Eurex, a leading global derivatives exchange, is set to launch an innovative liquidity provider (LP) program for its flagship EURO STOXX 50® Index Options (OESX or SX5E Options) in July 2025. This move is part of Eurex’s continuous efforts to enhance liquidity and improve market efficiency for one of Europe’s most traded and established index derivatives. The new liquidity provider program marks a bold shift in how liquidity will be provided, with the central principle being “a good quote is a traded quote,” emphasizing the need for quotes to not only be competitive but also result in actual trades. This fresh approach has already garnered significant support from the market-making community, including major participants such as Optiver, Maven, and IMC.
Evolution of EURO STOXX 50® Index Options
The EURO STOXX 50® Index Options, representing the performance of 50 leading companies in the Eurozone, have been a cornerstone of the European derivatives market for over two decades. As the financial markets continue to evolve, Eurex recognizes the importance of refining its liquidity framework to adapt to changing market conditions. Despite being one of the most liquid and well-established listed derivatives in Europe, liquidity provisioning in the European options market has faced challenges, particularly with respect to off-screen trading and the lack of continuous external price quotes for out-of-the-money strikes and longer-dated expiries.
Liquidity in the European derivatives market has traditionally been concentrated around the most liquid strikes, often leaving less liquid strikes underrepresented. To address these gaps and challenges, Eurex is introducing a new framework for liquidity provision that goes beyond traditional performance-based metrics to focus on time-weighted quality of quotes. This novel approach aims to stimulate more consistent and higher-quality liquidity across the board.
The Core of the New Liquidity Provider Program
Eurex’s new liquidity provider framework marks a departure from the traditional liquidity schemes seen in the derivatives market. Most current liquidity provisioning programs focus on the performance of liquidity providers against specific thresholds, such as the number of quotes provided or the volume traded. The new Eurex program, on the other hand, prioritizes the quality and consistency of quotes, rewarding liquidity providers based on time-weighted factors, thus promoting sustained and meaningful liquidity provision.
The essence of this new model is captured in the idea that “a good quote is a traded quote.” This principle encourages liquidity providers to focus not just on quoting but on making quotes that actually result in trades. By rewarding passive liquidity providers who quote competitive and meaningful prices that attract trades, Eurex aims to enhance overall market dynamics and ensure that the market remains deep and efficient.
Support from the Market-Making Community
The program has received widespread support from some of the most influential market-making firms, all of whom have emphasized the importance of the program in enhancing market efficiency and liquidity. Patrick Bonouvrie, Head of Index and Rates Options at Optiver, expressed his enthusiasm for Eurex’s ambitious changes, noting that “for the market at large, the best quote is one that actually trades, and this is what this program for liquidity providers incentivizes and rewards.” Bonouvrie also highlighted the program’s potential to increase new flow and diversify market participation, making the overall market more dynamic and liquid.
Similarly, Felipe Morales, Corporate Development at Maven, welcomed the changes brought by the new liquidity program, particularly noting its potential to increase on-screen liquidity and reward competitive quoting. According to Morales, this initiative represents a significant advancement for European derivatives markets and is expected to positively impact both end-customers and the broader market.
IMC’s Sergio Tam Suárez also echoed similar sentiments, pointing out that the introduction of greater competition among liquidity providers would lead to enhanced spreads, better volume quality, and ultimately, increased transparency in the market. With European trading volumes stagnating in comparison to their U.S. counterparts, the new liquidity provider program comes at an ideal time to revitalize the European options market and encourage higher screen participation.
The Challenges of European Market Structure
The European options market has long been characterized by a two-tiered structure, with significant differences between visible and available liquidity. This structure has created challenges for market participants, especially for those unfamiliar with the mechanics of the market. Many transactions occur off-book, with liquidity providers primarily executing Immediate-or-Cancel (IOC) orders rather than providing visible quotes that can be executed directly against the order book. The result is a fragmented liquidity picture that can deter participants, particularly new entrants who rely on transparent and accessible market information.
The new liquidity provider program is designed to address these issues and create a more robust and accessible liquidity environment. By focusing on improving the quality of quotes and incentivizing liquidity providers to make their quotes more reliable and tradeable, Eurex aims to bridge the gap between visible and available liquidity, creating a more seamless trading experience for all participants.
Key Features of the New Liquidity Provider Framework
The new liquidity provider framework introduced by Eurex consists of several innovative components designed to enhance the market-making environment for EURO STOXX 50® Index Options. These components include the Basis Building Block, the Advanced Building Block, and the Passive Volume Incentive. Each of these measures is designed to incentivize different aspects of liquidity provision, from quoting consistency to quote quality and trade execution.
Basis Building Block:
This foundational element of the new program requires liquidity providers to quote all maturities over a wide delta range. The goal is to ensure consistent coverage of the entire curve, including both in-the-money and out-of-the-money strikes, throughout the day. This component aims to increase market depth by ensuring that liquidity is available in all market phases, addressing the traditional challenge of fragmented liquidity in European options.
Advanced Building Block:
This element incentivizes liquidity providers to offer better spreads and larger sizes. By implementing a sliding-scale rebate system based on time-weighted spread and size, liquidity providers are encouraged to quote more aggressively, enhancing the overall competitiveness of the market. This feature introduces a level of specialization among liquidity providers, allowing them to tailor their quoting strategies to maximize incentives while also competing to improve liquidity in specific parts of the curve.
Passive Volume Incentive:
The key concept behind this incentive is that a good quote is a traded quote. This component rewards liquidity providers for passive executions, compensating them for making quotes that result in trades. By introducing competition among liquidity providers based on their passive volume share, Eurex aims to enhance quote quality and ensure that liquidity is not only available but is also traded, improving market efficiency for all participants.
These components are designed to work together, providing liquidity providers with clear incentives to improve both the quality and quantity of their quotes. Additionally, the new program will sit alongside Eurex’s existing Volume Rebate Framework, which remains unchanged and continues to reward liquidity providers based on trade size and volume.
The Goal: A More Attractive Market for Participants
Eurex’s goal with this new liquidity provider program is to make the EURO STOXX 50® Index Options market more attractive to a broader range of participants. By creating a more competitive and transparent liquidity environment, Eurex hopes to attract both new customers and increase participation from existing players. The improved liquidity structure will benefit end-users, who will have better access to competitive pricing and deeper liquidity, ultimately enhancing the overall efficiency of the market.
Sergio Tam Suárez from IMC noted that increased competition among liquidity providers would lead to improved spreads and higher-quality volume, ultimately benefitting the broader market. The changes to the liquidity provisioning structure also aim to address the stagnation in European volumes compared to the U.S. markets, as the introduction of better liquidity and more visible quotes is expected to drive more trading activity and help grow the European options market.
Timeline for Implementation
The new liquidity provider program is scheduled for full implementation on July 1, 2025, with liquidity providers given a testing period starting in May. This timeline allows market participants to adapt to the new framework, test their systems, and prepare for the official rollout of the program. Eurex’s commitment to improving liquidity provisioning and attracting new market participants will continue to shape the evolution of the European options market in the coming years.
Conclusion
Eurex’s new liquidity provider program for EURO STOXX 50® Index Options represents a significant step forward in improving liquidity and market efficiency in the European derivatives market. By focusing on the quality and consistency of quotes, the program aims to create a more attractive and accessible trading environment for all participants.
