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Liffe launches options on leading European ETFs

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Derivatives exchange Liffe, which is part of the NYSE Euronext group, has plans to offer option contracts on two of Europe’s most popular iShares exchange-traded funds, the iShares FTSE 10

Derivatives exchange Liffe, which is part of the NYSE Euronext group, has plans to offer option contracts on two of Europe’s most popular iShares exchange-traded funds, the iShares FTSE 100 and the iShares DJ Euro Stoxx 50 ETFs, starting on February 18.

The option on the iShares FTSE 100 ETF will be listed on the London market and that on the iShares DJ Euro Stoxx 50 ETF will be listed on Euronext Amsterdam. Flexible versions of both options will also be available for trade reporting through Bclear, Liffe’s service for processing wholesale equity derivatives trades. The contract specification for both options will be identical to those of Liffe’s equity options contracts on UK and Dutch securities.

More than 500 ETFs based on all the main US and European benchmark indices in Europe are now available on the Euronext exchanges and NYSE Arca, the all-electronic stock market established by the New York Stock Exchange to trade equities and options. As of November total assets under management in European ETFs stood at USD134.8bn, up 50.3 per cent from a year earlier.

An option on an ETF is like any other equity option and gives its holder the right, but not the obligation, to buy or sell a given number of ETF shares at a pre-set price. The option seller is obliged, if and when assigned, to deliver or accept the ETF shares according to the terms of the option.

Liffe says the new options will give the holders of ETFs the ability to enhance their returns or hedge their ETF portfolios. Holders of the underlying ETFs will be able to employ covered call strategies by selling call options for income. Put options can be bought for protection, or sold for the opportunity of potentially acquiring the ETF at a lower price.

‘Options on ETFs are exceptionally popular in the US market and the appetite in Europe is strong,’ says Jonathan Seymour, director of equity derivatives at Liffe. ‘The listing of these contracts further diversifies Liffe’s product range and provides investors with new opportunities, whether they choose to trade on the central market or prefer to negotiate trades away from the exchange and then process them through Bclear.’

Andrea Morresi, head of sales at iShares Europe, says: ‘We welcome Liffe’s decision to offer options on two of our most popular iShares, as the new products will provide additional liquidity and investment strategy flexibility. This development reflects the proliferation of ETFs available in the European market as investors demand cost-efficient and flexible tools to implement strategies with beta products.’

Imogen Dillon Hatcher, FTSE managing director for Europe, Middle East and Africa, says: ‘FTSE today offers a range of innovative indices covering all the important asset classes. The listing of these contracts further demonstrates FTSE’s skill in developing index solutions in line with the needs of investments banks for the trading environment.’

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