| June 23, 2016 | | | |  | Jeff Bergstrom
Editor
John Lothian News | |
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| | | | Observations & Insight | | | Live: EU Referendum - Polling stations forced to close by floods, as final polls show race 'too close to call'
The Telegraph
goo.gl/1RMqHg
****SD: I like The Telegraph's live event coverage in general, so, for all matters Brexit, give it a glance. It's a fairly comprehensive, up-to-the-minute look at the referendum, with social media, print and video coverage in one feed. However, it does not delve deeply into the effects the affair is having on markets.
So, if you are tired of reading about brokers hiking margin requirements, the state of safe-haven assets, stop-loss order adjustments and sterling volatility, this feed from The Telegraph provides insight into the more human side of #BrexitVsBremain. You can see how the nasty weather is affecting polling stations, Boris Johnson's best quips about the EU (there are updates about everything Boris is up to today), people rocking Margaret Thatcher's infamous European flag sweater, current odds, and, of course, a giant countdown to poll close.
In our strategy section I've included several stories which break down the timing of key developments. For those of us stateside, the results ought to be official in the wee hours of Friday morn. Whichever way it goes, Brejoice that the weekend is right around the corner.
| | | | | | Lead Stories | | | No Safety for Traders on Brexit Day as Liquidity Shortages Lurk
Bloomberg
Vanguard says currency market preparing for big price swings
Mellon Capital runs 'stress tests' on portfolios before vote
Bond and currency traders seeking refuge as the U.K. votes on membership in the European Union may find that the world's financial-market havens aren't so safe. There are already signs that liquidity, the ability to trade without affecting prices, has been deteriorating in some investment oases in advance of the ballot.
bloom.bg/28ZcVwb
Get Ready for a Big Swing in Implied Volatility
Bloomberg
Amid a period of unusual market calm, traders in the U.S. are preparing for a typhoon from across the Atlantic. The one-month realized volatility of the S&P 500 Index stands at just 6.5 percent, its lowest level since 2014, while the CBOE Volatility Index (commonly known as the VIX) closed near 21.2 on Wednesday. Yet, "implied volatility is extremely high when you consider how little the market has actually been moving," writes Pravit Chintawongvanich, head derivatives strategist at Macro Risk Advisors.
bloom.bg/28ZdciF
Some U.S. stock options traders say Brexit fears overdone
Saqib Iqbal Ahmed - Reuters
The run-up to Britain's referendum on European Union membership has revived volatility expectations for U.S. stocks after months of torpor, but some traders in the options market have been banking on a return of calm. Last week, the CBOE Volatility Index .VIX, or the VIX, the favored gauge of investor anxiety, climbed above its long-term average of 20. On Wednesday, a day before the referendum, the index was up 15 percent to 21.17. Not everyone has been bracing for increased stock gyrations. Recent activity in options on the index points to sizeable trades that are betting that calm will return to U.S. stocks soon.
reut.rs/28ZdbLU
Gold investors wrestle with Brexit vote in wild options dealings
Reuters
Gold investors piled on near-term bullish and bearish options bets on Wednesday, racing to protect against whipsawing prices as Britons head to the polls to decide on the future of their European Union membership on Thursday, data showed. Implied volatility, a measure of options activity, in Comex July gold calls and puts with strike prices that are as much as $50 higher or lower than current prices soared to record highs on Wednesday.
reut.rs/28ZdAh7
Hedging Costs for U.K. Shares Hit Record as Britons Vote: Chart
Bloomberg
he cost of bearish FTSE 100 Index options is heading for its highest-ever level relative to bullish contracts, according to data compiled by Bloomberg going back to 2007.
bloom.bg/28ZJJVV
Saxo on Brexit: Volatilities market shows UK on a knife-edge
TradingFloor.com
On a damp day in London, close to 46.5 million Britons are expected to go to the polls in what is the third referendum in UK history. The first set of results are set to leak at approximately midnight (BST) tonight, with the final decision expected at around 0700 tomorrow. Should Britain vote to leave the European Union, Article 50 of the 2009 Lisbon Treaty is likely to be invoked, beginning the process of departure from the 28-nation bloc.
