Easy Euwax is a special segment for trading in securitised derivatives, and the new fee model exemplifies the impact ethat neobrokers have on the pricing of securities trading.

With the emergence of providers like Trade Republic and Finanzen.net Zero since 2015, the battle over profit margins in securities trading has intensified. Added to this are the successes of fee-free platforms Lang & Schwarz Exchange and Gettex. They are operated by the Hamburg and Munich stock exchanges, which prompted Stuttgart to introduce Easy Euwax, a zero-fee segment for trading securitised derivatives.

„Due to increasingly narrow spreads and minimalised transaction fees, the business now relies more than ever on well-filled order books“, says Dragan Radanovic, Chief Business Officer of the Stuttgart Stock Exchange Group and CEO of its subsidiary Euwax AG. The goal is to achieve economies of scale through an increase in orders. At the same time, the Stuttgart Stock Exchange aims to regain more volume from off-exchange trading.

Unlike the „parent segment Euwax”, which celebrates its 25th anniversary on July 1, Easy Euwax does not charge an exchange fee, but expects issuers of securitised derivatives to pay higher listing fees, thereby partially compensating for the lost transaction fees. Radanovic speculates that the number of trades will increase without transaction fees for end customers. The magic formula for the exchange is lower variable trading fees, higher fixed listing fees. Since it is still unclear whether the strategy will pay off, market participants are closely watching how an exclusive pact between order flow provider Comdirect and issuer Morgan Stanley develops. For orders placed via Comdirect for products listed on Easy Euwax, investors incur neither exchange fees nor broker fees.

Comdirect does now see more customers trading through the exchange. „This does not result in a shift at the expense of off-exchange trading, as it is additional trading volume”, states Björn Andersen, Head of Brokerage at Comdirect. This means the overall market has grown – both on and off exchange. Euwax’s monthly turnover in December 2022, just before the launch of the new sub-segment, was 2.2 billion euros. It grew to 3.0 billion euros for April 2024.

Nevertheless, there are shifts in marketshare among issuers operating on Euwax – in favor of Morgan Stanley. The US issuer, along with smaller institutions Raiffeisen Bank International (RBI) and Erste Group Bank, is the only institution that has ventured into Easy Euwax so far – and is being rewarded for it. Since the introduction of the sub-segment, Morgan Stanley has become the top-performer among the 17 issuers on Euwax, displacing rivals BNP Paribas and Société Générale from the top spots. In April, Morgan Stanley achieved a turnover of nearly 500 million euros, representing a 16% share of the executed customer orders volume. In January 2023, the issuer was still in third place with 300 million euros. This has not pleased all the players in the Euwax issuer camp, with some referring to it as the “Morgan Stanley Exchange“.

Dirk Grunert from Morgan Stanley notes that listing on Easy Euwax has significantly increased the exchange trading volume of their securitised derivatives, while the off-exchange area has remained unchanged. Thus, there is no cannibalisation between OTC and exchange trading. Instead, the institution is taking market share from other Euwax issuers. Grunert expects that during 2024 at least one more major issuer will venture into Easy Euwax. Radanovic confirms discussions with all issuers, with half showing significant interest.

Issuers who are still hesitant are being enticed by an improvement in the Easy Euwax fee model. By increasing fixed listing fees, Radanovic wants to encourage issuers to reduce the high number of 2.14 million products listed on Euwax. Only about 30% of structured issues are ever traded during their term. This results in high IT costs for all market participants. Therefore, Radanovic wants to motivate issuers to reduce the number of listed products in the long term, and focus more on products that are traded more frequently.

As Grunert explains, Morgan Stanley performs more than 100,000 calculations per second to publish prices for all 281,001 products. This amounts to more than five billion calculations per day, requiring two terabytes of storage capacity. Hence, those who can provide cheaper options by reducing their listings consistently win over customers. Grunert holds that belief strongly. However, this task is not easy for Euwax, as similar attempts have failed in the past. An insider speaks of „old wine in new bottles“. The exchange itself has often used the number of its listings to justify its leading role in exchange-traded derivatives. It remains to be seen how broadly issuers will adopt Easy Euwax. For now, everyone is watching what the others are doing or not doing – and in wait and see mode.