| March 24, 2016 | | | |  | Jeff Bergstrom
Editor
John Lothian News | |
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| | | | Observations & Insight | | | Nothing can be certain but delta and taxes
Spencer Doar - JLN
As tax accounting firms spring to life and TurboTax ups its marketing, so too is the Options Clearing Corporation working on taxes. The OCC's concern does not rest with income taxes, but rather section 871(m) of the Internal Revenue Code.
The code, which is set to tax foreign entities on US equity options trades under certain conditions, could have a negative effect on the use of options overseas, an audience the options industry has worked hard to bring into US options markets.
"Our concern is that complying with these final regulations is so complicated that firms might just decide not to allow their foreign customers to trade listed options," said Joe Corcoran, head of government relations at the OCC. "The firms are, I'm sure, looking at it and saying, 'How much revenue do I get from these foreign customers' and 'How much is it going to cost me to make system changes' and 'Is it really worth it to make these system changes to accommodate these final regulations.'"
Here's what up. Section 871(m) regards taxing dividend equivalent payments to foreign parties that arise from derivatives linked to stock of a U.S. issuer. Options fall into the 871(m) basket, if they meet certain qualifications.
The code's origins stem from the practices of some banks and foreign hedge funds in the early 2000s that engaged in so-called yield-enhancement strategies. Funds would transfer their stock to a bank, and then enter into an equity swap with the bank before the stock's ex-dividend date, thus maintaining the same exposure and getting a substitute dividend without having to pay withholding tax.
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| | | | | | Lead Stories | | | Pound's $16 Billion of Option Trades Envisage Drop to 1980s Lows
Bloomberg
As Britain ponders its future in the European Union, investors are betting an amount almost the size of Iceland's economy on the pound falling to levels last seen in the 1980s. At least 11 billion pounds ($15.5 billion) has been wagered this year on options that would profit if sterling fell to or below $1.3502, a 4 percent drop from current levels, after the June 23 referendum. More than half of the positions were placed since the date of the vote was set on Feb. 20.
bloom.bg/1o8u9Nr
****SD: That's not enough money to cover NASA's annual budget.
Hawaii assigns $1.6 billion total to 4 managers for options-based strategies
Pensions & Investments
Hawaii Employees' Retirement System, Honolulu, hired four managers to run $400 million each in equity-oriented options-based strategies, said Vijoy Chattergy, chief investment officer, in an e-mail. The managers are Neuberger Berman, Analytic Investors, UBS Asset Management and Gateway Investment Advisers.
goo.gl/5P5W8Q
****SD: A trifle compared to the sterling wagers, but enough to buy the Washington Post six times over (given the $250 million price tag when Jeff Bezos bought it almost three years ago). Last of my irrelevant comparisons for the day.
A Free Fall in CBOE Volatility Index and Other Measures
Frederic Ruffy - The Ticker Tape
The roller coaster ride continues after the S&P 500 rebounded sharply from its February 11 lows and has now tiptoed back into positive territory for 2016. A sharp decline in volatility accompanied the nearly 12% rally in the S&P 500, and it's not just the CBOE Volatility Index (VIX) that is moving lower. The decline is showing up across many asset classes, and in some measures of real volatility as well.
/goo.gl/QQHw9L
Rights and Obligations: What asymmetry and volatility can tell us about deal-making from The Donald to Monopoly
Marshall Zhang - The Harvard Crimson
An option is a financial security that gives its owner the right, but not the obligation, to buy or sell an underlying assetÂanything from a share of a company to a bushel of cornÂat a fixed price on some future date, known as the expiration date. Options are among the simplest examples of financial derivatives: securities that derive their value from the value of other assets. Despite the simplicity of options, pinning down their value is in fact immensely difficult. After all, determining how much a right to do something should be worth seems like a problem of philosophy, not finance. But in 1973, Fischer Black and Myron Scholes were able to put a price on an option under certain mathematical assumptions; in doing so, they revolutionized the financial industry in theory and in practice, and won a Nobel Prize along the way.
goo.gl/uR5X0l
****SD: I did some time at a pretty reputable college newspaper and can only wonder what our editorial board would have thought if I pitched them an opinion piece like this. Likely would have given me dead eyes and an emotionless "Wut?" (Shout-out to the Minnesota Daily.)
