| May 23, 2018 | | | |  | Spencer Doar
Editor
John Lothian News | |
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| | | | Observations & Insight | | | 
The Options Industry Leader Series 2018 - NYSE's Ivan Brown
Brought to you by the OCC
In this video from the 36th annual Options Industry Conference (OIC) in Amelia Island, Fla., Ivan Brown, NYSE's head of options, talks about launching options on the FANG+ index, implementing a complex price improvement auction mechanism, and the resiliency of U.S. options markets.
Watch the video here »
****SD: See the press release in our "Exchanges" section for more on the FANG+ offering.
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Italy Rout Wipes Five Billion Euros From Bond Futures Market
James Hirai - Bloomberg
The sell-off in Italian assets has stripped over five billion euros worth of positions from the country's bond futures, the most ever in a week, as the risks around a new government come to fruition for investors.
/bloom.bg/2Lrk5fx
****SD: This is far from the complete picture. There's is a healthy, if not exact, offset provided by the open interest (OI) in the options on EURO-BTP futures market.
Here's what Bloomberg says about the futures, "The number of active bets on Italian futures has dropped by the equivalent of 5.4 billion euros ($6.3 billion) in cash bonds in the past week, showing traders are taking money off the table."
But check out what happened in the options on Italian bond futures market this past week.
Open interest on Monday, May 14 was 69k contracts with a notional value of EUR 9.6 billion.
OI steadily built over the course of the week, up to 76k options contracts by Friday, May 18.
Eurex stats from yesterday, Tuesday, May 22, show that OI is now over 103k contracts. That is a notional value of EUR 14.4 billion. So, while EUR 5.4 billion has been knocked off the futures OI notional value, EUR 4.8 billion has been added to options' notional value since Monday, May 14.
TL;DR - There's always more context to be had as the decrease is much less severe than EUR 5.4 billion makes it sound.
| | | | | | Lead Stories | | | Coming back to life: Dollar surge raises hopes for volatile FX
Tommy Wilkes, Saikat Chatterjee - Reuters
The U.S. dollar's unexpected surge over the past month is encouraging currency traders to pray for a return of lucrative but long-dormant price volatility on the main foreign exchanges, although early signs on that are strangely subdued.
/reut.rs/2LqyYii
****SD: This is the kind of thing that makes folks think to themselves, "Hey, how about this crypto stuff...?" Meanwhile from Reuters - Currency derivative markets signal further weakness for euro
The $100 a Barrel Oil Wager Comes Back to the Options Market
Alex Longley - Bloomberg (SUBSCRIPTION)
Some options traders are betting on $100 oil again.
Whether it's the specter of sanctions on Iran, Venezuela's output plunge, or a momentum play on the back of the past year's 46 percent surge in Brent, there are now the equivalent of about 93 million barrels wagering on the global benchmark hitting $100 at some point in the next 12 months.
/bloom.bg/2s6KSFi
Goldman Sachs: Rise of trading machines could make next market crash much worse
Tae Kim - CNBC
Goldman Sachs is cautioning its clients that computerized trading may exacerbate the volatility of the next big market sell-off.
"One theory that has been proposed for why market fragility could be higher today is that because HFTs [high-frequency trading] supply liquidity without taking into account fundamental information, they are forced to withdraw liquidity during periods of market stress to avoid being adversely selected," Charles Himmelberg, co-head of global markets research at Goldman, said in a report Tuesday. "In our view, this at least raises the risk that as machines have replaced people, and speed has replaced capital, the inability of the market's liquidity providers to process complex information may lead to surprisingly large drops in liquidity when the next crisis hits."
