Breaking News

Goldman exits options market making; Historic volatility; SocGen struggles

Lead Stories

Goldman Sachs to Withdraw From Part of U.S. Options Market
Brian Louis – Bloomberg
Will stop serving as a market maker on U.S. exchanges; Traders struggling with high costs, low volatility in options
Goldman Sachs Group Inc. will stop serving as a market maker on U.S. options exchanges, following others in exiting that business amid high costs, sluggish volume and low volatility.

****SD: WSJ here. What’s the tech angle? More bronze than gold? Other “Goldman struggles” news from Reuters – Goldman taps energy execs in bid to turn around commodities unit

Historic Volatility Recently Dropped Below 1.7 for Eight Cboe Benchmark Indexes
Matt Moran – Cboe Blog
In times of geopolitical uncertainties, many investors are searching for investments with low volatility and higher yields. Several news stories have noted that stock indexes recently had low volatility. On October 18 the 20-trading-day historic volatility for the S&P 500 (SPX) Index dropped to 3.4, its lowest level since 1969 (source: Bloomberg). There now is concern that with higher price-earnings ratios, the volatility of stock indexes could spike in coming months.

****SD: Fun charts!

SocGen Tumbles as Trading Drops, Putting Oudea on Back Foot
Fabio Benedetti Valentini – Bloomberg
Revenue slumps in equities, fixed-income, French retail Bank sets aside 300 million euros in litigation provisions
Societe Generale SA fell the most in three months after plunging demand for the derivatives products the French bank pioneered turned its traditional strength into a weakness.

Yuan’s Volatility Makes It an Outlier; Chinese currency’s implied volatility is rising while others fall
Saumya Vaishampayan – WSJ (SUBSCRIPTION)
The Chinese yuan is marching to the beat of its own drum. One-month implied volatility, a measure of investors’ expectations for swings that is linked to options prices, is rising for the yuan. It has advanced for nearly six months and hit a nine-month high in October. The yuan’s one-month implied volatility is currently higher than its two-year average.

BOE’s Reference to Brexit Fails to Spur Pound Volatility: Chart
Vassilis Karamanis – Bloomberg
Investors in the pound are ignoring warnings that a lack of progress on Brexit talks would stoke volatility.

Exchanges and Clearing

Cboe Global Markets Reports October 2017 Trading Volume
Futures ADV at Cboe Futures Exchange Up 14% from October 2016; Options ADV at Cboe Global Markets’ Four Exchanges Up 17% from October 2016

Miami International Holdings, Inc. Reports October 2017 Trading Activity for MIAX Options and MIAX PEARL
Miami International Holdings, Inc. today reported the October 2017 trading activity for its two fully electronic options exchanges – MIAX Options and MIAX PEARL (together, the MIAX Exchange Group). The MIAX Exchange Group collectively executed over 20.6 million contracts in October 2017 for a combined average daily volume (ADV) of 939,113 contracts, representing a total U.S. equity options market share of 6.32%. In SPY options, MIAX PEARL achieved 6.3% and 10.0% market share of industry SPY volume and Simple SPY volume, respectively, as reported by OPRA.

Are Clearinghouses Systemically Risky? Gary Cohn Is Heard From
Seeking Alpha
Economists sometimes cite a “law of unintended consequences.” This is what it sounds like, the principle that actions of people, inclusive of and perhaps (depending on who is writing) especially the actions of a government, have unanticipated and (as far as third party observers can judge intentions) unintended consequences. In some formulations, it is said to be the law that unintended consequences will turn out to be of greater importance than those that were intended.

ICE confident it is not over-reliant on sale of trading data
Nicole Bullock – Financial Times
Executives at Intercontinental Exchange, which owns the New York Stock Exchange, on Thursday sought to play down its reliance on the sale of stock trading data amid mounting questions about potential changes in how exchanges handle this information.

Intercontinental Exchange says total futures & options?? contract volume for Oct was 4.97 mln

****SD: Full breakdown of ICE in October can be found via ICE’s supplemental information page here.

CME pushes energy and OTC FX suites with new incentives
Global Investor Group (SUBSCRIPTION)
The Chicago Mercantile Exchange (CME) has been certified by the US futures regulator to launch new FX incentive programs and launch several incentive programs for energy contract, as well as extend existing schemes.

