Italy’s capital market has long traditions that underline its importance on the map of Europe. For the country, one of the most prominent participants in this market is the Borsa Italiana, the country’s only stock exchange, which was founded in 1808 by Eugenio Napoleone.
Since 2007, Borsa Italiana is a subsidiary of the London Stock Exchange Group. Recently, Finance Magnates caught up with Massimo Giorgini, Head of Equity and Derivatives Markets Business Development, to see what impact the current coronavirus pandemic has had on the Italian derivative market (IDEM) and about the exchange’s plans to extend its futures trading hours.
When asked what trends Giorgini has noticed on the derivatives markets so far this year, he said: “Volatility has increased sharply globally since the outbreak of COVID-19. Our markets have been operating normally and we continue to actively support all of our clients.”
“On top of the successful extension of trading hours for FTSE MIB futures and mini-futures, we are planning to roll out a few market structure enhancements with the aim of improving on-screen market liquidity and offering new block trading mechanisms and opportunities.”
Why did Borsa Italiana extend its futures trading hours?
Speaking on why Borsa Italiana decided to extend its futures trading hours, Giorgini explained: “IDEM is a leading market offering global access to Italian equity derivatives. The market offers investors the ability to trade the full suite of FTSE MIB index futures and options as well as the full range of Italian single stock options and single stock futures.
“IDEM has an established leadership position in its core offering. This is thanks to an extensive international client network, more than 20 market-making firms providing strong liquidity, a unique and well-established partnership with the Italian retail brokerage community, a well-integrated trading and clearing services supported by resilient technology, a competitive business proposition for a diversified set of participants, and significant synergies between derivatives and other parts of the Borsa Italiana’s secondary trading ecosystem (Italian cash equities, ETFs and securitized derivatives).”
“The Italian derivatives market has a double vocation in terms of institutional and retail flows. Since the early 2000s, IDEM has been acknowledged as one of the very few in Europe enjoying significant activity contribution from retail investors. For this reason, Borsa Italiana has offered an After Hours session on Italian cash equities from 6:00 pm to 8:30 pm CET since 2000, as well as on FTSE MIB futures and mini-futures since 2017.”
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“In light of the increasing support from market participants and from the online trading industry, IDEM market further extended trading hours on 17 February this year, with FTSE MIB futures and mini-futures opening continuous trading at 8:00 am CET and closing at 10:00 pm CET. Member firms and investors are now able to get a sense of where the underlying cash market is expected to open at 9:00 am CET, and will be able to trade the Italian benchmark till U.S. market close.”
So what kind of impact is this type of move likely to have? According to Giorgini, it means an increase in trading both in the retail and institutional space.
“This change in market structure has been strongly supported not only by the historically well-developed and technologically advanced retail industry but also by institutional clients active in the U.S,” he highlighted.
“Over 200,000 contracts from a variety of market participants have been traded before 9:00 am and after 5:50 pm CET on the first month since launch, representing 7% of daily volumes on FTSE MIB futures and 13% of volumes on FTSE MIB mini-futures. We believe this initiative represents an important development for the IDEM market and its international growth path. We do expect more flows to come to the market in the future.”
IDEM volumes in 2020
How have volumes on the Italian derivative market been so far this year? Answering this question, Giorgini stated: “FTSE MIB futures and FTSE MIB mini-futures have been amongst the fastest-growing equity index derivatives in Europe in recent years. The exchange has onboarded several new sell-side clients, including global market-making firms and brokers; in that particular respect, the IDEM market has been one of the most successful in Europe and the less impacted by client consolidation after the implementation of MiFID II.
“In 2019, new records were set on FTSE MIB futures, both in terms of daily contracts traded as well as in terms of open interest, a testament of the growing interest from final investors. Looking forward. In the first couple of months of 2020, the average daily volumes traded of FTSE MIB futures and mini-futures volume were up by 46% and 41%. The daily traded volume of FTSE MIB options was up 41%, and Italian stock options volume was up 68%, reflecting increased local market volatility and customer interest.”