​Weekly: Listed Forward Start Options, Impacts On SX5E Cutting And Div-Call Demand

In the U.S., hedge funds are calling on forward start options to be listed on exchange in a bid to further open up the product to greater investor participation, increasing liquidity. This would obviously have the potential to limit the sellside’s very lucrative OTC trade, potentially driving down costs for the funds. In Europe, increasing moves by delta one desks to cut inventory and buy back synthetics is pushing equity repo rates lower in the Eurostoxx 50 (SX5E) with the Eurostoxx 1-yr total-return swap at its highest point during the last five years. Given the trend, combined with the lack of supply seen from investors in front-end futures, rolling could be challenging for investors as the sellside would be less willing to provide liquidity during the futures roll. Also in divs this week, five-year structured notes on a strip of calls on Eurostoxx dividends are appearing attractive given the current term structure backwardation.