/goo.gl/UGw9xf
Sterling overnight volatility indicators hit record highs
Reuters
The cost of hedging against swings in sterling over the next 24 hours surged to the highest on record on Thursday as the contract rolled over to capture the result of Britain's vote on EU membership. Dealers said pricing of options on internal and interbank trading platforms essentially indicated there was no market in which fund and corporate players could hedge bets on the pound over the next day.
reut.rs/28ZdBlm
****SD: Bloomberg has the chart.
Props eye trading limits ahead of Brexit result
Alice Attwood - Futures & Options World
Prop traders have reduced their trading limits ahead of possible extreme volatility
Proprietary trading firms are cutting their overnight limits to reduce their traders' exposure to likely intense volatility in the countdown to the result of Britain's referendum on European Union membership. The prop market has been working for weeks toward the crucial day of voting on whether to remain in or leave the EU, with limits for traders and plans for overnight positions key to operations.
goo.gl/haRhHr
Bearish Bets on China Soar to 15-Month High as U.K. Votes
Bloomberg
Options put-call ratio on country-focused ETF surges
Skepticism contrasts with improving mood in emerging markets
As the dust settles on the U.K.'s European Union referendum and the Federal Reserve reaffirms its dovish policy, options traders are betting China's economic slowdown is the major unresolved risk for emerging markets.
bloom.bg/28T3XVr
FIIs expand hedges as 'Brexit' uncertainty deepens
Economic Times
Foreign investors have expanded hedges against their Indian stock market holdings amid heightened uncertainty over the outcome of the UK's vote on European Union membership. These investors have sold Nifty futures  the highest in nine months  and bought Nifty options as the voting may go down to the wire.
goo.gl/HjgO1X
| | | | | | Exchanges | | | How Will ISE Fit With NASDAQ After Deal Closes?
Trefis
NASDAQ's deal to acquire the International Securities Exchange from Deutsche Börse Group for $1.1 billion, which was announced in March, is expected to close in the second half of 2016. ISE operates three electronic options exchanges: ISE, ISE Gemini, and ISE Mercury. In the table below, we take a look at ISE's fit for NASDAQ and how the deal may impact NASDAQ going forward.
goo.gl/mg7TKN
Potential rival to LME would be costly; tie-up an option
Reuters
The idea of launching a platform to rival the London Metal Exchange, the world's biggest market for industrial metals, is unlikely to become reality without large amounts of capital but a viable alternative could be a tie-up with another exchange.
goo.gl/JrvGEd
Top exchanges braced for Brexit volatility
Julie Aelbrecht - Futures & Options World
Exchanges have widened price limits in anticipation of referendum market turmoil
Exchange giants the Chicago Mercantile Exchange, Intercontinental Exchange and Euronext have called in special measures including widening of price fluctuation limits in anticipation of extreme volatility linked to the UK referendum on its membership of the European Union. The Chicago Mercantile Exchange (CME) group has temporarily modified its price fluctuation limits on foreign exchange (FX) and interest rate futures, while Euronext has declared a so-called 'Fast Market' in its derivatives market for individual equity option and index option contracts.
bit.ly/28ZbkXp
CME Expands Range of Circuit Breakers on Forex Ahead of Brexit: Reuters
Reuters
The Chicago Mercantile Exchange (CME) has reportedly doubled the special price fluctuation limits for all currency pairs and options, according to coverage by Reuters citing a notice yesterday sent to electronic traders from the CME, as it prepares for potential Brexit volatility today. Abrupt changes in market prices can trigger circuit breakers such as when futures reach limit-up or limit-down, in an effort to deter price overreaction.
bit.ly/28Ze0nX
****SD: A bit more from the FT: CME tweaks price-change limits on Brexit volatility
Wall St might not be ready for a war on high-frequency trading
Vinay Patel - The Conversation
Stock markets globally have seen increased fragmentation in recent times as investors seek lower transaction costs, faster execution time of trades and fairer prices. Now a startup backed by US entrepreneur Eric Ries and some Silicon Valley supporters have initiated talks with the Securities and Exchange Commission (SEC) for a new type of trading venue, dubbed the Long-Term Stock Exchange (LTSE). But could the plan create more problems than it solves by taking aim at high-frequency traders?
