U.S. proprietary trading firms and hedge funds are behind a recent surge in equity index derivatives business at Eurex, the derivatives exchange controlled by Deutsche Boerse (DB1.XE), according to a senior executive.

Continued volatility in global stock markets has put prop trading shops at center stage as liquidity providers in equity derivatives markets, and a handful of new member firms at Eurex have been major contributors of volume, said Heike Eckert, head of U.S. operations for Eurex.

"A certain volatility level is fostering market-maker activities and our volumes," Eckert said in an interview with Dow Jones Newswires.

Her comments came ahead of a 32% fall in first-quarter profits reported Monday by Deutsche Boerse. Earnings before interest and tax for Eurex outperformed the cash equities business, though they fell 22% in the quarter.

Deutsche Boerse shares closed Monday at EUR55.54, up 1%.

Trading in fixed-income derivatives, a major part of Eurex's business, has slackened as banks and hedge funds reduced leverage and trading activity since last fall.

Meanwhile, churning equity markets have fueled trade in equity index futures such as Eurex's Dow Jones Euro STOXX 50 contracts, which in April were the exchange's most actively traded product, representing 17.2% of total volume.

"The growth of equity index products has surpassed our estimations," Eckert said.

Eurex, co-owned by SWX Swiss Exchange, is the world's second-largest futures platform behind Chicago-based CME Group Inc. (CME), which traded 193 million contracts in April. Eurex handled 152.2 million trades for the month.

CME also has seen equity products pull ahead of interest rates, with its e-mini stock index group up 18% year-on-year in April, while rate futures trading sank 45%.

Though signs of stabilization have appeared over the last couple months, Eckert said that Eurex's member firms expect fixed-income derivatives volume will remain weak for the next year.

 
 
   Exchange Seeks Increased Washington Presence

Eckert, who recently returned from a visit to Washington, D.C., and who is preparing to return Tuesday, said that Eurex wants to boost its profile in the U.S. capital as a derivatives exchange with a trans-Atlantic viewpoint.

In recent conversations with members of Congress, Eckert has sought to promote a global view of market regulation, noting that while market rules may vary from country to country, they generally serve the same purpose.

Like other exchanges, Eurex touts the reliability and transparency of regulated derivatives markets and the benefits of applying central counterparty clearing to over-the-counter instruments.

Like a handful of other exchanges, Eurex has developed a clearinghouse for credit-default swaps; the service has been functional since March and is now running simulations with several dealer banks.

The exchange also plans to reach out to smaller banks and other buy-side firms.

Eurex expects an official launch in July, when major European CDS dealers have indicated they expect to shift trading onto cleared platforms. The initial product scope will include iTraxx CDS indexes, as well as the single-name credit-default swap constituents of those indexes.

As Eurex goes up against competitors like IntercontinentalExchange Inc. (ICE), LCH.Clearnet and NYSE Euronext (NYX) to clear European credit derivatives, the exchange is courting bank support by offering up to 90% of the equity in its platform, as well as sharing governance with stakeholders, according to Eurex officials.

-By Jacob Bunge, Dow Jones Newswires; (312) 750-4117; jacob.bunge@dowjones.com