The Great US Options Octopus
The Trade Derivatives – Spring 2017
The US options market is a conundrum. Although volumes have remained flat over the past five years, the number of exchanges has expanded to 14, with the potential of another opening just around the corner. During this time the number of market-makers has dropped dramatically, from about 60 market-makers quoting on multiple exchanges five years ago to only 15 today.
****SD: This is a link to the page 46 of the magazine where the story starts. Nice encapsulation of the issues although due to production turnaround time, a few things are out of date. (For instance, Andy Nybo is no longer with Tabb Group and data doesn’t include Q4 2016.)
The 2017 Short Trade That’s Getting Pummelled This Week
Gunjan Banerji – WSJ
Wall Street trade of shorting volatility stumbled this week as a sharp reversal in markets forced investors to unwind their bets. Concerns over U.S. policy changes and geopolitical developments across the globe sparked a flight to safety on Tuesday, sending stocks and government bond yields lower. The CBOE Volatility Index, or VIX — a gauge that tracks investor anxiety — bounced back sharply, jumping 8% to 15.17, on track for the highest close since the U.S. presidential election on Nov. 8.
****SD: Down goes Frazier! More pummelling as VIX is up again today. (Finally getting back to some “normal” levels, at least by historical standards.)
Options Traders’ `Butterfly’ Bets Signal Oil Rally Not Over
Jessica Summers – Bloomberg
WTI crude call options volume rises to highest since March; About $20.5 million of July ‘butterfly’ call spreads trade
Options trading is signaling that the longest rally in U.S. crude oil since December has a few dollars to go.
****SD: I think some editor at Bloomberg told their reporters this week to write all they could about options.
March US Options Volumes Rise, Offer Hope for Return to Active Options Trading
US listed options volume totaled 374.5 million in March 2017, an increase of 7.9% from the March 2016 total and an increase of 51 million contracts from February 2017, which had four fewer trading days. This was the best month in 2017 and, despite volatility remaining at anemic levels, March volumes provide some hope for a return to more active options trading.
****SD: More, more, more! (In case you were searching for a dose of midday disco.)
Virtu Financial holds firm over bid for KCG Holdings
Joe Rennison, James Fontanella-Khan and Gregory Meyer – Financial Times
Virtu Financial has decided not to increase its offer to buy rival high-frequency trading group KCG Holdings after concluding its due diligence process on Monday, according to people briefed on the conversations.
Gold Options Signal More Gains as ETFs Rebound Amid Tensions
Luzi-Ann Javier – Bloomberg
Most-active call bullion options see volume jump six-fold; Price swings on options rise to highest in two months
Gold options are signaling there’s more room to run for bulls. Prices and volumes surged Tuesday on calls giving holders the right to buy bullion at higher prices. As of 11:21 a.m. in New York, trading in the most-active option was 10 times Monday’s total, and price swings on options were at the highest in three months. Investors also returned to the biggest exchange-traded fund backed by the metal.
How I Know the US Market is Waking Up to the French Election
Russell Rhoads, CFA – CBOE Options Hub
I was discussing the current state of the markets with a trader today and noted that VIX is perking up based on the uncertainty surrounding the upcoming French election. He challenged me on this and said the geopolitical situation had more to do with the recent rise in VIX, not the French election. I know I’m right and the picture below proves it.
Dash CEO: There will soon be hardly any traders on the buy side
Dan Butcher – efinancialcareers
A decade from now, maybe sooner, buy-side trading desks will be staffed almost exclusively by technologists, according to a top trading technology executive. “I think you’ll see, in 10 years, the paradigm completely shift, where the buy-side [trading] desk will be staffed almost exclusively by technologists and perhaps a small group of experts who know where to go for specific, hard-to-find liquidity,” said Peter Maragos, co-founder and CEO of tech-focused brokerage Dash Financial Technologies.
****SD: Forget blockchain and SaaS or whatever — if there are indeed no traders in 10 years, then the shift in the social and cultural tenor of the industry will be one of the more drastic changes witnessed in finance. We all know that quants/techs/math folks are cut from a different cloth. (I’m not saying whether this is good or bad — just waaaay different.)
Exchanges and Clearing
CME Group shuts loss-making London derivatives and clearing units
Huw Jones – Reuters
CME Group, one of the world’s biggest exchanges, is closing two operations in London by year end after they ran up losses of more than $100 million, saying on Wednesday customers preferred using its U.S. operations. The Chicago Mercantile Exchange Group, whose products include futures contracts on commodities such as wheat and cocoa, said that after closing its UK-based derivatives exchange and clearing house, it would continue to have a significant operation to serve European customers
****SD: This is all CEO Terry Duffy. His comments have consistently pointed to streamlined operations and an emphasis on profitability. Also of note, it comes at the exact same time that CME said it is testing a venue for spot gold that uses blockchain.
Russell 2000 Index Futures and Options to Return to CME Group July 10
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that starting July 10, 2017, CME Group will launch both futures and options based on the Russell 2000 Index, as well as basis trade at index close (BTIC) functionality on the futures contracts, pending regulatory approval.