goo.gl/Cb0PQv
Halting LSE trading: The Chancellor or the circuit breakers
Financial News
You can now add the UK Chancellor pulling rank and ordering a halt to trading on the London Stock Exchange to the list of scare stories surrounding the EU referendum.
goo.gl/hox829
Eurex Exchange's Equity Derivatives update
Eurex
We would like to share key figures and interesting developments in our Equity Derivatives complex for the first 5 months of 2016.
goo.gl/dECyZZ
TOM MTF Welcomes Wolverine Trading As A New Member
Press Release
Wolverine Trading UK Ltd ('Wolverine') has become a Member on TOM MTF as of 23 June 2016 and will start quoting as Market Maker in options.
goo.gl/7n6wN8
| | | | | | Regulation & Enforcement | | | CFTC Approves Supplemental Proposal On Position Limits To Permit Exchanges To Recognize Non-Enumerated Bona Fide Hedges
Mondaq
On May 26, 2016, the Commodity Futures Trading Commission ("CFTC") approved a proposed supplement ("Supplemental Proposal") to its December 2013 proposal to establish position limits on 28 core physical commodity contracts and economically equivalent futures, options, and swaps ("2013 Position Limits Proposal"). The Supplemental Proposal would provide for a new process for exchanges to recognize certain positions in commodity derivatives contracts as "non-enumerated" bona fide hedges (not already enumerated in CFTC regulations) or enumerated anticipatory bona fide hedges, as well as to exempt from CFTC position limits certain spread positions, in each case subject to CFTC review.
goo.gl/mO4Pqz
IMPACT ANALYSIS: DOL fiduciary rule may require multiple paths to compliance
Reuters
What makes the U.S. Department of Labor's (DOL) "fiduciary rule" so transformational is that unlike most regulations which have a major cost and operational impact, the DOL rule package will also have a material impact on the front office. This impact will include financial adviser compensation and revenue associated with Individual Retirement Accounts (IRAs) and other retirement accounts.
reut.rs/28ZCuxi
Sebi may allow trade in commodity options soon
Economic Times
Hedgers and punters in commodity futures could soon get to trade options in gold, silver, soyabean and guar seed once Sebi approves the launch of the new products in around three-four months, three persons aware of the development told ET. Also, portfolio management services (PMS) could be approved by the regulator in due course, they added.
goo.gl/hqxZdG
RBI lets exporters, importers sell European call, put options
Business Standard News
To deepen the liquidity in the over- the-counter currency options market, RBI today allowed exporters and importers to sell standalone plain vanilla European call and put option contracts against their contracted exposure to any authorised dealers.
goo.gl/u37ofX
| | | | | | Technology | | | Intelligently Automating Trade Workflows
Markets Media
With electronic markets faster-moving and more complex than ever, optimizing workflows on the institutional trading desk is a necessity. On a basic level, this means improving both the sequential and parallel steps associated with pre-trade, trade, and post-trade processes. It's about working smarter, and in doing so, allowing resource-constrained investment firms to keep raising the bar on trading efficiency.
goo.gl/Ux4EZy
| | | | | | Strategy | | | Adjusting Your Trading Expectations In Volatile & Possibly Illiquid Markets
DailyFX via Nasdaq
Volatility and liquidity are often lumped together, but they are very different topics that should be understood well. Volatility is a measure of price range over a given time and often utilizes tools like Volatility Bands - which are nothing more than standard deviations around an average price - and average true range readings over a fixed period. Understanding volatility is helpful because the information can help you see where you should place your stops (whether wider or tighter) or if markets have become too erratic for you to trade.
goo.gl/jQ4c2L
Volatility Update: Implied Volatility Breaks Out
Frederic Ruffy - The Ticker Tape
Sudden spikes in the CBOE Volatility Index (VIX) are sometimes associated with changes in investor sentiment. After all, the index has been dubbed the market's "fear gauge" for a reason. This is because the VIX tends to move higher during periods of market turmoil and uncertainty, or times when the premiums for S&P 500 Index (SPX) options become more expensive due to increased demand for portfolio protection. This was the case last week when the S&P 500 suffered a steady series of losses amid a variety of global economic anxieties. Yet, so far, actual volatility remains relatively low, and this has created a disconnect between VIX and measures of the market's actual levels of market volatility. Let's take a look at the numbers.