Market calm has eerie parallels to pre-swoon August
CNBC
Stocks haven't done much in a while. Wednesday marked the eight-straight day that the S&P 500 had closed less than 1 percent above or below its prior closing price. Ominously, the last time the market staged this long a period of quiescence was in early August  shortly before stocks took a gut-wrenching tumble.
cnb.cx/1MEHHGD
Top Goldman Inflation Trader Said to Be Put on Leave Amid Review
Dakin Campbell - Bloomberg
Goldman Sachs Group Inc. placed its head of U.S. inflation trading on leave while reviewing whether transactions he oversaw were booked incorrectly, according to a person briefed on the situation.
bloom.bg/1MEE2ZF
| | | | | | Exchanges | | | CME Group Inc. Announces First-Quarter 2016 Earnings Release, Conference Call
Press Release - CME
CME Group Inc. will announce earnings for the first quarter of 2016 before the markets open on Thursday, April 28, 2016. The company has scheduled an investor conference call that day at 7:30 a.m. Central time.
goo.gl/B7ZiII
Shenzhen Stock Connect to launch this year - HKEx
Julie Aelbrecht - Futures & Options World
Hong Kong Exchanges and Clearing Limited (HKEX) has said Thursday that the highly-anticipated launch of the Shenzhen-Hong Kong Stock Connect will take place before the year is out.
goo.gl/57pUuB
| | | | | | Regulation & Enforcement | | | Wall Street pushes back on trading tax
TheHill
Wall Street is mobilizing against proposals to tax financial transactions as the idea gains attention on the campaign trail and in Congress. The idea already has one high-profile supporter, Democratic presidential candidate Bernie Sanders, who has proposed legislation in the Senate for a tax on the trade of stocks and other securities. Supporters say a financial transaction tax (FTT) would deter market speculation. But the industry and other critics are expanding efforts to stop the proposal, saying it would weaken markets and hurt small investors, especially Americans trying to save for retirement. Retirement money is often invested in mutual funds that trade frequently to maximize returns.
goo.gl/FomzA7
Sarao extradition hearing not a trial of 'guilt or innocence'
Philip Stafford and Jane Croft - Financial Times
The extradition hearing to decide whether UK trader Navinder Singh Sarao should face charges in the US over manipulating futures markets was not, the judge stressed, a trial of "guilt or innocence". To succeed, US prosecutors simply had to prove that Mr Sarao's alleged actions in persistent 'spoofing' met the "dual criminality" test  where his conduct could constitute a criminal offence in both jurisdictions. The activity is not as clearly defined in Britain as in the US.
goo.gl/DRQscl
Canadians increasingly being targeted by online 'binary options trading' schemes, regulators warn
Barbara Shecter - Financial Post
Regulators are warning Canadians about a spike in websites promoting "binary options trading platforms" used to bet on how a stock or currency will perform over a short period of time. "No business is currently registered or authorized to market or sell binary options in Canada," the Canadian Securities Administrators warned Tuesday, adding that while investors may see virtual gains on the websites, they are often unable to collect the profits because "they don't exist."
goo.gl/unHxY1
****SD: Are binary options becoming the new Nigerian prince?
CFTC Finalizes Relief from Trade Option Reporting and Recordkeeping Requirements for Commercial End Users
Morrison & Foerster LLP - JDSupra
On March 16, 2016, the U.S. Commodity Futures Trading Commission ("CFTC") approved a final rule that eliminates the reporting and recordkeeping requirements in current CFTC regulations for trade option counterparties that are neither swap dealers nor major swap participants ("Non-SD/MSPs"), including commercial end users that transact trade options in connection with their businesses. Significantly, the final rule eliminates the requirement that such counterparties annually file a Form TO in connection with their trade options, and does not require them, as had been proposed, to notify the CFTC's Division of Market Oversight ("DMO") if they enter into trade options that have, or are expected to have, an aggregate notional value in excess of $1 billion in any calendar year. The final rule is effective upon publication in the Federal Register, which occurred on March 21, 2016.
goo.gl/VvcWla
| | | | | | Technology | | | Green Key Technologies Rolls Out Voice Quote Tool For Testing
Jeff Patterson - Finance Magnates
Green Key Technologies, a trading-centric voice software provider, has released the pilot version of its voice quote capture tool for enterprise customers of Symphony Communication Services, a communications and workflow technology venue, according to a Green Key statement.
goo.gl/urXmWU
R.I.P. Vendors: Can Open Source Fundamentally Change the Way Third Parties Operate?
