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FTSE MIB Dividend Futures

The dividend policies recently adopted by the FTSE MIB companies have become of increasing interest to traders, for the element of uncertainty implicit in the positions taken on the FTSE MIB index, and for the opportunity to structure specific trading strategies on the basis of their expectations.This interest has led Borsa Italiana to introduce futures on the FTSE MIB Dividend index on the IDEM market.

The FTSE MIB Dividend index

The FTSE MIB Dividend index represents the cumulative value of the gross ordinary dividends paid in cash or in kind in each calendar year by the FTSE MIB index constituents, expressed in index points and calculated as follows:

Market Value of dividends
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Latest index divisor

The index is managed according to a transparent and public set of rules. Regular index reviews and corporate action management are conducted to ensure that a continuous and accurate representation of the market is maintained in line with the FTSE MIB index.

Futures on FTSE MIB Dividend index (FDIV)

The futures contract on the FTSE MIB Dividend index (FDIV) allows traders to take positions on the basis of their dividends expectations without being exposed to price movements in the FTSE MIB stocks, or to hedge positions taken on the FTSE MIB index from the effects of the dividends distributed by the issuers.

Accordingly, the value of the futures contract incorporates all the expectations for the distribution of dividends made during the year by the companies making up the FTSE MIB index. As companies pay their dividends, the expectations incorporated in the futures price refer only to the distributions made by the remaining companies.

The value of the FTSE MIB Dividend index resulting from the last dividend payment coincides with the settlement value of the futures contract on the index, calculated by Borsa Italiana on the expiry date in December.

Contract specifications

Underlying: FTSE MIB Dividend index
Multiplier: € 5 per index point
Contract size: futures price x multiplier
Price quotation: index points
Minimum price change: 1 index points (€ 5)
Expiries: the 5 nearest successive annual months of the December cycle
Expiry day: the third Friday of the expiry month at 9.05am
Last trading day: trading in any contract closes on expiry of that contract
Settlement: cash settlement
Settlement price: cumulative total of the relevant gross dividends paid by the individual constituents of the underlying index as calculated in the form of index points by the index provider for the contract period
Block trade facilities : minimum quantity: 5 lots; price: +/- 2% over the bid/ask spread
Trading hours: 9.00am - 5.40pm

Market making

Primary Market Makers and Primary Specialists support liquidity on the new product according to the following set of quoting obligations:

Providing liquidity on a continuous basis from 9:30am to 5:20pm on all listed maturities
Restoring bid-ask quotes within 2 minutes following an application on the order book
Providing minimum quantities and maximum spreads

Benefits of FDIV trading

Directly trade a view on dividends
Implied dividend yield spread trading
Diversify a portfolio’s source of returns
Low volatility and risks compared to equity
Limited to no risk on interest rate and repo rate
More efficient management of exposure to counterparty risk
Hedge dividend risk on FTSE MIB index futures and options