Eurex Expands Crypto Derivatives Offerings with FTSE Russell indices, Targeting Institutional Investors.

Elmhurst, IL - (JLN) - Eurex and FTSE Russell are expanding their cryptocurrency derivatives offerings by targeting institutional investors with new Ethereum-based products. Eurex expanded its crypto derivatives portfolio with the launch of FTSE Ethereum Index Futures and Options on August 12, 2024. These products complement Eurex's existing Bitcoin derivatives, which were launched in April 2023.

Rafael Zanatta of Eurex emphasized the growing institutional interest in Ethereum, noting it "represents about 15% of the total crypto market cap currently." Zanatta pointed out that its unique value comes from smart contracts and its widespread use in decentralized finance (DeFi), making it a key asset for portfolio allocation.

The launch of these products supports Eurex's goal of offering institutional investors a diverse range of regulated tools for managing digital asset exposure, he said. Eurex is responding to growing customer demand to move beyond Bitcoin, Zanatta added.

Zanatta highlighted the benefits of trading on a regulated exchange like Eurex, emphasizing 'regulatory oversight' and 'market integrity.' He also praised FTSE Russell as a valuable partner in the development of the Ethereum Index futures and options.

"The partnership with FTSE Russell to offer these insights index-based products further enhances the robustness of our offering," Zanatta said."FTSE's established reputation providing reliable and transparent market indices ensures that the underlying benchmark for these products are of the highest standard, which is crucial for institutional grade products," he said.

Kristen Mierzwa of FTSE Russell detailed their rigorous vetting process for digital assets and exchanges. 'In 2019, we created a framework to vet both the exchanges and the assets in the digital asset space,' she said. "The idea behind vetting these venues is because we had a problem we had to solve."

Given that these assets are often traded over-the-counter (OTC) across various venues, FTSE Russell focused on centralized exchanges with robust KYC policies and market stability, such as Coinbase, Kraken, and Gemini, to meet the needs of institutional clients, Mierzwa said.

She said FTSE Russell designed a flexible framework to capture trade data from various centralized exchanges, acknowledging the evolving nature of the digital asset space. "FTSE Russell aggregates executed trade data from eight exchanges every 15 seconds using VWAP to establish a price for our hourly fixes and futures contract settlements," Mierzwa explained. She also noted that, with 7,000 to 10,000 new digital assets emerging daily, FTSE Russell partnered with Digital Asset Research to evaluate these assets based on their presence on exchanges, market cap, and liquidity.

Mierzwa also mentioned that FTSE Russell takes a long-term view by evaluating the universe of digital assets every quarter. "We're looking at variables like how many of these centralized exchanges these assets are listed on, market cap, and liquidity," she said. FTSE Russell currently covers 400 digital assets and has plans to expand this coverage.

She also discussed the criteria for selecting assets. For asset vetting, FTSE Russell evaluates several crucial factors, including developer activity to gauge ongoing engagement and protocol security to mitigate hacking risks, Mierzwa said. FTSE Russell ensures that the consensus mechanism involves significant community validation to maintain blockchain integrity, and it also assesses traditional metrics like trading volume and market cap to determine the significance of an asset.

On the exchange side, FTSE Russell prioritizes platforms with strong KYC and AML policies, effective market surveillance, and the capability to audit activities when necessary, she said. It also favors exchanges with identifiable C-suite executives and proper geographic registration and licensing to ensure compliance and reliability. Mierzwa emphasized that these criteria help FTSE Russell ensure that the data and pricing reflect genuine market activity and maintain high standards of trustworthiness.

FTSE Russell ensures the accuracy and reliability of the data used in the FTSE Ethereum Index through rigorous monitoring and evaluation processes, Mierzwa said. After vetting both the exchanges and the assets, FTSE Russell continuously tracks the 15-second trade data feeds to detect and address any anomalies, recognizing the inherent volatility of digital assets. "If there's anything that looks unusual, we're right on it," she said.

The FTSE Russell team, with over five years of observation, identifies reasonable patterns and builds models to manage data fluctuations, Mierzwa said. The team also conducts monthly reviews with its governance and compliance units to ensure that the data set meets its expectations, focusing on filtering metrics and trends to maintain data integrity over time.

Zanatta said that offering Ethereum Index futures and options on a regulated platform like Eurex provides institutional clients with several key advantages over unregulated exchanges. First, Eurex operates within a well-defined legal framework, ensuring that all trading activities are secure, transparent, and compliant with both local and international standards. This regulatory oversight fosters client confidence by upholding the integrity of the exchange's operations, he added.

Second, Zanatta noted that Eurex's sophisticated market surveillance systems and the presence of reputable market participants contribute to a stable and reliable trading environment, enabling precise and efficient order execution. Additionally, Eurex offers a comprehensive risk management framework, which includes daily mark-to-market settlements, margin requirements, and a robust clearinghouse. These measures help mitigate counterparty risk and ensure smooth trade settlements, he said.

"This level of security and operational efficiency is critical for institutional clients managing capital, making it the platform of choice," Zanatta said.

The cash-settled nature of Eurex’s contracts, combined with its global recognition, enables investors to confidently engage with the Ethereum market without needing to handle the physical cryptocurrency itself, he said.

"We knew this was going to be a long journey," Mierzwa said, discussing future product development. "I think that the next step is taking a basket of assets, pulling them together, moving past these single asset products."

Both executives emphasized their firms' long-term commitment to the digital asset space. Mierzwa remarked, "I think both firms have strong conviction that this asset class is here to stay, and we wanted to ensure our clients could have access to it from a trusted partner that wasn't going to abandon ship."