/cnb.cx/2s8nYNs
****SD: MarketWatch on the oft debated subject.
Euro-Dollar Caught in a Fiscal-Monetary Tug-of-War
Erik Norland - CME Group
The euro-U.S. dollar (EURUSD) exchange rate has been trading in a narrow range from 1.15 to 1.25 for the past eight months. In some respects, EURUSD's lack of direction isn't surprising. Economic growth remains solid, if unspectacular, on both sides of the Atlantic but the similarities between what's happening in Europe and in the U.S. end there. The U.S. has rising interest rates and inflation, a shrinking central bank balance sheet, full employment and ballooning budging deficits. By contrast, Europe has low, stagnant interest rates and inflation, an expanding central bank balance sheet, falling but still high unemployment and narrowing budget deficits. Monetary and fiscal policies have been pulling the currency pair in opposite directions, with a narrow scope for price movements that have depressed both real and implied volatility (Figure 1) - a situation that could persist for a while but won't last forever.
bit.ly/2x63Stj
Stock market: Evidence mounting that it could see chaos this summer
Joe Ciolli - Business Insider Prime (SUBSCRIPTION)
After spiking to a multi-year high in February, the Cboe Volatility Index (VIX) has stabilized as investor nerves have calmed.
However, Bank of America Merrill Lynch argues that worries are again mounting under the surface, which could derail the equity market over the summer.
/read.bi/2LnHa2J
| | | | | | Exchanges and Clearing | | | NYSE to Launch FANG+ Options on June 4; Offers Efficient Hedging and Exposure to Basket of Key Tech Stocks
Business Wire
The New York Stock Exchange (NYSE), part of the Intercontinental Exchange (NYSE:ICE), today announced it will launch a new equity option contract on the NYSE FANG+ Index - a new product that offers exposure to a select group of highly-traded next generation technology and tech-enabled companies. The NYSE FANG+ Index Option contract will trade in the United States exclusively on the NYSE's options markets, NYSE Arca and NYSE American, beginning Monday, June 11.
/goo.gl/76FAw7
CME Group Reports Another Drop in FX Options
Finance Magnates
Total FX options averaged 64,615 contracts per day, which represented a ?loss of -11 percent on yearly and monthly basis.
bit.ly/2GKnQZW
Market Players Envision Stock Exchange Powered by Blockchain
Alexander Osipovich - WSJ
As regulators crack down on the multibillion-dollar, fraud-tainted business of initial coin offerings, some market operators are exploring ways to bring them in line with U.S. securities law.
This week, a U.S. options exchange backed by Canada's TMX Group said it would team up with online retailer Overstock.com to create the first regulated exchange for "security tokens," which are essentially digital versions of stocks.
/on.wsj.com/2GId72p
****SD: Some context to BOX's deal with tZERO announced yesterday.
| | | | | | Regulation & Enforcement | | | FIA Responds to Fed-OCC Proposal to Revise the Enhanced Supplemental Leverage Ratio
FIA
On May 21, FIA responded to a proposal issued in April by the Federal Reserve and the Office of the Comptroller of the Currency that aims to tailor leverage ratio requirements for the largest U.S. banks to their business activities and risk profiles. FIA's comments express support for the proposal as a first step, but stress a need for further reforms in the treatment of cleared derivatives. Areas FIA highlighted include recognizing the exposure-reducing effect of initial margin, adopting a modified SA-CCR methodology, and eliminating double counting in the surcharge methodology.
bit.ly/2x5zVJM
CME sanctions Hana Financial Investment's derivatives trading
Son Ji-hyoung - The Korea Herald
US exchange operator CME Group has immediately suspended South Korea's brokerage Hana Financial Investment's access to electronic trading or clearing platforms and markets run by the US derivatives exchange operator.
bit.ly/2GIeD4o
CFTC Opens Access for U.S. Customers to Trading in Australian Markets
CFTC
The Commodity Futures Trading Commission (CFTC) today announced the approval of Australian Securities Exchange Limited's (ASX 24) application to permit direct access for U.S. customers to trade on its platform. By this order, issued May 15, 2018, ASX 24, a foreign board of trade (FBOT) is registered with the CFTC and allowed to permit members and other participants in the U.S. to trade by direct access on the exchange without having to trade through an intermediary. In order to be registered with the CFTC, an FBOT must be legally organized under its home country regulatory regime and must be subject to relevant regulations and appropriate supervision.
