European real estate futures cleared for US trading

The way has been cleared for US investors to use future contracts based on the benchmark FTSE EPRA/NAREIT Europe and FTSE/EPRA Euro Zone indices to get exposure to European real estate stocks. The Washington-based Commodity Futures Trading Commission (CFTC) ruled recently that the futures traded on NYSE Euronext's Liffe derivative business can be offered and sold in the US.

The European Public Real Estate Association (Epra) and its Washington-based counterpart Nareit have welcomed the decision. 'We expect a wide spectrum of users to be interested in these futures contracts, but particularly real estate fund managers, investment banks and hedge funds. Flow management in funds, gaining exposure to European real estate stocks, hedging and even physical versus listed real estate arbitrage are among the most common uses of these contracts,' Philip Charls, CEO of Epra said.

The indices are broad-based, free float market capitalisation-weighted indices composed of other real estate securities, either shares of real estate investment trusts (REITs) or real estate companies that are listed and traded in Europe. The FTSE EPRA/NAREIT Europe Index currently consists of 93 stocks from 16 European countries, and the FTSE/NAREIT Euro Zone Index 46 stocks from 10 Euro Zone countries.

Based on data supplied by FTSE, the calculator of the index series, the total adjusted market capitalisation at end-June 2008 of the FTSE EPRA/NAREIT Europe Index was EUR 82bn and the FTSE EPRA/NAREIT Euro Zone Index EUR 42bn.

'We've seen an underlying upward trend in both trading volume and open interest in these contacts since they were launched in Europe in October last year. We anticipate that there will be the same pattern in the US, as potential users become aware of their availability and attractiveness,' said Garry Jones, executive director of business development and strategy at Liffe.

Combined trading volumes for the two futures contracts in Europe peaked at nearly 12,000 lots in January and then again at about 10,600 lots in June, reflecting some uncertainty in the underlying real estate equities markets. Open interest in the combined contracts hit a high of 5,299 lots in May, and was 2,909 lots in June.

'There is strong interest in global real estate investment strategies, particularly through REITs, from U.S. investors, so the availability of these European futures contracts in the United States comes at a very opportune time in the current market conditions,' Steve Wechsler, president and CEO of Nareit, said.