Clearing Explosion: 3 Takeaways from Eurex's H1 Report for 2018

It’s been a positive six months for Eurex. The stock exchange operator, a subsidiary of Deutsche Börse AG, released its financial report for the first half of 2018 this Wednesday.

The report shows the firm managed to improve on its performance from the first half of 2017. Revenues were up as the firm reported increases in cash flows, some substantial, across its various business lines.

As we know how just how busy our industrious readers are, we’ve taken the time to briefly outline some of the key points from the report. So tear yourself away from work for a few minutes, sit back and enjoy these three key takeaways from Eurex’s financial report for H1 of 2018.

Revenues are up

As you may have surmised from that riveting introduction, Eurex did indeed report a year-on-year increase in its revenues for the first half of this year.

In 2017, the firm managed to rake in €427.3 million ($499.08 million) in revenue over the course of the first half of the year. For the same period of this year, the Stock Exchange Stock Exchange A stock exchange, also known as a securities exchange or bourse represents is a facility where stockbrokers and traders can buy and sell securities.This includes shares of stock, bonds, exchange-traded funds (ETFs), or other financial instruments. By extension, stock exchanges can also provide facilities for the issue and redemption of such securities and instruments and capital events including the payment of income and dividendsStock exchanges have developed into a permanent fixture in the fin A stock exchange, also known as a securities exchange or bourse represents is a facility where stockbrokers and traders can buy and sell securities.This includes shares of stock, bonds, exchange-traded funds (ETFs), or other financial instruments. By extension, stock exchanges can also provide facilities for the issue and redemption of such securities and instruments and capital events including the payment of income and dividendsStock exchanges have developed into a permanent fixture in the fin Read this Term operator managed to increase that number significantly.

The firm reported total revenue of €476.6 million ($556.66 million) in the first half of this year. That was equivalent to a 12 percent year-on-year increase for the stock exchange operator.

Unsurprisingly, Eurex’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also increased. In the first half of 2017, the firm reported EBITDA of €291.7 million ($340.70 million).

This year, that number grew to €334.9 million ($391.15 million) - a 15 percent increase. This was despite the firm’s operational expenses increasing by seven percent to €163.5 million.

Derivatives trading increased across the board

As is to be expected, overall revenue growth was driven by revenue increases in the different products Eurex offers.

Revenue from equity index derivatives grew from €212.4 million ($248.08 million) in H1 of 2017 to €235.1 million (€274.59 million) this year. That growth, according to Eurex, was driven by greater Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term in the equities markets in the first quarter of this year.

In the firm’s interest rate derivatives section, growth, in percentage terms, was slightly lower. The firm reported a 9 percent increase in its interest rate derivatives revenue, as opposed to 12 percent growth in equity derivatives revenue.

Last year, the firm made €111.6 million ($130.35 million) from its interest rate derivatives business line. This year that figure grew to €235.1 million ($274.59 million). This appears to have been a result of decisions taken by the European Central Bank, with market participants expecting a rise in interest rates in the medium term.

The firm’s clearing efforts have paid off

Though it still remains, comparatively, a small money making area for the firm, Eurex’s efforts at ramping up its clearing services have been very successful.

In October 2017, the firm launched its Eurex Clearing Partnership Programme. This was designed to provide clearing services for interest rate swaps denominated in euros.

Thus far, 29 market participants from the US, the United Kingdom, Asia and Continental Europe have joined the programme. An immediate impact has resulted from this.

During the second quarter of this year, Eurex reported a ten-fold year-on-year increase in the volume of interest rate derivatives it had cleared. The exchange operator also reported a five-fold year-on-year increase in outstanding nominal volume for June of this year.

Reflecting growth in clearing volumes, the firm’s revenues from its clearing services ballooned.

In the first half of 2017, Eurex reported revenues of €4.8 million ($5.61 million). In H1 of this year, that figure almost tripled as it grew, by 138 percent, to €11.4 million ($13.31 million).

This meant that, in percentage terms, the firm’s clearing services provided, by a huge margin, the greatest area of growth.

Responding to the market

Eurex should be applauded for having managed to outperform itself in the first half of this year. That success should, however, be taken with a grain of salt.

The stock exchange operator noted itself that increases in revenue deriving from derivatives trading, its biggest revenue generator, was largely driven by external factors. It was not that the firm improved its service offering so much as traders were responding to changes in the market.

The exception to this was the firm’s clearing services. Eurex’s efforts at bolstering this area of its business have been well-rewarded, and the firm should be praised for the steps it has made in this line of its business.