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The Growth of Italian Equity Derivatives: A Conversation with Borsa Italiana

IDEM, the Italian Derivatives Market of Borsa Italiana, part of London Stock Exchange Group, is enjoying another strong year in terms of volume growth, making it one of the most interesting equity derivatives markets in Europe. Its flagship products—FTSE MIB index futures, mini-futures and options—are enjoying buoyant performance thanks to increasing interest from both sell-side and buy-side investors globally. Massimo Giorgini, Head of Business Development for Equity and Derivatives Markets at Borsa Italiana, took the time to talk with us about recent developments at IDEM.

TT: Let’s take it from the top. Massimo, can you talk a little bit about your line of business?

Massimo: Borsa Italiana has operated the IDEM market since November 1994, so we recently celebrated its 20th anniversary. IDEM is the leading global liquidity pool to access Italian equity derivatives, offering the full suite of Italian equity derivatives, including futures, mini-futures, options, weekly options on the FTSE MIB Index, plus the full range of Italian single stock options and futures—not only on Blue Chip symbols but also on some Mid Cap names. FTSE MIB index futures, mini-futures and options also can be bought and sold in the U.S. in accordance with the terms of the No-Action letters from the CFTC and SEC.

TT: Which listed products have been more successful recently in terms of volume growth?

Massimo: FTSE MIB futures and mini-futures were amongst the fastest-growing equity index derivatives in Europe in H1 2015, growing by 17 percent and 23 percent respectively, in terms of contracts traded. Both listed products have been reaching record all-time-high volumes in H1 2015, trading around €4.6 billion on a daily basis. Both products are building on their success, which is evident through market microstructure pillars including diversity of order flow thanks to the strong contribution from private investors on top of institutional member firms, the presence of several active liquidity providers and order book liquidity—with more than 95 percent of contracts traded on screen. From a volatility trading standpoint, FTSE MIB options also are performing well—after a strong year in 2014 with 23 percent volume growth—in part down to the listing of weekly expiries, providing investors with new trading opportunities. A new all-time high daily volume record has been set on July 14th, with 73,722 contracts equal to €4bn value traded.

TT: Can you share with us some of the results you have seen since Trading Technologies connected to IDEM? Are there any important trends?

Massimo: Borsa Italiana and Trading Technologies announced the connectivity agreement at the FIA Futures & Options Expo in November 2013, with connectivity fully implemented in May 2014. Since then, we have seen a growing number of IDEM member firms connecting dedicated users via X_TRADER® screens. Most of the interest is concentrated on FTSE MIB index derivatives, although some member firms are also trading Italian single stock options via X_TRADER.

TT: We’ve certainly seen a steady increase in IDEM transactions going through our TTNET™ hosting solution, with volume almost doubling in the past few months. How has Trading Technologies helped facilitate this growth?

Massimo: The connectivity agreement allowed Borsa Italiana to further expand its end-client base. During the last 12 months, we have seen an increase in trading activity from CTAs, prop shops and quantitative funds in FTSE MIB futures, leveraging on trend-following and statistical arbitrage strategies. Vice-versa, other member firms started leveraging X_TRADER screens to trade Italian single stock derivatives via the block trading functionality offered by X_TRADER.

TT: What are your goals for the remainder of the year?

Massimo: Borsa Italiana continues to invest and innovate to deploy advanced trading technology to our customers; the IDEM market will be releasing a new software version of the SOLA® platform by the end of this year, introducing a series of new functionalities to enhance trade-reporting activities and optimize risk-management processes. From a distribution standpoint, IDEM has been significantly expanding its global reach: new international firms joined the market as direct members in H1 2015—spanning from global market makers, investment banks and pan-European retail brokers. Our pipeline for H2 2015 is strong and promising, with some prospects likely to access the IDEM market via Trading Technologies as well.

TT: Massimo, thank you for your time. We’ll continue to closely follow these technology initiatives and will be there to support them for our customers on day one of the production launch.

Traders, for questions and further information about the IDEM market, you can e-mail IDEM at IDEMMarket@lseg.com or visit www.borsaitaliana.it/derivatives. If you have questions about how to access IDEM via Trading Technologies software, please contact your local TT representative.

Posted by: Trading Technologies

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