Breaking News

Strong October Options Volumes; American Options Calibration Issues; Betting Against Bitcoin

Observations & Insight

ESMA Consults On Calculation Of Derivative Positions
The European Securities and Markets Authority (ESMA) has today published for public consultation future guidelines on the calculation of derivative positions by trade repositories (TRs) authorised in the European Union under the European Market Infrastructure Regulation (EMIR).

****SD: In the link to future guidelines that is provided, there is this – “In contrast to the approach required under MiFID II/R to calculate position limits, position calculations with regards to options are not based on delta-adjusted notional values. Rather, the relevant gross notional values that are reported under EMIR are used. The difference resides in the fact that under EMIR the gross notional is understood as a better estimate of the systemic risk borne by the counterparties, while the position reporting under MiFID serves to enable supervision of compliance with position limits where the actual, in the case of options, delta-adjusted size of the position held at a given point in time is the relevant parameter.” Why is it “understood as a better estimate” under EMIR? This is the same issue crushing big banks clearing options.  So, yeah, consult away, ESMA.

Lead Stories

Spreads Tighten Further as US Options Post Strong October Volume
TABB Forum
US Equity Options volumes bounced back from a lackluster September 2017, with 371 million contracts trading in October 2017. A glimmer of much needed volatility helped drive October 2017 volumes 19.8 percent higher than in October 2016. October 2017 year-to-date volume is 3.4% ahead of the same period last year as we head into the homestretch of 2017.

Quantitative finance still needs mathematicians
Nazneen Sherif –
Calibration of models to American options has never been an easy task, mainly because, unlike European options, the buyer can choose to exercise the option early.
This means the value of the option is dependent on a number of factors that evolve over time, such as volatility, whether the option gets exercised at any given time, and dividend payments – creating a number of possible paths the option value could take.

****SD: This does not appear paywalled, fyi.

Prepare to bet against bitcoin as it becomes civilised
Gillian Tett – Financial Times
In recent years, bitcoin has been the wild west of the financial world. Now, however, it is being civilised — a touch. In the coming weeks, the Chicago Mercantile Exchange plans to start listing bitcoin futures, with a centralised clearing mechanism.
Cboe Global Markets may follow suit. That will enable investors to bet on the coin’s future value without actually holding it — just as investors can use the Chicago exchange to bet on hog prices, say, without ever handling a pig.

****SD: Also see Finance Magnates’ CME Group to Test Bitcoin Futures, Price Hits New All-Time High and Will futures trading in bitcoin be worth the risks? from Crain’s.

Wall Street Has New MiFID Migraine, Now in Futures Market
Benjamin Bain and Silla Brush – Bloomberg
Banks are seeking CFTC relief from added regulatory burdens; Futures brokers concerned that compliance could add costs

****SD: Another potential burden which could add to the long-running “dwindling number of FCMs” story. That being said, I’m not surprised – conferences early in the year made it clear to me that there would be this mad dash at the end of the year as U.S.-based firms realized the extent to which this European thingy would actually affect their business.

Exchanges and Clearing

Deutsche Boerse hires new CEO from UniCredit’s German business
Deutsche Boerse named UniCredit banker Theodor Weimer as its new CEO on Thursday to steer the company away from an insider trading investigation and move on from a failed merger with the London Stock Exchange.

A Look at Cboe Bitcoin (USD) Contract Specs
Russell Rhoads, CFA – Cboe Blog
One of the most discussed topics in the financial world recently has been bitcoin and the technology behind bitcoin. A few weeks ago Cboe Global Markets announced plans to launch futures contracts based on bitcoin prices and that process is undergoing regulatory review. However, we do have the potential contract specifications available. For those who want to get prepared for the launch of Cboe Bitcoin Futures here are some highlights.

Bitcoin Futures Pave Way for Ether Derivatives From CDS Pioneer
Matthew Leising – Bloomberg
Code-named ‘Virtuoso,’ exchange’s backers include Sunil Hirani; Follows plans by CME and Cboe to create bitcoin futures
The second-biggest cryptocurrency is poised to get a derivatives market, thanks in part to a pioneer of trading credit-default swaps, according to two people familiar with the matter.

****SD: It is approaching snowball season and that effect is certainly in play when it comes to the digital asset space.

The LSE’s Rolexit is a compelling drama to watch, an AIA milestone and Sir Mick Davis digging holes at Rio Tinto
Mark Kleinman – City A.M.
If silence speaks volumes, it could take years to hear the views of everybody who has yet to opine on the unfolding drama suddenly consuming the London Stock Exchange Group (LSEG).

Equity house of the year: BNP Paribas
The European equity derivatives business is core to BNP Paribas. The bank’s prowess has supported impressive earnings numbers: its reported global earnings for equities income jumped 36% in the first quarter of 2017 and 26% in the second quarter, which helped cushion a 16% drop in Q2 fixed-income business.

****SD: Plenty of other awards from the’s Structured Products Europe Awards. One other of note due to its collaboration with derivatives exchanges is MSCI, which won index provider of the year.

Cboe FX Reports Record Market Share in October
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, today announced its foreign exchange (FX) market, Cboe FX, reported record market share of 14.5% in October, surpassing its previous record of 13.6% set in December 20131. Year-over-year, Cboe FX ADV increased 26.7% to $32.0 billion in October.

****SD: Cboe FX is the rebrand of Bats’ Hotspot. Record October and good progress in Asian trading hours.

IT – Derivatives: FTP Clearing Report Service
As of Monday November 20, 2017, Nasdaq Nordic will introduce an FTP Clearing Report Service for members of Nasdaq Derivatives Markets. The service gives derivatives members the possibility to access clearing reports via SFTP.

Regulation & Enforcement

Publishing SI’s identities is a ‘major concern’ – industry bodies
Louisa Chender – Global Investor Group (Subscription)
A group of industry bodies have expressed their concerns over an element of the systematic internaliser reporting regime which would expose their trading interest.
Under Mifid II, investment firms and systematic internalisers (SIs) are required to report reference data through the Financial Instrument Reference Data System (FIRDS) which produces a publicly available output file.

****SD: Basically, there are concerns that SIs might have their interests/trading/positions disclosed. Per Thomson Reuters regarding SI data, “for bonds SFPs, derivatives and emission allowances this will be six weeks of data. In the case of equities, three months of data.”

FIA encourages European Commission to develop and promote an outward-looking EU Capital Market Union
On 15 November, FIA submitted comments to the European Commission (EC) regarding its consultation on post-trade in a Capital Market Union.


BTIG Adds Julian Emanuel as Chief Equity and Derivatives Strategist
BTIG, LLC announced today that Julian Emanuel has joined the firm as a Managing Director and Chief Equity and Derivatives Strategist. Based in New York, Mr. Emanuel will join BTIG’s Research and Strategy team.


FX Option Market Update: November 17, 2017
Dan Larsen –
Please click on the attached PDF for the latest FX options market update, including developments in volatilities, an interesting market case, and a look at relatively strong and weak volatility markets.


In Age of Indexes, BlackRock Sees Bond Traders Exiting Bonds
Rachel Evans – Bloomberg
What do you call a bond trader who doesn’t trade bonds? An ETF investor.
Yes, that’s a bad market joke. But it’s also a legitimate issue that debt specialists will be grappling with over the next decade if BlackRock Inc.’s forecast for a seismic shift away from trading individual securities comes true.

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Graduate of University of Minnesota School of Journalism and Mass Communication