JLN Options: Battle for derivatives clearing heats up

Sep 11, 2012

Lead Stories

Battle for derivatives clearing heats up
Philip Stafford, Financial Times
The effects have been a long time coming. But a sweeping regulatory overhaul of the way institutional investors do business in the derivatives markets is finally being felt.
The clearing of over-the-counter derivatives deals by buyside institutions such as hedge funds and banks on SwapClear, the interest rate swaps clearing business owned by LCH.Clearnet, surpassed $3tn in notional value last week. More than half of that had been cleared in the past eight weeks, the Anglo-French group said.

Fear Making a Comeback
Steven Russolillo, The Wall Street Journal
Fear is starting to percolate within the markets.
The Chicago Board Options Exchange Volatility index, or VIX, was abnormally calm for much of the summer. But since mid-August, the stock-market’s so-called fear gauge has been choppier than usual.

This New Tool Could Change Long-Term Investing
Dan Caplinger, The Motley Fool (via Daily Finance)
Long-term investors haven’t gotten much love from Wall Street lately. Even though a huge number of new investing products have come to market in recent years, ranging from leveraged exchange-traded funds and structured products to niche products like volatility-based ETFs, most of them are most appropriate for short-term traders, rather than those with a longer time horizon.
But long-term investors may get a useful new weapon in their investing arsenals soon. CBOE Holdings’ Chicago Board Options Exchange has asked the Securities and Exchange Commission for permission to issue a brand-new type of option. If approved, it could act as a replacement for regular stock and potentially change the way you invest.

Big Banks Hide Risk Transforming Collateral for Traders
Bradley Keoun, Bloomberg
JPMorgan Chase & Co. (JPM) and Bank of America Corp. are helping clients find an extra $2.6 trillion to back derivatives trades amid signs that a shortage of quality collateral will erode efforts to safeguard the financial system.
Starting next year, new rules designed to prevent another meltdown will force traders to post U.S. Treasury bonds or other top-rated holdings to guarantee more of their bets. The change takes effect as the $10.8 trillion market for Treasuries is already stretched thin by banks rebuilding balance sheets and investors seeking safety, leaving fewer bonds available to backstop the $648 trillion derivatives market.

Short Sale Ban Cost Options Traders Millions in ’08, Study Says
Peter Chapman, Traders Magazine
The short selling ban imposed on the markets by the Securities and Exchange Commission during the financial crisis of 2008 cost options traders $500 million.
At the same time, the ban did nothing to halt the decline in the prices of financial stocks. That’s according to a new study by the Federal Reserve Bank of New York.

A Look At The VIX ETP Landscape
Bill Luby, ForexPros
Two thirds of 2012 passed before we saw the first new VIX-based exchange-traded product and it turned out to be an interesting one — the First Trust CBOE S&P 500 Tail Hedge Fund ETF (VIXH), which was introduced at the end of August. VIXH is essentially a portfolio consisting of 99%-100% SPY, augmented by a dynamic allocation of 0%-1% of VIX options, with the amount of options determined by the level of the VIX at the beginning of each VIX expiration cycle. This is the first VIX-based ETP to include VIX options among its holdings and is notable because it bucks the recent trend as it’s an ETF instead of an ETN.


NYSE Liffe U.S. Expands mini MSCI Futures Portfolio with Three New Global Futures Products
Press Release
NYSE Liffe U.S., the innovative U.S. futures exchange of NYSE Euronext (NYX), today announced the addition of three new futures contracts based on MSCI global indices.  Complementing the successful family of MSCI index-linked futures already trading on the exchange, the addition of mini MSCI Canada, mini MSCI Emerging Markets Latin America and mini MSCI World index futures offers customers more flexibility and control in implementing their desired exposure to key global markets; and provides accessibility to a wider range of in-demand global economies.  With significant growth in interest in world markets, these products provide NYSE Liffe U.S. customers with a more complete menu of products to better tailor their positions as part of their global trading strategy.

BM&FBOVESPA begins competitive bidding process for Market Makers for Options on the Stock of OGX and Itaú Unibanco 
Press Release
BM&FBOVESPA hereby announces the start of the process to select three market makers for options on the stocks of OGX Petróleo e Gás Participações S.A. (OGXP3) and Itaú Unibanco Holding S.A. (ITUB4).  This is the first stage of the Bidding Program to select market makers for equity options and Ibovespa options. The deadline for the delivery of proposals is June 27, 2011. The rules for this process are set out in the Bid Notice and the winner shall be known on July 12, 2011.
For each object of the competitive bidding process, the winners shall be the three proposals that indicate the lowest maximum volatility spreads, defined as the percentage calculated on the basis of the ratio between the implied volatilities of the bid and offer prices for each option in each mandatory series and for each maturity.

BOX Options Exchange connects to TMX Atrium community
Press Release
TMX Atrium, provider of smarter infrastructure solutions for the financial community, today announced that the BOX Options Exchange (BOX), the all-electronic equity options market, has joined the TMX Atrium community.
BOX has been added to the TMX Atrium community in response to growing client demand. Once connected to TMX Atrium’s venue-neutral platform, clients can access multiple liquidity centres enabling them to trade the full range of asset classes using a single international connectivity infrastructure.

CME reopens claims process for MF Global customers
Tom Polansek, Reuters
CME Group customers and members who were clients of MF Global are getting another chance to file claims against property of the bankrupt brokerage that was held by the exchange operator.
CME, the largest U.S. exchange operator, said in a notice distributed on its Chicago trading floor on Monday that it decided to reopen the claims process “to ensure that all members have an opportunity to file any claims that they may have.”

MCX prices options at half of NSE’s (India)
DNA India
MCX Stock Exchange (MCX-SX), the newest equity bourse, has announced transaction charges for the options segment that are 50% cheaper than the market leader, National Stock Exchange (NSE).
The options segment accounts for nearly three-fourths of the total turnover on the equity segment.
Interestingly, the BSE still has the lowest options charges of the three.


With Gensler in Hospital, Agency Scraps Vote
Ben Protess, The New York Times Dealbook
The Commodity Futures Trading Commission has scrapped plans to publicly enact rules
intended to protect customer cash after the agency’s chairman was hospitalized over the weekend.
Gary Gensler, who is overhauling an array of financial rules as head of the Wall Street regulatory agency, cracked several ribs on Sunday when falling at his Maryland home. Mr. Gensler remains in the hospital, although his spokesman called the decision “a precaution.”


Paul Finnegan to Join LIVEVOL as CEO
Press Release
Livevol, Inc., a leading derivative financial technology firm recognized for their proprietary new generation of electronic marketplace products and services, today announced the appointment of Paul Finnegan as Chief Executive Officer. He is to join the firm as CEO on September 17, 2012.
Mr. Finnegan, who was Senior Vice President NYSE Euronext and Co-CEO of NYSE Arca Options, will be managing Livevol’s next stage of growth. With offices in Chicago, New York and San Francisco, Mr. Finnegan will be managing a strong staff of industry experts.


Volatility Players: Backwardation Imminent?
Josh Krause, Seeking Alpha
So, it appears the markets are not quite as sure as they were on Friday that Bernanke and the German Supreme Court will deliver the goods later this week. After continuing to trend down after Europe closed on Friday, we finally saw the rush for protection that caused a significant spike in spot VIX.
Hedging in front of such significant events is just common sense so I am not surprised at the surge off the lows we saw yesterday. What is surprising is the flatness of the term structure and what that could mean for long volatility positions.

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