Dividend futures and options have emerged in recent years as an effective alternative to trading shares, according to a panel of experts speaking at the Eurex conference in Frankfurt.

Gabriel Messika, Head of Index Forward Trading Europe at JP Morgan, told the delegation on Wednesday that dividend futures and options as well as single stock dividend futures offer a more effective exposure to company earnings.

He said: “What is good about these products is that they offer an alternative way to invest in shares so if you have a view on the earnings of a company, it is a lot easier and clearer to express this view with the dividend futures and options rather than the shares themselves that can move for a lot of other reasons than the earnings of the company itself.”

Messika said the growth of European dividend futures and options, which had an average daily volume of 80,000 lots on Eurex last year, has also enabled banks to find new hedging opportunities and develop their structured product offerings.

Wilrik Sinia, a partner at Mint Tower Capital Management, agreed dividend futures are an useful alternative to shares: “When you’re trading a 1% dividend risk on a billion, your risk is 10 million but your trade is going to look like a billion so the size of the risk and the size of the trade were completely out of line, they were complex trades and they were counterparty to counterparty.”

Sinia said dividend futures allow traders to specify the specific risk related to company earnings: “With a dividend future on Eurex, I can trade five thousand of the first year dividend risk and that is five thousand so that is a very public and organised way to trade.

He added: "We were on to this very early on but, with regulation, we see a situation where Europe has a basic set of risks, at least in the Euro Stoxx 50, where you can now trade index dividend, index future and you can trade the balance sheet so all the specific risks on a stock including on the repo side in a very efficient, risk-based system.”

Lorena Dishnica, product manager at Eurex, added: “It has been interesting to see the development of dividend index options. In about mid-2009, the index dividend futures started becoming more liquid and in the OTC space members were looking at options.

She added: “The dividend options on Eurex were a challenge in the early stages because it is a niche product. As an exchange we always wanted to have as much support as possible and we have been working with different market participants and in recent years we have gained liquidity providers for the dividend options which has seen a big improvement in terms of settlement prices at the end of the day.”

Serkan Batir, managing director at Stoxx, which is part of Deutsche Boerse, said the development of new, futurised versions of over-the-counter derivatives like dividend swaps works well where index providers partner with exchanges.

Batir said: “I always describe it as kind of loop how an index provider is involved in product and the maintenance of those products, starting with the product initiation, going to market and ultimately maintenance.”

Speaking as he opened the Eurex Derivatives Forum event in Frankfurt on Wednesday, Michael Peters, the chief executive of Eurex, said a more nuanced approach from central banks to interest rates is a key area to watch this year.