The IDEM market of Borsa Italiana expands trading hours and continues on its growth path.
IDEM, the Italian Derivatives Market of Borsa Italiana and part of London Stock Exchange Group, was one of the fastest growing equity derivatives markets last year in Europe, trading nearly 49 million lots. This performance was led by FTSE MIB futures and FTSE MIB options, with both experiencing double-digit growth in 2016. The IDEM market has also seen record liquidity thanks to the support of 24 global market-making firms and the significant contribution of the online trading community–heralded by IDEM as a unique situation in Europe. We spoke with Massimo Giorgini, Head of Equity and Derivatives Markets Business Development at Borsa Italiana – London Stock Exchange Group, about recent developments at IDEM.
– Brian Mehta, CMO
Can you talk a bit about the offering at IDEM?
Massimo: IDEM is the leading global liquidity pool to access Italian equity derivatives, offering investors the ability to trade the full suite of Italian equity derivatives, including futures, mini-futures, dividend futures and options, and weekly options on the FTSE MIB index. IDEM also lists the full range of Italian single stock options and single stock futures, not only on blue chip shares but also on some mid cap symbols. 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.
Which listed products have been more successful recently in terms of volume growth?
Massimo: Although volumes across the global equity derivatives markets have been relatively subdued, particularly in Europe as the recent IOMA surveys showed, FTSE MIB futures and FTSE MIB mini-futures have been amongst the fastest-growing equity index derivatives in Europe in the last three years, growing by 60% and 70% respectively in terms of contracts traded. Both listed products have seen record all-time-high volumes in 2016, trading around €4 billion on a daily basis. They are leveraging on market microstructure pillars including diversity of order flow, strong contribution from private investors, full support from several liquidity providers, and deep and tight order book liquidity—with more than 95% of contracts traded on screen. From a volatility trading standpoint, FTSE MIB options have been performing well, too, with 75% growth in contracts traded on the same period last year, also leveraging the successful launch of FTSE MIB weekly options, providing investors with new opportunities in terms of trading strategies.
Can you share some insights about the recent business development initiatives that are behind IDEM’s success? Are there any important trends?
Massimo: We have heavily invested in developing the client network globally, and this is paying off as most of the flows are now coming from international investors. We have constantly developed our offering by introducing new financial instruments in response to direct demand from our sell-side and buy-side clients. We have launched index and single stock weekly options to address growing demand from retail investors and technical traders. Index and single stock dividend futures and European-style stock options have been launched to meet demand from UCITS funds, endowed institutions and banking foundations. Weekly options have proven very popular and traded more than 1.8 million contracts across index and single names since launch. All of these initiatives have been backed by strong support from the global electronic market making community. This is reflected by the fact that IDEM is now supported by 24 dedicated market-making firms across all listed products. Very few exchanges globally have experienced such a positive response to new initiatives in recent years, particularly from the market-making community and online trading industry.
Which strategic projects are you going to deliver in the next few months?
Massimo: Borsa Italiana will always continue to invest and innovate to deliver new business opportunities to member firms and investors. On Monday, July 3, the IDEM market extended trading hours for FTSE MIB futures and mini-futures, with the continuous trading phase now closing at 8:30pm CET (instead of 5:50pm CET as before). This is a strategic development for the Italian market, as it will provide international investors—particularly those based in the U.S., including traditional and quantitative asset managers—with additional trading time and opportunities. It is also an important initiative to address the growing demand from private investors and the online brokerage community. Alongside this, IDEM has introduced a Pre Trade Validation service, an important enhancement in the context of MIFID II and the increasing need to mitigate operational risks that should allow for onboarding new NCMs as their clearing brokers will be able to apply further controls to the order flow.
What else can you share about the IDEM trading hours extension initiative?
Massimo: Trading on FTSE MIB futures and mini-futures has been extended until 8:30 p.m. CET, with one continuous session starting at 9:00 a.m. CET, without solution of continuity. All contracts traded from 9:00 a.m. until 8:30 p.m. CET will settle at “T”. We have designed a brand new liquidity scheme to promote an efficient price discovery process during the extended hours, and I am happy to confirm that we have received support from two leading market-making firms. Borsa Italiana has spent a considerable amount of time in Europe and the U.S. discussing these initiatives with end investors, banks and liquidity providers, and the feedback received during our roadshows has been very positive. I would like to thank the market makers and the online brokers who confirmed their support for their continued and trusted commitment to this initiative.