***SD: In case you didn’t know.
Nasdaq to Upgrade Hong Kong Exchanges’ Technological Systems
Nasdaq, Inc . NDAQ and Hong Kong Exchanges and Clearing Limited recently extended and strengthened their alliance with a new agreement. Under the accord, Nasdaq will upgrade the technological infrastructure of Hong Kong’s main derivatives market, including trading, clearing and real-time risk management technologies. This apart, their alliance will be extended by another five years.
Nasdaq ISE FX Options Margin Levels
Nasdaq ISE has determined applicable margin levels for each currency product pursuant to Nasdaq ISE Rule 1202(d), which requires the Exchange to review five-day price changes over the preceding three-year period.
Options lose market share in ICE cleared thermal coal derivatives market
The volume of thermal coal traded and cleared on the ICE Futures platform reached a 2017 high in March, gaining 20.9% month on month to reach 165.26 million mt, data from energy exchange ICE Futures Europe and electronic trading platform globalCOAL showed late Tuesday.
Regulation & Enforcement
MiFID and the Mystery of Regulatory Equivalence
George Bollenbacher, Capital Markets Advisors – TABB Forum
Given the challenges for non-EU firms to comply with MiFID 2/MiFIR, we should expect all sorts of investment firms outside the EU to be petitioning their home regulators to arrange for regulatory equivalence. The question, of course, is how a non-EU regulator achieves equivalence.
NSE ex-staffer reveals how some brokers got ‘preferential access’ to servers
Sugata Ghosh – Economic Times
Weeks before he put in his papers, an employee of the National Stock Exchange, which is battling allegations of unduly favouring some brokers, told the forensic audit team that “oral instructions for server allocations and other changes” were often received from ‘seniors’.
****SD: I hate getting cut in the queue. And in my situations there isn’t even money on the line. (What’s worse than a pet peeve? A wild peeve? A child peeve?)
Fund managers eye Chinese trading status
Luke Jeffs – Futures & Options World
International asset managers and funds are considering whether to apply to the Chinese authorities for a license to operate in China, according to a panel of Chinese experts. A panel of experts at the FOW Derivatives World Asia, Hong Kong event said on Wednesday international firms were looking at the value of applying to the Asset Management Association of China (AMAC) to be registered as a Wholly Foreign-Owned Enterprise (WFOE). Fidelity Investments became in 2015 the first international firm to be approved as a WFOE and said in January this year it planned to launch its first China-based fund within six months.
CFTC Announces N. Charles Thornton III As Director Of The Office Of Legislative Affairs
U.S. Commodity Futures Trading Commission Acting Chairman J. Christopher Giancarlo today announced that N. Charles “Charlie” Thornton III has been named the Commission’s Director of the Office of Legislative Affairs. Mr. Thornton comes to the CFTC from the United States Senate Agriculture, Nutrition, and Forestry Committee where he served as Senior Professional Staff and Counsel. Mr. Thornton will assume his duties on April 17, 2017.
BOX Regulation: Consolidated Audit Trail Clock Synchronization Study
The CAT NMS Plan requires the exchanges and FINRA to prepare a written assessment of current clock synchronization standards to assess whether any changes to those standards would be appropriate. To assist in this assessment, the exchanges and FINRA have prepared a short study to collect information regarding current clock synchronization practices from broker-dealers, exchanges and FINRA, as well as third-party vendors or similar providers.
China to relax rules on trading key equity index
William Mitting – Futures & Options World
The China Securities Regulatory Commission has said it will relax restrictions on trading in the CSI 300 index futures contract over the next 12 months. Speaking at FOW’s Derivatives World Asia event in Hong Kong today, Zhou Lichao, division director of the CSRC said that the regulator will allow increased trading in the country’s only equity futures contract.
New Release Of Axioma Portfolio Analytics And Risk Model Machine Delivers Improved Speed And Usability
Axioma, a leading provider of enterprise market risk and portfolio management solutions, today launched a new version of Axioma Portfolio Analytics (“APA”) and Risk Model Machine™ (“RMM”), the first release of 2017. New features include significantly faster performance attribution and risk analysis as well as improved usability.
Why the Vix is losing its impact as market correlations break down
Kathleen Brooks – FXStreet
We’ve noticed some strange market reactions this week, on the one hand stocks are looking very shaky as some key support levels are tested and the Vix index is at its highest level for 6-months. However, on the other hand, emerging market currencies are holding up well vs. the USD, the South African rand is one of the top performers vs. the USD this week, and the US corporate high yield debt spread with Treasury yields remains remarkably stable at 3.5%. So what is going on?
Markets Brace for Volatility as Turks Mull Erdogan’s New Powers
Constantine Courcoulas and Tugce Ozsoy – Bloomberg
Polls show vote on constitution change still too close to call; Measures of lira volatility surge to highest since January
As Turkey’s 58 million eligible voters get ready to decide whether to hand more power to President Recep Tayyip Erdogan, investors are bracing for what promises to be a very close race.