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FTSE launched its EStars index in June, as a bell-weather for Euroland bluechip stocks writes Carl Beckley
Earlier this month, financial markets in Europe welcomed the arrival of what may prove to be the most liquid and tradable Euro index yet. The ‚€ėFTSE EStars‚€ô, made visible and available to market professionals on the 14th June, is FTSE International‚€ôs new, easily-tradable Eurozone index. The launch puts FTSE International a step ahead in the indices, and is seen as an innovative move from a company which prides itself as providing a transparent, accurate and comprehensive family of indices through close co-operation with the market.

Two weeks later, on the 29th of June, futures and options were listed on the index, on both Amsterdam Exchanges and London International Futures and Options Exchange (LIFFE).

The narrow based, large cap index is indeed innovative in that it contains 29 stocks from amongst the largest and most liquid companies from the Eurozone countries. These ‚€ėmagic 29‚€ô are the stocks common to the major cross-border European indices on which derivatives are traded in Europe today.

The index compliments the existing FTSE equity indices series, acting as a transitional bridge for many traders who have yet to enter the zone of European derivative trading. And as the bell-weather for Euroland‚€ôs ‚€ėsuper‚€ô blue-chip stocks, the index is ideally suited for the creation and issue of retail products.

Another advantage of FTSE EStars is that it is the product of extensive research. FTSE International surveyed 45 different investment houses, banks and equity trading companies across Europe on their ideal Eurozone index and on barriers to Euro trading. An overwhelming majority (90%) stated liquidity as the most important asset of any equity trading index.

The majority of those surveyed in Germany, France and Netherlands thought the ideal size was under 50 companies - endorsing FTSE‚€ôs plans to release a 29-stock index.

The stocks included in the new index are traded on 5 markets (Frankfurt, Milan, Amsterdam, Madrid and Paris) and represent 8 French, 8 German, 7 Dutch, 3 Spanish and 3 Italian companies. There will be a fixed annual revision in December, based on eligible securities on the first trading day that month.

These companies represent nearly 40% of the total market capitalisation of the FT/S&P Eurobloc benchmark index and are extremely liquid (an investment of E50million in the index would require trading less than 1% of the average daily stock market turnover of the constituent companies).

George Moeller, Chief Executive of Amsterdam Exchanges, is enthusiastic about the initiative. ‚€ĚEStars is a very attractive proposition for the market: compact, very liquid, and designed in a style that mirrors the smaller national indices of the continent. This gives the FTSE EStars index the potential to rapidly become the most tradable and traded Euro index.‚€Ě

Guy Simpkin, LIFFE‚€ôs Director of Product Development, shares Moeller‚€ôs enthusiasm: ‚€úWe have very high expectations of the FTSE E-Stars index accelerating European index trading on LIFFE.‚€Ě

Reaction to the creation of EStars has been good, and initial performance of the derivatives in the first few weeks of trading is already showing promising signs of success. Mark Makepeace, Managing Director of FTSE International, believes this is due to the fact that the index was created to address specific European market demand.

‚€úThe response we‚€ôve seen to the launch has been beyond our expectations,‚€Ě says Makepeace. ‚€úThe FTSE EStars index was created to service the specific needs of our customers for a highly liquid Eurozone retail and derivative index. The feedback we have had so far from many of Europe‚€ôs leading financial institutions and from the media is vastly encouraging.‚€Ě

Makepeace explains that that the FTSE EStars index complements FTSE‚€ôs European product range. ‚€úAs a customer-focused company we respond to market demand, and many of our customers have been demanding a compact, highly liquid Euro-zone index, compiled to our usual high standards of transparency.‚€Ě

Indeed, a number of organisations expressed an interest from the outset, including Societé Generale who launched warrants onto the index on the first day of trading.

Another key to EStars‚€ô success is timing. The past two years have seen a rapidly growing interest in cross-border investment throughout Europe. The launch of the euro, breaking down borders between the 11 member countries, has intensified this trend, resulting in a growth of equity investment in continental Europe. Investment experts also believe the creation of new euro indices will increase the ability of pension funds to invest in liquid regional assets and speed up the development of pan-European equity markets.

New cross-border investors are placing funds in the best-known shares in other countries, and many fund managers benchmark their performance against the blue-chip indices, which comprise the largest and most liquid stocks. With further growth on the cards, FTSE is confident that the transparent and highly liquid index will be a fundamental tool to Eurozone investment.

FTSE have high hopes for the triumphant lift off of the Estars futures and options contracts. Meanwhile what is certain is that the new index has caught the imagination of continental asset managers.

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