The Exchange for Physicals facility

The Exchange For Physicals facility

CAC 40® & AEX–Index® Futures

What is the EFP facility? Who are EFPs for? Why use a Euronext EFP?
The world’s first exchange traded central order book for Exchange for Physicals on Index Futures. Investors looking to manage positions between delta one structures or hedge the basis. To trade in a fully transparent cleared environment that provides the benefits of complete straight-through-processing.

First on-exchange, fully automated and centrally cleared Exchange for Physicals

Euronext offers the first fully automated and centrally-cleared Exchange for Physicals (EFP) facility. A major innovation in the derivatives market, this complete solution allows investors to exchange CAC 40 or AEX-Index Futures with their corresponding stock baskets, in a secure and transparent environment.

The EFP facility offers trading in a regulated centrally cleared environment through a transparent central order book and is supported by a liquidity-providing scheme.

Both monthly and weekly expiries on CAC and AEX indices are available, giving investors access to two different trading cycles.

Guaranteed Cross Trades can be used on EFP transactions.

What is an Exchange for Physical?

An Exchange for Physical (EFP) is a transaction involving the simultaneous exchange between two parties of a futures position with a basket of physical assets. EFPs based on index futures are transactions made on the basis of the difference between the index futures price and the spot price of the index.
EFPs are typically traded Over-the-Counter (OTC).

Key benefits of the EFP facility

  • Eliminates operational burden thanks to the automated straight-through-processing solution for pricing, clearing and settling both the future and cash legs.
  • Improves transparency with an open central order book that concentrates liquidity and publishes orders in real-time.
  • Improves the trading environment due to continuous trading combined with market makers providing competitive prices throughout the trading day.
  • Counterparty risk is absorbed by the central counterparty. Clearing provides a guarantee on both the futures and cash legs.
  • Minimises cash delta through Euronext’s double sweep algorithm, based on real-time cash underlying prices.

An exchange for physical transaction

An exchange for physical transaction

How do our EFPs work?

The EFP on Equity Indices developed by Euronext is a trading strategy that allows an index future to be exchanged simultaneously for a basket of shares of the index’s constituents in accordance with their weighting, via a single trade. Trades are executed on the Euronext EFP order book. Execution of orders within the EFP order book generates the following transaction legs, namely:

  • one trade for the index future, and
  • one trade per cash underlying share.

The index futures leg is executed at the last traded price, and the cash legs are executed at an adjusted price based on the last traded price of the shares and adjusted to match the agreed EFP price using an allocation algorithm.

Both the future leg and the cash legs derived from the EFP transaction are cleared via LCH S.A.