LONDON Jan 11 Derivatives exchange Eurex launched Europe's first exchange-traded single stock dividend futures on Monday, which could give insight on market expectations for companies' dividend policies.
Societe Generale (SOGN.PA), a leading dealer in equity derivatives and the first market-maker, kicked off the market by providing two-way prices on the instruments for 25 companies in the Dow Jones Euro Stoxx 50 Index .STOXX50.
European corporate results bottomed around mid-2009 and have started the road to recovery. Many companies slashed dividends to help survive the financial crisis, and analysts say dividend recovery tends to lag an earnings uptick by 12 months or less.
"For the first time, the pure dividend component of the underlying stocks of a benchmark equity index is available for exchange trading and clearing as a stand-alone product in Europe," Eurex said.
Dividend futures on the index itself already amount to a significant market on Eurex, with trading of about 10,000 contracts per day for a total volume of around 23 billion euros ($33.4 billion) in 2009, a Eurex spokesman said.
Based on investor and dealer queries and anecdotal evidence, the exchange expects trading in the new single company dividend futures to become a significant percentage of that volume, he added, citing about half as a rule of thumb.
On the first day, SocGen traded 100 lots on German insurer Allianz (ALVG.DE), the spokesman said.
Each lot covers the dividends on 100 shares over an annual period from late December to late December.
Eurex plans to add the remaining 25 members of the index on March 1, in time for the bulk of company dividend announcements between May and July, and to add more market-makers, the spokesman said. ($1 = 0.6879 euro)