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Plan for New Trading Pit Triggers Feud in U.S. Options Market; Get Your Volatility Signals Right; Dip in volatility stirs warnings about too much complacency

Lead Stories

Plan for New Trading Pit Triggers Feud in U.S. Options Market
Gunjan Banerji – Morningstar
Many Wall Street traders have lamented the steady demise of floor trading. But now that one exchange is trying to launch the first U.S. open-outcry trading pit in decades, it isn’t exactly being welcomed.
Box Options Exchange LLC hopes to open a new floor for about 40 human traders at the Chicago Board of Trade Building. The exchange, whose electronic platform has one of the smallest market shares in U.S. options, is trying to build up its business by vying for orders executed via open outcry.
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Get Your Volatility Signals Right
Aaron Brown – Bloomberg
There have been worries for the last few months about low levels of volatility. These have recently gone up a notch, with expectations for future volatility that are rather high. It’s like someone telling you, “This bridge is perfectly safe, but it could get dangerous at any instant, and collapse before you have time to get off.” That’s not what most people consider “safe.”
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Dip in volatility stirs warnings about too much complacency
Sophie Baker – Pensions & Investments
Global money managers and analysts are split on whether markets and investors are becoming complacent and disconnected from potential sources of market volatility, as the Chicago Board Options Exchange Volatility index — the VIX — dips to decade-low levels and leverage in credit markets creeps higher.
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FX Traders Pining for Volatility Face Setback as Doldrums Loom
Lananh Nguyen and Robert Fullem – Bloomberg
Currency traders who’ve pounced on a rare bout of volatility in the $5.1 trillion-a-day market may need to curb their enthusiasm.
For all the price swings triggered by Friday’s U.S. jobs data and hawkish comments by central bankers in recent weeks, the options market — where traders speculate for periods from a day to years in the future — still reflects expectations that the doldrums will return and persist for months. Federal Reserve speakers led by Chair Janet Yellen this week and a key Bank of Canada meeting Wednesday may fail to lift medium- to long-term gauges of volatility from their rut.
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Fed Has Put Markets in Survival Mode
Dean Curnutt – Bloomberg
There’s a big debate in markets about the appropriate Federal Reserve policy amid conflicting signals. With the jobless rate at 4.4 percent, the trade-off between growth and inflation known as the Phillips curve would seem to matter.
Yet the wage pressure that logically should have come by now is elusive, probably because of technology-driven disinflation. Just look at the Fed’s preferred gauge of prices, the core personal consumption expenditure index, which is trending lower. The latest reading of 1.4 percent, for May, fell further below the bank’s 2 percent target.
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Trump stumps South Korean markets more than any missile tests
Dahee Kim and Cynthia Kim – Reuters
For years, investors in South Korea have become accustomed to belligerence and regular missile tests from the country’s hostile northern neighbor, but now there’s a new factor in their regional risk assessments – U.S. President Donald Trump.

This year, the options market shows the cost of insuring investments against North Korean-related risks has surged, with 3-month protection against a drop in the won, for example, reaching a high of 231 basis points in mid-April, double the levels six months earlier.
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Exchanges and Clearing

Lawmakers urge SEC to stop Chicago Stock Exchange’s China deal
John McCrank – Reuters
Eleven members of Congress asked the U.S. Securities and Exchange Commission on Monday to stop the sale of the Chicago Stock Exchange to a group led by China-based investors, saying the regulator lacks the ability to monitor the foreign buyers.
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Eurex Exchange
Eurex
Eurex won the Global Investor Award 2017 in the category “Exchange of the Year”. Eurex is the first recipient of this award, which measures excellence in the exchange world across asset classes and geographies.
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More than a ‘glitch’
THe Hindu Business Line
The three-hour trading halt in the NSE’s cash and derivative segment raises many critical concerns that need to be addressed forthwith. Investors transacting on the NSE were left high and dry on Monday with their early morning trades failing to go through. This was because the NSE’s cash segment could not open normally in the morning due to “technical reasons” that the exchange says it is investigating. The derivative segment was also shut down immediately after as it is not possible to continue trading in derivatives while the cash segment is shut. After two false starts, trading resumed mid-day.
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Strategy

Options traders bet on U.S. steel stocks ahead of tariffs decision
Hellenic Shipping News Worldwide
Traders in the options market are betting that shares of U.S. steel makers will get a boost when the U.S. Commerce Department unveils findings from its investigation into cheap steel imports, according to data and analysts on Friday.
The investigation was ordered by President Donald Trump in April under the rarely used section 232 of the Trade Expansion Act of 1962 and could clear the way for restrictions on steel imports.
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‘Perfect’ Stock Market Says Sell Now Before Storm
Mark Kolakowski – Investopedia
The current “perfect” world of an 8th year of rising stock prices, a steady economy and unusual investor complacency provides an ideal time for investors to sell their shares before an unexpected shock spurs a major decline or move to a bear market, according to the Wall Street Journal. Even as the major U.S. market indexes, most notably the S&P 500 (SPX), the Dow Jones Industrial Average (DJIA) and the Nasdaq Composite (IXIC), continue to soar into record territory, the exceptionally calm CBOE Volatility Index (VIX) points to an unhealthy level of investor confidence amid a rising number of warning signs.
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Miscellaneous

Finance firms need freedom to choose location after Brexit
Huw Jones – Reuters
Finance firms should not be forced by regulators to change location after Britain leaves the European Union in 2019, Andrew Bailey, chief executive of the UK’s Financial Conduct Authority told a Reuters Newsmaker event on Thursday.
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China Quants Wanted as Era of Easy Bond Returns Draws to End
Bloomberg
On a recent morning in Shanghai’s Lujiazui financial district, Xiong Yun’s eyes darted around the four computer screens at his desk, scanning activity in China’s bond and futures markets.
Staring at the matrix of numbers, the former BNP Paribas SA trader was making sure his algorithms pounced on any arbitrage opportunities that popped up between government notes and their derivatives contracts. Xiong, now a fund manager and partner at Lingwang (Shenzhen) Investment Management Co., is part of China’s new breed of traders, making money from more than just plain bonds.
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About Author

Bergstrom is chief information officer of John J. Lothian & Co. He edits MarketsWiki and JLN Options.