The STOXX Semiconductor 30 Index is comprised of US-listed securities issued by companies classified within the Semiconductors and Production Technology Equipment ICB Subsectors. The stocks are ranked by free-float market capitalization and the top 30 make it into the index. Constituents are weighted by size, with a single-stock cap at the time of reweighting of 8% and a 45% combined weight limit for companies with an individual weight of over 4.5%. 

Chipmakers have been at the center of the latest equity market rally, driven by strong demand for semiconductors, in particular from developers of artificial intelligence technologies. Nvidia, the largest component in the STOXX Semiconductor 30 index, last month reported that fourth-quarter revenue rose 265% from a year earlier, beating analysts’ forecasts. CEO Jensen Huang said that “the conditions are excellent for continued growth.”^[1] The company’s shares have risen nearly 500% since the start of 2023.^[2]

According to McKinsey, global semiconductor sales may grow to USD 1 trillion by 2030 from USD 600 billion in 2021.^[3] About 70% of growth is predicted to be driven by three industries: automotive (particularly electric vehicles), data storage (AI and cloud computing) and wireless (smartphones, 5G).

“The STOXX Semiconductor 30 Index represents the leading companies within a rapidly flourishing industry, all meticulously selected through a rules-based and transparent methodology,” said Axel Lomholt, General Manager at STOXX. “Our collaboration with Eurex signifies a terrific opportunity to further enrich the derivatives market, particularly in connection with themes and sectors, leveraging our innovative index-based solutions.”

Figure 1: Index performance

_{Source: STOXX. Data as of January 31, 2024.}

Figure 2: Top ten holdings

_{Source: STOXX. Data as of March 11, 2024.} 

^[1] CNBC, “Nvidia posts revenue up 265% on booming AI business,” February 21, 2024.

^[2] Data through March 4, 2024.

^[3] McKinsey, “The semiconductor decade: A trillion-dollar industry,” April 1, 2022.

The advent of ESG derivatives marked an important milestone for investors who need to observe responsible mandates while managing their portfolios’ risk and flows. With the market for sustainable funds continuing to grow, and more regulation driving ESG disclosure and flows, listed and centrally-cleared derivatives will play an increasingly large role for investors.  

Standard exclusions – a starting point

The first ESG contracts at Eurex linked to STOXX indices included futures on the STOXX^® Europe 600 ESG-X, which implements a negative exclusions strategy on the popular European benchmark. The contracts saw quick adoption, not least because negative screens are considered a starting point in the sustainability ladder: they are a simple strategy that limits market and reputational risks with a generally low tracking error. 

Over 1.7 million futures and more than 320,000 options on the STOXX 600 ESG-X exchanged hands in 2023, for a notional value of EUR 35 billion, representing around two-thirds of the entire ESG segment at Eurex (Figure 1). Since listing in February 2019, more than 7.4 million STOXX 600 ESG-X futures have traded on Eurex. Volume in the STOXX 600 ESG-X futures now amounts to over 7% of the total in the benchmark’s products. 

Figure 1: STOXX 600 ESG-X derivatives volume

_{Source: Eurex.}

ESG integration

As investors’ objectives and preferences evolved, the number and type of available solutions have increased — and Eurex and STOXX have continued to pioneer ESG products. In November 2020, the EURO STOXX 50^® ESG became the underlying for futures and options, bringing a second generation of ESG indices to the derivatives space.

The ESG version of the flagship EURO STOXX 50^® follows standard investment exclusions but also integrates companies’ ESG scores into the stock selection, replacing controversial companies and the least sustainable ones with peers from the same ICB Supersector group.

Contracts on the EURO STOXX 50 ESG have seen significant uptake (Figure 2), helped by the popularity of its benchmark. The EURO STOXX 50 is the center of a unique and extensive ecosystem that includes funds, ETFs, listed derivatives and structured products.

Figure 2: EURO STOXX 50 ESG derivatives volume

_{Source: STOXX, Eurex. Only roll months are shown. Compound annual growth rate is based on total annual volume per year.}

“The ESG segment has seen an astounding pace in innovation in only a few years, a reflection of strong customer demand,” said Zubin Ramdarshan, Head of Eurex Equity & Index Product Design. “Listed ESG index derivatives enable a broader pool of investors to implement, manage and hedge their desired strategies, and help bring efficiencies to sustainable portfolios. That’s why they are key in the transition to a responsible marketplace.”