****SD: For the OTC FX options and NDF space, European nat gas futures, German power futures and global nat gas futures, plus CME extended the RFQ incentive program for energy options.

Nasdaq to Modify Transmission Schedule for PHLX, NOM, and BX Options Data Feeds; Effective Monday, December 18, 2017
Nasdaq will modify the transmission schedule for PHLX, NOM and BX Options market data feeds effective Monday, December 18, 2017.

ASX Monthly Activity Report – October 2017
Volatility (as measured by the average daily movement in the All Ordinaries Index) was 0.3% in October, in line with the previous month (0.3%).

Eurex enhances its market structure
The international derivatives marketplace Eurex, part of Deutsche Bˆrse Group, enhances its market structure to address industry trends and further meet its member’s needs. In Q4, Europe’s largest derivatives exchange will launch an electronic price discovery platform that allows bank’s broker desks and inter dealer brokers to contact market makers with request for quotes in order to find a counterpart to a trading interest. Initially, the service will be available for fixed-income and money market derivatives, but other asset classes will be added soon.

Options on Exchange Traded Funds (EXTF options): Introduction of options contracts on iShares USD High Yield Corporate Bond ETF, iShares J.P. Morgan USD Emerging Market Bond ETF and iShares USD Corporate Bond ETF
The Management Board of Eurex Deutschland and the Executive Board of Eurex Z¸rich AG decided to introduce options contracts on iShares USD High Yield Corporate Bond ETF, iShares J.P. Morgan USD Emerging Market Bond ETF and iShares USD Corporate Bond ETF, with effect from 20 November 2017.

Euronext announces volumes for October 2017
In October 2017, the overall average daily volume on derivatives reached 497,684 contracts, up +8.6% compared to October 2016 and stable (-0.8%) compared to the previous month.

Regulation & Enforcement

Banks prepare for battle with Fed over G-Sib rules Proposals would kill client clearing business, FCMs claim – but postponement is a chance to fight back
Louie Woodall – (SUBSCRIPTION)
Eleven words, slipped into a seemingly innocuous Federal Reserve request for comment, caused a scramble among the eight largest US banks this summer, when it was discovered the wording could result in an extra $10 billion in capital requirements and threaten the viability of the client clearing business.

EFET and FIA develop industry standard to support commodity position reporting under MiFID II
The European Federation of Energy Traders and FIA have released the common EFET-FIA ITS4 schema for position reporting under MiFID II.


EQDerivatives: VSTOXX Straddles Considered Attractive Due to Low Correlation
Georgia Reynolds, EMEA Reporter – Eurex
Investors should look at adding EuroStoxx 50 Volatility Index strategies to their risk premia portfolios for diversification, due to low correlation between VSTOXX straddles and European equities. Since 2010, both volatility RP and volatility-of-volatility RP strategies have been positive in the U.S. and Europe, said Christian Kober, strategist at Barclays in London. The highest RP can be found in the CBOE Volatility Index and VSTOXX, he added. “The [VSTOXX] VRP has a moderate correlation to the SX5E VRP and equities, [which] can bring diversification to risk premia portfolios,” he said.

Low volatility favours ‘hunt for yield’ but warning from IMF
Implied or traded volatility has continued to fall this autumn. VIX (equity) volatility fell close to a record low in October. The same pattern is seen in rates volatility, with 3M10Y swaption volatility falling to a level not seen since 2015 in USD and close to, or at, the lowest level in EUR since the introduction of the euro.


Your Special Introduction to Options; Wednesday, November 08, 2017 at 3:30 p.m. CST
If you have NEVER traded an option before, this webinar is designed especially for you. OIC will carefully review all the basics you need to know with plenty of time for your questions. The webinar will review, step-by-step, the different type of options; basic strategies every investor should know; and why options should be considered as part of your portfolio. So, if you have never invested with options before (or if it’s been a while) this webinar will help you realize the power of options.


FX Options Market Update
Dan Larsen –
Please click on the attached PDF for the latest FX options market update, including developments in volatilities.

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Graduate of University of Minnesota School of Journalism and Mass Communication