The first property derivatives sector switch took place on the Eurex exchange this month. The two parties swapped all-industrial and all-offices returns. Jon Masters of bgc, the deal’s broker, said the trade was 15 lots of Calender 2012 contracts per side, making £1.5m in total. “We traded at level prices, of 2%: one counterparty sold the Cal 12 All-Industrial contract at 102 and bought the Cal 12 All-Office contract at 102; the other counterparty did the opposite. The only risk is the movement between the two sectors.”
Masters added: “This is a key way that we see funds rebalancing their portfolios. It was all done in a day and the only cost is our brokerage fee.” Since Eurex launched sector trades in August there have also been four trades in All-Retail futures, totalling 50 contracts, at a price of 106.3 on 22 August, 106.45 and most recently 106.2. Eurex hopes to introduce sub-sector contracts in Q4 2011. “Investors are looking for the granularity of sub-sectors,” Masters said.