/goo.gl/8yDC4C
From the Floor: 'Don't be smart' on Brexit day
TradingFloor.com
It's quite possibly tempting to look at the potential scenarios for the UK vote on EU membership today and think this or that could be worth a flutter, but Saxo Bank's head of equities Peter Garnry warns against getting carried away. "This is a day for keeping a low exposure", he says. "We're hedging all of our long bets and we feel comfortable in our neutral position".
/goo.gl/jH6Acr
Black Swan Options See Stampede as Brexit Decision Looms: Chart
Bloomberg
Bets are starting to pile up in distant corners of the U.S. options market that Thursday's U.K. referendum will ignite serious losses in stocks. Consider one S&P 500 contract that would move in the money should the index plunge 20 percent to 1,675 by Friday.
bloom.bg/28ZISVk
Credit Options Give Brexit Hedge for Cairn Capital as U.K. Votes
Bloomberg
Cairn Capital Ltd. said it bought options contracts on credit derivatives indexes to hedge the risk that the U.K. will vote to leave the European Union.
bloom.bg/28ZDRvW
A Final Look at #Brexit from Social Market Analytics
CBOE Options Hub
This morning our friends at Social Market Analytics offered up a final look at the twitter chatter with respect to the vote in Britain tomorrow that will determined the country's fate with respect to EU membership. The hashtag #Brexit was mentioned 139,758 times in the 24-hour period ending this morning. The chart below shows how often other hastags were combined with #Brexit. #voteleave and #leaveeu were mentioned 33,751 times in conjunction with #brexit. Hashtags that indicate a preference to stay in the EU (#remain, #voteremain, and #strongerin) were mentioned a total of 21,721 times showing that at least those using #Brexit in their commentary are leaning toward voting to leave the EU.
goo.gl/CpkE3h
Taking Apples from Somewhere Near the Top of the Tree
CBOE Options Hub
The best way to tell a story (well, maybe not always) is to tell it in the order in which it happened. In this case, I'll start where I left off, and that means to describe the mystery position I took at the end of the last post. I made mention of it, but did not divulge it. It turns out I opened and closed that position all on the same day, so that by the time my last article went to press, it was already in the can. Here's the rundown for my June 3rd open/shut:
goo.gl/CkEuJD
Option Chain: When Should You Discard Your Options Adjustment Plans?
The Ticker Tape
In a previous article,we looked at how the market can potentially signal that it's time to adjust an options trade. Now we'll help determine how much adverse market movement it's going to take before an adjustment plan goes out the window.
/goo.gl/Yxa3Kx
Brexit, Sell The News Set Up Either Way
Seeking Alpha
Fear factor subsiding even though the Brexit event risk has gone up. VIX volume down from last week. We think traders' plans include staying long and selling into event strength. Since more are leaning long, we think it's setting up to be a sell the news event.
goo.gl/7otPau
A guide to the global trading day after the UK referendum
Financial Times
Britain's referendum on EU membership has global markets bracing for tumult as investors rush to get on the right side of the Brexit trade. UK markets will be shut by the time voting ends on Thursday but global markets, notably foreign exchange, never sleep  there is always somewhere open to make money. If you plan to join bankers, traders and the rest of the City of London in pulling an all-nighter on June 23 then these will be the markets to watch:
on.ft.com/28ZeL03
****SD: Relevant times can be found here and in the story below.
Brexit Referendum Timeline: When Will Markets Go Haywire?
Finance Magnates
With the referendum day finally upon us, foreign exchange trading brokerages and their clients are preparing for the outcome with vigilance. The uncertainty about the vote has brought substantial volatility in recent days which ultimately culminated with the British pound rising to its best levels against the U.S. dollar in 2016.
goo.gl/KBJ2BN
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