Broadening strategies

Just this year the evolution in ESG index derivatives took one step further with the introduction of a Socially Responsible Investing (SRI) strategy. On January 22, Eurex listed futures on the STOXX^® Europe 600 SRI, an index with norms and product-involvement exclusionary screens, as well as best-in-class filters to include companies with the highest ESG scores and lowest emissions. The latter is provided by ISS ESG.  

The STOXX Europe 600 SRI’s exclusionary filters go beyond those represented by the STOXX Europe 600 ESG-X (Figure 3). For example, they remove high carbon-intensity companies as well as those involved in Oil & Gas. The screens are also aligned with the enhanced requirements of large asset owners. 

Following the screens, the remaining securities are ranked in descending order of their ESG scores within each of the 11 ICB Industry groups. The STOXX SRI Indices select the top-ranking companies in each of the ICB Industries until the number of stocks reaches a third of that in the starting benchmark.

Figure 3: Methodology comparison STOXX Europe 600 ESG-X vs. STOXX Europe 600 SRI 

_{Source: STOXX.}

While not part of their remit, many ESG indices have shown higher returns and lower volatility levels than their benchmarks. This is the case, for example, with the EURO STOXX 50 ESG and STOXX Europe SRI (Figure 4). 

Figure 4: Risk and return

_{Source: STOXX.}

Evolving demand

The family of STOXX-linked ESG derivatives at Eurex is complemented by contracts on the EURO STOXX 50^® Low Carbon, STOXX^® Europe Climate Impact Ex Global Compact Controversial Weapons & Tobacco and STOXX^® Europe ESG Leaders Select 30 indices, which further expand the possibilities for investors.

The DAX space, covering German equities, also got a sustainable alternative in derivatives with the introduction in 2020 of listed futures and options on the DAX^® 50 ESG. As with the EURO STOXX 50 ESG, the DAX 50 ESG removes companies in undesirable or controversial activities, and also integrates sustainability parameters into stock selection. There already are ETFs and structured products that are linked to the German sustainable benchmark.

“We see a trend of broadening demand, specifically towards more advanced, elaborated and targeted products,” said Antonio Celeste, Global Head of Sustainability Index at STOXX. “And we are also meeting investors’ changing needs in updating some of the underlying methodologies when needed.” 

For example, there have been two updates to the STOXX Europe 600 ESG-X rulebook. As of March 2023, companies that Sustainalytics identifies as having a ‘Severe’ ESG Risk or Controversy Rating have been removed from the index. The threshold to exclude companies with revenues from thermal coal was also lowered to match the requirement of an increasing number of users. Similarly, the EURO STOXX 50 ESG and STOXX Europe 600 SRI indices have also undergone adjustments in their rules. 

The next five years

The ESG space is evolving, and in few places is that as palpable as in the derivatives market. STOXX is excited to have worked alongside Eurex over the past five years in developing solutions that enhance transparency, liquidity and cost efficiency. In a segment where customization is commonplace, listed derivatives also bring standardization in strategies, facilitating trading. 

In the short term, new regulation such as the Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD) may guide flows into ESG investments. The next five years promise to bring more volumes, and continued innovation and ambition in the world of ESG index derivatives.

Index dividend futures are popular derivatives that allow investors and traders to gain exposure on the direction of corporate payments and to hedge their portfolios’ dividend risk. 

The EURO STOXX 50 Index Dividend Futures are based on the underlying calculation of dividends for the constituents of the EURO STOXX 50 Index, the benchmark for the Eurozone’s largest stocks. Over 5.3 million contracts were traded in 2023, for a notional volume of nearly EUR 72 billion. 

While there already exist options on the underlying index, these have an annual expiration. Options on the futures will give market participants a more targeted instrument, around a quarterly cycle. More than 3.8 million EURO STOXX 50^® Index Dividend Options (OEXD) contracts were traded in 2023, a 12% increase from 2022 (Figure 1). Open interest in the contracts stood at 2.1 million at the end of December. 