/goo.gl/7rEemz
****SD: Hedgeweek here and Finance Magnates here.
CFTC staff advises exchanges, clearinghouses dealing in virtual currency products
Amy Leisinger - Jim Hamilton's World of Securities Regulation
The CFTC staff has issued an advisory to provide guidance for registered exchanges and clearinghouses dealing in virtual currency derivative products. The advisory clarifies the staff's expectations during review of new virtual currency derivatives for listing or clearing and highlights areas that require particular attention, including, among other things, enhanced market surveillance, large trader reporting, and risk management. According to the staff of the Division of Market Oversight and the Division of Clearing and Risk, the advisory is designed to help registrants to meet their statutory and self-regulatory obligations while facing the unique challenges associated with these emerging products.
bit.ly/2GJmA9B
'Operation Cryptosweep' Launched; SEC Chairman Approves
Rachel McIntosh - Finance Magnates
Regulators in the United States and Canada announced as many as 70 investigations into cryptocurrency investment products at an event hosted by the North American Securities Administrators Association (NASAA) earlier this week.
bit.ly/2LoJxCv
****SD: "Cryptosweep" was also the designation for gathering signal intelligence in WWII before the Allies realized the codename was too obvious, prompting the change to the more well known "Ultra." (That is not at all a true story, but Enigma machine code breaking attempts are super interesting.)
| | | | | | Technology | | | S&P Global Looking for Acquisitions, Weighing China Options, CFO Says
Nina Trentmann - WSJ
S&P Global Inc. is on the hunt for smaller, bolt-on deals and is considering whether to buy or build a presence in China, said Chief Financial Officer Ewout Steenbergen.
The New York-based ratings and information provider is looking for acquisition targets for under $100 million to add to its data analysis capabilities.
/on.wsj.com/2Llk0tI
***SD: Missed this on Monday.
Cyber firms, Ukraine warn of planned Russian attack
Jim Finkle and Pavel Polityuk - Reuters
Cisco Systems Inc (CSCO.O) warned on Wednesday that hackers have infected at least 500,000 routers and storage devices in dozens of countries with sophisticated malicious software - activity Ukraine said was preparation for a future Russian cyber attack.
/reut.rs/2LosgJu
IHS Markit Expands MarkitSERV Trade Reporting Solution in Asia and Europe with Connections to CME Group
Business Wire
IHS Markit (Nasdaq: INFO), a world leader in critical information, analytics and solutions, today announced that it has expanded its MarkitSERV Integrated Reporting solution to CME Group's Trade Repositories in Australia (ASIC) and Europe (EMIR).
bit.ly/2x9s3XK
| | | | | | Strategy | | | Optimism Does Not Pay Off on the Option Trading Floor
Opalesque
Swiss Finance Institute Professor Paul Schneider from the Università della Svizzera Italiana developed a framework in which he takes quoted bid-ask spreads in the liquid S&P 500 options market as input and investigates how different subjective views imply risk preferences, and consequently trading strategies.
bit.ly/2LpkaQN
****SD: My takeaway - leave the optimism to the buy and hold investors.
Spotlight: Russell 2000 Outperformance & Options Strategies
Rick Rosenthal - Cboe
U.S. small-cap stocks are leading the equity markets year-to-date. The Russell 2000 Index, widely viewed as the bellwether for measuring the performance of small-cap stocks has risen 5.62% in 2018 compared to a rise of 1.54% for the U.S. large-cap Russell 1000 Index.
bit.ly/2s5ma84
| | | | | | Miscellaneous | | | Populism surge intensifies spotlight on economic, market orthodoxy
Jamie McGeever - Reuters
The leader of the free world is trash-talking globalisation and advocating trade tariffs, another president says inflation is caused by high interest rates, and the incoming government of a G7 country wants 250 billion euros of national debt written off.
/reut.rs/2Lp9TnH
China Inc returns to U.S. soybean market as trade tensions ease
Dominique Patton, Hallie Gu and Naveen Thukral - Reuters
China's state grain stockpiler has returned this week to the U.S. soybean market for the first time since early April, a sign Beijing is preparing to resume purchases as trade tensions between the world's top two economies ease, two sources said.
The renewed interest in the oilseed, used in animal feed, follows Beijing's pledge at the weekend to buy more U.S. goods from its top trading partner, including agricultural products. China made the pledge to avert a trade war that could damage the global economy.
/goo.gl/UP2f5m
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