New York and Amsterdam forge new international market link
The European Options Exchange has answered a call from the American Stock Exchange that will lead to longer trading days and an increasingly international market. Next Monday, the European Options Exchange (EOE) in Amsterdam will begin trading options on the American Exchange's Major Market Index, or XMI, as it is known to traders. The New York-Amsterdam options linkup indicates a further globalization of the financial industry and shows that Europeans (and Asians) are adopting US-style money management techniques. The XMI has proved very popular among money managers as a way of hedging against short-term price changes, or providing ``portfolio insurance'' for the assets they manage.
This will ``be the first international options linkage,'' American Exchange president Kenneth R. Leibler said at a press conference this week. ``The goal is to provide investors with an extended trading day.''
The XMI option on the European exchange will be interchangeable with those listed on the Amex, Mr. Leibler stresses. ``XMI is a good opportunity for Europeans to participate in United States markets,'' observes Jan van de Water, EOE's deputy managing director. He expects the linkage volume to be modest at first - ``1,000 contracts a day will be a success.''
The European Options Exchange is the first and largest options exchange outside the United States. The XMI options will trade on it from 6 a.m. to 10:30 a.m. Eastern time, or noon through 4:30 p.m. in Amsterdam, with a one-hour overlap at 9:30 a.m. (Eastern time).
The XMI, based on 20 blue-chip stocks, has a 97 percent correlation with the Dow Jones industrial average; that is, its movement is within three percentage points of the Dow, Leibler says. Because the Europeans tend to favor blue chips, ``XMI lends itself very well to this interest,'' he adds. Since XMI trading began in April 1983, average daily volume has increased nearly 600 percent. Now daily contracts total 75,000.
The American Stock Exchange created the XMI because Dow Jones & Co. would not allow its average to be the vehicle to trade stock-index futures and options.
A licensing agreement between the Amex and the European exchange permits the XMI options trading, but no arrangement has been reached for a European index to trade in the US now, Leibler says. The linkage between the two exchanges keeps the Amex from having to build a foreign market ``from scratch,'' he notes.
Leibler hopes XMI will open doors to a larger market. ``If XMI is successful, it would make sense to try something on the other end of the time zone,'' he says. ``I'd love to extend the trading day in the Far East.''