Figure 1 – Trading volume and open interest on EURO STOXX 50 Dividend options

_{Source: Eurex.}

^[1] Mid-curve options is the generic name for listed options that expire into an underlying future that has a longer expiry date than the next settling future.

The contracts will be listed on Monday, January 22 and follow in the footsteps of the successful adoption of futures on the STOXX^® EUROPE 600 ESG-X, which have become some of the world’s most traded ESG derivatives. Since listing in February 2019, more than 7 million contracts have exchanged hands on Eurex, with current open interest sitting at EUR 1.6 billion.^[1]

The STOXX SRI indices are part of the ESG & Sustainability family at STOXX, and cover all the major regions. They track the performance of underlying benchmarks after screens are applied for carbon emission intensity, business involvement and ESG performance. 

Investors and traders who must comply with responsible policies have turned to sustainability index derivatives to manage portfolio flows and sustainability risks. Futures, in particular, add to a portfolio’s liquidity and help lower trading costs.

“Clients are increasingly seeking derivatives that align with their unique sustainable investment requirements, all while continuing to meet their portfolios’ tactical and management needs,” said Axel Lomholt, General Manager at STOXX. “Together with Eurex we are building a growing ecosystem of trading tools so investors can efficiently meet these objectives and requirements, and integrate their sustainability considerations in a transparent and regulated manner.”  

Selection process

Figure 1 shows all the exclusionary screens applied in the STOXX Europe 600 SRI index, which go beyond those represented by the STOXX Europe 600 ESG-X.  

After the screens are applied, the remaining securities are ranked in descending order of their ESG scores within each of the 11 ICB Industry groups. The STOXX SRI Indices select the top-ranking companies in each of the ICB Industries until the number of selected stocks reaches a third of the number in the starting benchmark.

Figure 1: Methodology comparison between STOXX Europe 600 SRI and STOXX Europe 600 ESG-X

 _{Source: STOXX.}

ESG results

Since 2014, the SRI portfolio has had an average ESG score that is 7.4% higher than that of the benchmark (Fig. 2). As of December 2023, it had lowered the carbon emission intensity by more than 85%. 

Figure 2: ESG and carbon emission performance

_{Source: 1) STOXX, Sustainalytics. 2) STOXX, ISS ESG. Emission intensity is measured as Scope 1 + 2 emissions in tCO₂e, divided by revenue.}

Comparative metrics

Figure 3 shows risk and returns metrics for the STOXX Europe 600 SRI, the STOXX Europe 600 ESG-X and their benchmark, the STOXX Europe 600. 

Figure 3: Risk and return characteristics

_{Source: STOXX, daily data for the period March 24, 2014, to Dec. 29, 2023. Annualized returns, annualized volatility (standard deviation), annualized tracking error and annualized dividend yield figures are used. Relative figures calculated against the STOXX Europe 600 Index.}

Figure 4 compares the top ten constituents of the benchmark STOXX Europe 600, STOXX Europe ESG-X and STOXX Europe 600 SRI indices. 

Figure 4: Top holdings

_{Source: STOXX. Data as of December 2023. SXXP is the STOXX Europe 600 benchmark.} 

Ongoing collaboration

The introduction of ESG futures in recent years has enabled ESG investors to efficiently manage their portfolios, and avoid mismatches and breaches in responsible policies. In 2019 Eurex and STOXX launched the first pan-European sustainable futures, with the STOXX Europe 600 ESG-X contracts. The latest roll-out with the STOXX Europe 600 SRI futures deepens that collaboration and gives investors a more targeted option when it comes to responsible investing in the derivatives segment.  

^[1] Data through December 2023.

Daily options are an innovative product that allows traders a more targeted exposure than the traditional monthly and quarterly expiries, providing increased flexibility to trade and hedge short-term market fluctuations. They are also the latest tools in a comprehensive investment ecosystem centered around DAX and EURO STOXX 50, the iconic benchmarks. 

