Blog Posts — October 29, 2020

Qontigo Expands STOXX Currency Rates Indices Family

Qontigo is expanding its family of STOXX Currency Rate Indices, which underlie listed futures at Eurex and allow investors to track foreign-exchange rates with transparency.

A total of 11 currency pairs are being added to the suite, each consisting of a STOXX® FX Rolling Spot Mid Rate Index and a STOXX® FX Rolling Spot Tomorrow Next Open Rate Index. A first batch of indices was introduced in 2017; it includes highly traded crosses such as EURUSD and GBPUSD and serves as reference for the Rolling Spot futures on Eurex

Exhibit 1 – STOXX Currency Rate Indices

Existing pairsNew pairs
EURUSD USDSEK
EURCHF EURSEK
EURGBP USDNOK
GBPUSD EURNOK
GBPCHF USDDKK
USDCHF EURDKK
AUDUSD EURPLN
AUDJPY EURHUF
EURAUD EURCZK 
EURJPYUSDMXN 
USDJPY USDZAR 
NZDUSD 
  

As of launch, the new FX pairs do not underlie derivatives. 

Benefits of rolling futures positions

The STOXX FX Rolling Spot Mid Rate Index indicates the day’s closing mid-price of pairs, while the STOXX FX Rolling Spot Tomorrow Next Open Rate Index uses the overnight swap rate to account for any interest-rate difference between the currencies. In essence, they work, respectively, as a closing rate and a next-day reopening rate.1

This means a rolling spot product based on these indices can use the spot mid-rate index to price a position at the end of each day’s trading session, then use the Tomorrow Next (tom-next) component to adjust for and pass through any interest-rate differential between payers and receivers of interest on that position.2

“The STOXX Currency Indices offer investors the transparency of an FX spot mid-rate in order to avoid the impact of bilateral credit being considered as spreads, and is based on a regulated benchmark that provides users a reference to zoom in on rolling costs for their transactions,” said Giulio Castelli, Head of Benchmarks, Strategies and Specialty Themes at Qontigo.

Reliable price data

360T, the multi-bank and multi-asset trading platform for OTC financial instruments, provides the FX rates. The data is from a transparent, bilateral and disclosed execution model where a price taker indicates their interest to liquidity providers. These then competitively price the requested transaction, while exercising their best-execution policy to award the trade to the winning provider.

A cascading process flow is used for the data captured in the STOXX indices, which identifies highly accurate and timely price information and implements appropriate steps to ensure the indices are resilient to abuse or manipulation.3 Although the indices are based on transaction data, quotes can be included in the aggregation when insufficient transaction data is available.

All STOXX Currency Indices are priced at 4pm London time. 

Lower costs and risks in trading

The STOXX Currency Rate Indices were designed as underlying for listed derivatives and exchange-traded funds to improve the management of and transactions in foreign-exchange financial positions. Specifically, listed futures aim to help avoid costs and risks that can be incurred when bilaterally rolling FX spot positions, bringing in an exchange-traded, centrally-cleared alternative. With the latest additions to the FX family of indices, we aim to open up the possibilities for users to reap further benefits of the indices.

Find out more about the new STOXX indices here. Read about FX derivatives available on Eurex here

1 Tomorrow-Next refers to the rolling over of a position in the currency markets to postpone delivery. Thus, a trader can roll over their position to the next and next (i.e., two days later) business days to avoid taking delivery and holding onto the currency at the same time.
An interest rate adjustment for rolling over the position to the next day amounting to the tom-next swap rate at opening is debited (for longs) and credited (for shorts) if the swap rate is positive (base currency is at a premium), and will be credited (for longs) and debited (for shorts) if the swap rate is negative (base currency is at a discount).
3 To minimize any bias in the index calculation that may derive from the inclusion of outlier data, a procedure to exclude outliers is in place. A combined weighting scheme that takes time, type of price and notional size in account aims to increase the representativeness of the index value and to remove the potential for any party to manipulate the fixing.