WatersTechnology
Sit down and buckle up, because I'm about to fire off a hot take. Open source will lead to the death of the traditional vendor model we are familiar with today. (Told you it was a hot take.)
First, let me take a step back before I have half of you chasing me out of town with pitchforks.
For my April feature, which should appear online in roughly a week or so, I looked at the growth of financial firms' willingness to use open-source software. I had the chance to speak to folks on the buy and sell side about the state of open source in the capital markets; what are the most important things to consider when picking a project; and what is holding back trading shops from getting more involved in the open-source community. Now, I don't want to step on my story too much and ruin it, but I did speak to technology executives working at some of the largest buy- and sell-side firms in the world (nice brag, Dan), all of whom were very supportive of open source.
goo.gl/CkmyxW
Thomson Reuters' Eikon Partners With OptionsCity
Finance Magnates
OptionsCity Software, a comprehensive provider of futures and options trading and analytics solutions, has seen its City Execution capabilities extended to Thomson Reuters (NYSE:TRI) Eikon, according to an OptionsCity statement.
goo.gl/nSvKWg
****SD: Slightly different take on yesterday's press release.
| | | | | | Strategy | | | Bearish Trading Strategies: It May Be Time to Dust 'Em Off
Eric Utley - The Ticker Tape
It's been a long, mostly steady trend higher in the stock market since the lows of the financial crisis all the way back in 2009. But the market stopped trending higher last year. And earlier this year, traders were reminded that stocks can, in fact, go down.
/goo.gl/pJ66ZF
6 Trades for Speculators And Prudent Investors
Steven M. Sears - Barron's
Aggressive speculators and conservative investors rarely agree on anything. But a fortuitous confluence of events has occurred in the options market that makes it possible for investors to have their proverbial cake and eat it too. The average three-month implied volatility of stocks with liquid options has declined some 24%, or about double the movement of the Standard & Poor's 500 Index, since Feb. 11, Goldman Sachs told clients in a Wednesday trading advisory. This means that upside call prices are unusually inexpensive even as stock prices are sharply higher. This enables speculators and conservative traders the chance to buy calls without paying a greed premium.
goo.gl/QNNhIr
Newcrest resurrects hedge policy as Australian dollar gold rises
Reuters
Newcrest Mining, one of the world's biggest gold producers, will hedge more than half-a-million ounces of gold over the next two years, abandoning a long-held opposition to cap its exposure to market bullion prices.
reut.rs/1LJZhOE
****SD: Gold production sentiment shifting to bearish?
Valeant Losses Push Ackman Hedge Fund Down 25% for Year
Alexandra Stevenson- NY Times
For investors in William A. Ackman's Pershing Square Capital Management, the recent ride down continues to be hair-raising. The billionaire has been fighting to turn things around for his hedge fund, which has lost billions of dollars in recent months. Pershing Square Holdings, the publicly listed entity of his firm, reported on Wednesday a year-to-date loss of 25.2 percent as of March 22.
goo.gl/1tHUZS
****SD: While Facebook will soon be getting a "dislike" button, we do not have a "strategies that didn't pan out" section.
| | | | | | Events | | | Condoleezza, collaboration and computing: Boca 2016
Patrick Thornton-Smith - Futures & Options World
I attended the 41st FIA Boca conference last week and, as ever, it provided a great snapshot of the listed derivative and cleared swap industry with some good insights of what is to come. I've been attending this event for more years than I like to remember and seen many developments emanating from the wider global financial backdrop reflected at the conference, and every year there tends to be a dominant theme or two.
bit.ly/1MEEerM
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