According to Eurex, the benefits of daily options include:

• Fast reaction to market movements: Daily options allow market participants to react to sudden market moves and finetune positioning around events such as the publication of key economic figures. 
• Affordability: The lower time value makes daily options cheaper than longer-dated alternatives. 
• Accurate implementation of strategy: With daily expiries and a wide range of available strikes, investors can accurately implement specific views and strategies.

In a recent interview on this blog, Eurex CEO Michael Peters said demand for daily options is “testament to the huge appetite for flexible trading solutions as investors seek to react quickly and precisely to specific market events.”

Within the first two months of trading, more than 670,000 EURO STOXX 50 daily options were traded on the Frankfurt-based exchange.^[1] The instruments’ open interest has exceeded the 20,000-contracts mark. More than 60 members have taken part in trading EURO STOXX 50 daily options. 

Daily options will be the subject of a live Focus Day event organized by Eurex on November 9, which is open to the public for registration. 

An average of 20 million EURO STOXX 50 options and 1.5 million DAX options trade per month on Eurex.^[2]

^[1] Figures between trading start on Aug. 28, 2023 and Nov. 3, 2023. 

^[2] Based on 2023 figures through September. 

Eurex’s and STOXX’s success stories have been intertwined since their inception, with both companies starting operations in 1998 and the iconic EURO STOXX 50^® index playing a key role in their strategic positioning and business growth. 

In the past 25 years, the collaboration between the two firms has yielded some of the world’s most innovative and popular trading solutions, coinciding with a changing investment landscape and an ever-more sophisticated trading community. The latest joint product, daily options on the EURO STOXX 50, was launched only in August 2023. 

As this deep-rooted partnership reaches its 25^th anniversary, we caught up with Michael Peters, CEO at Eurex, and Axel Lomholt, General Manager at STOXX, to discuss their expectations on index themes and growth areas. 

^{Michael Peters}

^{Axel Lomholt}

Michael, first of all, congratulations on the launch of the EURO STOXX 50 index Daily Options

Michael: “This launch represents an initial step in establishing a range of shorter-dated options. As a first step, Eurex and the clients established the necessary infrastructure. Acceptance post-launch has been impressive with regards to both volume and the diverse client base involved. In its first month of trading, almost 340,000 contracts exchanged hands, with nearly 50 market participants taking part. This is a strong signal of the huge appetite for flexible trading and risk-management solutions as investors seek to react quickly and precisely to specific market events.”

Axel, what do these new options bring to the EURO STOXX 50 trading ecosystem? 

Axel: “The product ecosystem around the EURO STOXX 50 constitutes a world-leading case in trading solutions. Through them, traders and investors of all sizes can access the European equity market in a liquid, transparent and price-efficient way, whatever their ultimate trading strategy may be. This ecosystem continues to grow in size and capabilities. More market participants can trade the EURO STOXX 50 benchmark and its ESG, dividends and volatility strategies, for example, through a growing list of exchange-traded derivatives, ETFs and structured products. At STOXX, we have a client-first focus, we are flexible, and we have an open architecture when it comes to integrating external data. All that enables us to partner with a variety of clients such as exchanges like Eurex as well as with asset owners, money managers and issuers, to come up with the best tailored solution.”

Please tell us a bit about the synergy and strong success story between Eurex and STOXX 

Michael: “The STOXX brand is inherently linked to the growth of Eurex as an exchange, and the EURO STOXX 50 is the European benchmark of choice for our international client base. Options and futures on the benchmark were among the first contracts listed on the newly established Eurex in 1998. Today, the numbers speak for themselves. Through September, nearly 190 million EURO STOXX 50 futures contracts traded this year on our exchange, accounting for more than half of our entire equity index futures segment’s volume. Options on the index represent about 60% of the volume in our equity index options segment. 

Both Eurex and the EURO STOXX 50 are placed at the heart of Europe, and they are the first choice when investors gain exposure to our region. The menu of joint solutions with STOXX has expanded significantly since 1998 — such as European sector index and volatility futures, to mention only a few — but futures and options on the Eurozone blue-chip benchmark remain our most popular products.”
 
