eurex Bonds

Covered Bonds

The European Covered Bonds Council (ECBC) defines Covered Bonds as debt instruments secured by a cover pool of mortgage loans (property as collateral) or public-sector debt to which investors have a preferential claim in the event of default.

Among the Covered Bonds listed on Eurex Bonds are:

Agencies

Eurex Bonds matches, clears, and settles trades in so-called sub-sovereigns, which are bonds that are guaranteed by governments, but not necessarily issued by them. Among the sub-sovereigns traded on Eurex Bonds are the following:

  • KfW (a German government-owned development bank formed with Marshal Plan funds)
  • European Investment Bank (EIB)
  • CADES (the French agency responsible for amortizing the social security debt of France)
  • ERAP (a French private-public enterprise that acquires equity in companies in the energy, pharmaceutical and telecommunications sectors on behalf of the government)
  • Explicit Government Guaranteed Bonds of other issuers

Basis Instruments

Eurex Bonds also facilitates basis trading in German government debt instruments. This combines a securities leg and a futures leg in a single price. Buying the basis involves purchasing cash bonds on Xetra and simultaneously selling the equivalent on Eurex. The reverse combination is referred to as selling the basis.

A basis trade on Eurex Bonds is based on German Government Bonds which are either deliverable or non-deliverable into the basket of the current front month contract of the Eurex Euro-Bund, Euro-Bobl or Euro-Schatz Futures.

Financials and Corporate Bonds

Eurex Bonds also offers trading in Corporate Bonds. Among the corporates listed on Eurex Bonds are:

Trading Procedure

All market participants have equal privileges when trading bonds and basis instruments on Eurex Bonds. They may enter limit orders or quotes into the system.

Eurex Bonds participants make markets on a voluntary basis. The fee model differentiates between the aggressor of a trade and the non-aggressor. The participant who offers liquidity and whose price is accepted to perform a trade pays less or even receives a credit. Moreover, the German Finance Agency performs its market management and regulating operations via Eurex Bonds. Deutsche Bundesbank, the German central bank, is also a trading participant at Eurex Bonds.

Trading on Eurex Bonds is based on the market models “countinuous trading” for all product segments and “auction trading” for specific Covered Bonds and Government Guaranteed Bonds. During continuous trading, orders and quotes entered into the central order book are executed on the principle of price/time priority, where the sequence of order entry determines execution priority for orders or quotes with the same price limit. Orders or quotes which cannot be executed immediately are posted into the order book. Orders may be placed as good-for-day (valid for the current trading day only); good-till-date (valid until a specified trading date, subject to a maximum validity of 90 days); or good-till-canceled (valid until canceled, or until maturity of the bond or underlying futures contract).

As of July 20, 2009, Eurex Bonds introduced the new market modelauction trading” in a pilot phase. “Auction trading” addresses the current lack of liquidity in the Covered Bond market and provides an alternative to permanent market making, without generating additional risk exposure for market participants. For a pre-defined selection of Covered Bonds and Government Guaranteed Bonds, intraday auctions with subsequent continuous trading take place on 11:00 CET (Covered Bonds) and 11:45 CET (Guaranteed Bonds). Eligible bonds are organized in maturity buckets and are traded in staggered auctions with a duration of approximately two minutes each. During the auction, orders or quotes can be entered into the system, but no trading takes place until the auction ends and the price is determined. The price determination follows the principle “maximization of turnover with a minimum of surplus”. At the end of an auction matching takes place if possible and the auction price is set. If matching is not possible, auction ends without price fixing. Unexecuted orders and quotes can be transferred into the open order book for the following continuous trading phase.

Market Model of Auction Trading

Eurex Bonds Market Model Auction Trading 09-09.PNG

Eurex Bonds Indices

The eb.rexx family of indexes covers German Government Bonds and Pfandbrief indexes of different maturity ranges. Three types of indexes are available:

  • Overall indexes
  • Price Indexes
  • Performance indexes

Calculated throughout the trading day, they are based on traded prices and binding quotes – the first indexes to do so.

Corporate Structure and History

Founded in 2000, Eurex Bonds is a joint venture between Eurex and several European financial institutions. Eurex is a 50/50 joint venture between Deutsche Boerse AG and the SIX Swiss Exchange.

Key People

  • Laurent Ortiz, Managing Director

Shareholders

In addition to Eurex Frankfurt AG, the financial institutions listed below are shareholders of Eurex Bonds GmbH:

Other News

Resources

References

European Covered Bond Council