Dividend Swaps and Dividend Futures: State of Play

Abstract

The authors of this article use derivatives regulatory data to quantify the over the counter (OTC) index dividend swap market and contrast it with the listed index dividend futures market. They find US$2.5 billion in notional outstanding of market-facing OTC dividend swaps between dealers and end users, with another US$4 billion outstanding between dealers. The majority of the dealer–dealer swaps are in the S&P 500 (which has no listed futures contract), whereas the majority of transactions for non-U.S. underlyings are between dealers and end users. Although very standardized OTC swaps and listed futures coexist for several major indexes, only the listed EURO STOXX 50 future clearly dominates the OTC market, with nearly five times the notional outstanding of the OTC swaps. The authors observe an average of around one end user transaction per week for the OTC EURO STOXX market, with less activity in other indexes. Risk transfer appears to be largest for the EURO STOXX 50, with dealers net short nearly US$1 billion notional to end users.