Axel: “The launch of STOXX, EURO STOXX 50 and Eurex operations in 1998 was an important moment in the history of the integration of European markets, one that even preceded the introduction of the euro by a few months. I was involved in European financial markets at the time, as was Michael, and I remember fondly the birth of a flagship benchmark that would come to represent the fortunes of the continent’s economy and companies. Since then, the shared journey with Eurex has gone from strength to strength — to the benefit of market participants and stakeholders.”   

Michael, you mentioned the growing suite of joint solutions with STOXX. That seems to have gathered much pace in the last few years. Can you mention some of the highlights there?

Michael: “The last few years have brought tremendous innovation, and many of our “first” product milestones are linked to STOXX. Together, we launched Europe’s first ESG futures in 2019, with contracts on the STOXX^® Europe 600 ESG-X index. As of September, over 1.3 million contracts have traded in 2023. We have also expanded that suite to cover the US market. We’ve seen only the first phase in the development of ESG, and this is a segment that will continue to gain in importance. 

Elsewhere, increasing appetite for factor-based and thematic strategies have also allowed us to break new ground. In March 2021, we expanded our equity index segment with new factor-based futures tracking the STOXX Industry Neutral Ax Factor indices and covering the Value, Momentum, Low Risk, Quality and Size factors.

As you can see, we work well together. I think design flexibility is a common trait of STOXX and Eurex, and thousands of clients rely upon us every day for our rules and transparency. That’s not surprising – we were, after all, born together and under a same parent, Deutsche Boerse Group. I expect much more of this teamwork in the future.”

This 25^th anniversary celebration comes at a time of heightened uncertainty in financial markets. How does that affect your companies’ business? 

Michael: “We have a particular responsibility during times of uncertainty and market volatility because we can provide safe and functioning markets in which participants can transfer risk. High inflation, a shifting global interest-rate environment, and even war in Europe. But throughout huge price swings, the Eurex platforms have proved to be a pillar of stability for financial markets. Of course, our trading business isn’t correlated to the economic cycle, and indeed we can see increasing volumes at times of risk aversion.”  

Axel: “It’s interesting, because some of the most productive moments in terms of design and new launches have coincided with the less prosperous or more uncertain economic background of the past few years. We continue to see sustained demand for our indices, because investors more and more want targeted and tailored solutions, and advances in technology and data gathering have opened the doors for new possibilities. Additionally, I think that larger than any cyclical downturn, looms the structural active-to-passive shift that has benefitted the indexing industry for years now.”

What do you see going forward in your industries and in the market landscape?

Michael: “For us at Eurex, futurization will continue to be a major driver. The successful transition from OTC-traded swap markets to standardized derivatives, traded and cleared in a regulated environment, will provide the benefits of capital efficiency and appropriate risk management. In addition, we intend to expand the concept of daily options to the DAX family. 

We expect sustainability and factor products to keep outpacing growth in more traditional segments and see the strong trend in thematics carrying on. The shift to systematic and so-called passive strategies continues unabated, but we are also facilitating trading to active investors with new solutions that allow them to manage and hedge their portfolios, no matter their focus or tilt.

Despite a global pandemic and an economic slowdown, trading in derivatives has grown. As Axel has mentioned, our collaboration with partners such as STOXX has allowed us to innovate even in difficult market environments. I expect more of this in coming years. 

Finally, I’d like to say that we live in a time of great change. Political, technological, social and, of course, climate change. All these are big challenges but also great opportunities. The exchange operators and clearing houses will offer the needed risk-management functions and tools, and provide stable markets. Working on the principles of integrity and trust.”
 
Axel: “I fully agree. Both our and Eurex’s growth has come alongside the multi-decade boom in index investing, itself underpinned by the multiple benefits of low cost, transparent methodologies, and rules, as well as intra-day pricing and trading. But our companies are also at the center of breakneck technological change. Thanks to the spread of alternative data, and the consequential growth in systematic and quantitative investing, STOXX is not just an index provider, but an intelligent investments hub. Innovation broadens our possibilities; it pushes us to think outside the box and to come up with smart ideas that may have been unimaginable a few years ago. 

If the pace of change since 1998 is any guide, the next 25 years promise to bring even more transformation to the indexing and derivatives space.”