Stoxx takes stock
All Stoxx indices duly made the transition to free float in September, but as its new managing director Scott Stark says it was not that “big a day”. September is a month that traditionally has spikes, so how much can be attributed to readjustment is not clear.
“The derivative volumes did increase, moving from 50,000 a day on average futures to 90,000, with people readjusting” says Stark, recently appointed in place of Michael Schanz, who has left to develop an consultancy business in Frankfurt. He adds it coincided deliberately with the Stoxx 50 indices’ annual composition change.
There is no alternative for indices providers other than free float, says Stark, pointing out that Stoxx went for an actual free float and not a banded system. Where there are crossholdings, government or private ownership, there is a 5% threshold. “So if its 4% we will include it, but if 6% we would exclude that 6%.” But no adjustment will be made for shares held by institutional investors, as they are free to sell shares at any time, he says. “With the work we have done on companies, we could become the benchmark for free float, We looked at 1,200 companies in the European area, and the data providers, data vendors and companies’ own data,” he says.
“We believe that the move may give us an expansion opportunity. We reckon we have about 30% of the institutional benchmarking business in Europe.” If MSCI adopts free floating, benchmarking investors will face adjustment costs, so why not evaluate all the indices, he asks. “We will come out favourably, with our data being free of charge.” With the transparency in Stoxx rules, investors can anticipate virtually what the changes will be, he says.
At some point Europe is going to be ready for an ‘all share’ or total market index. “We have just launched the Total Market Index, with large cap at 0 to 70%; mid-cap 70 to 90%, and small cap, 90 to 95%. Europe may not be ready for this index now, but in the next few years, TMI will become the benchmark people will use.”
As from September, Stoxx claims it has become the largest European derivative contract for Stoxx 50, for both futures (23% share of futures open interest market share) and options, (21% of open interest market share). “That we have done this in just over two years is a credit to Michael Schanz and our partners,” says Stark.
Stoxx has dominated on the Euro product area, but as yet no one has on the pan European side, he says. “Now investors tend to use Euro Stoxx, plus FTSE and SMI. But when it comes to sectors they could use our pan European products.”
At the end of August, the outstanding notional value for futures using Stoxx, E31bn; options E80bn, and warrants E17bn, with exchange traded funds at a mere E0.5bn. For OTC products equity swaps were estimated t E95bn, equity linked notes at E18bn, as were CDs (money market accounts linked to an equity index).
On the passive tracking side, Stark reckons the share of pension fund tracking is E75bn, with another E25bn on the retail index tracker funds.