CBOE purchase of Bats reflects aim to tap options trading for ETFs
Philip Stafford – Financial Times
CBOE Holdings’ planned $3.2bn purchase of Bats Global Markets reflects a crucial step in tapping the next major area of growth across exchange traded products. The booming sector is set to expand further with the use of options. In an interview with the Financial Times, Ed Tilly, chief executive of CBOE, laid out a comprehensive case for why the new entity is best placed to take advantage of rapidly shifting demand from investors for structured products. Mr Tilly, who will head the combined company, contrasted ETFs with options contracts that trade on multiple exchanges, saying it was “the fastest-growing, really the only growing” part of the options market.
US Options Volume Surges Nearly 25% in November, Reaching Second Highest Monthly Volume in 2016
Options LiquidityMatrix – Tabb Group
Listed options volume surged in November, as the results of the US elections caused investors to readjust their expectations for the US stock markets. Volume totaled 383.2 million contracts in November, a 23.8% increase from October, and the highest level of trading since January. Volumes surged in the days following the election, as the market digested the potential impact of a Trump presidency. And investors seem to like what they see. The S&P has rallied 8.8% since the election, and volatility as measured by the CBOE VIX Index has declined sharply.
Wall Street’s ‘fear gauge’ implies that few are prepped for a stock-market shock
Anora Mahmudova – MarketWatch
As stock-market indexes march to fresh records on the back of a monthlong rally in the wake of Donald Trump’s presidential election win, U.S. investors don’t appear to be daunted by the unrelenting climb to new heights.
****SD: Also see CNBC’s What the ‘fear index’ is telling investors about markets now and into 2017
Draghi Limitations Exposed With Inflation Downside Risks in 2017
Tanvir Sandhu – Bloomberg
Investors may grow increasingly skeptical of the European Central Bank meeting its inflation target, with a host of factors — some beyond the control of President Mario Draghi — exposing the limitations of policy makers’ toolkit.
Delayed reaction? Here’s when the latest terror attacks could rattle markets
Victor Reklaitis – MarketWatch
Markets can shrug off violence, and analysts today are buzzing about how attacks in Germany, Turkey and Switzerland haven’t sparked big moves. The impact of the violence might be felt much more in the new year, suggests Michael Hewson, chief market analyst at CMC Markets UK. He provides our call of the day with his take on yesterday’s “probable terror attack” on a Berlin Christmas market that killed 12 people, the assassination of Russia’s ambassador to Turkey and the shooting at an Islamic center in Zurich.
Transatlantic Trading Need: Local Expertise
Terry Flanagan – MarketsMedia
Say a U.S.-based hedge fund or proprietary trading shop identifies trading opportunities in Europe. Perhaps the firm wishes to buy shares of Micro Focus International, a mid-cap British software company; sell put options on the euro; and enter into a commodity swap based on expectations of a decline in oil prices. The wish list can be checked off remotely, via computer and telephone trading. But just like a downtown bazaar that has tourist prices and local prices, overseas securities markets are tapped most efficiently when a buyer of brokerage and technology services has a presence on the ground.
Terror, espionage & binary options: Binary Options met their match?
Andrew Saks-McLeod – FinanceFeeds
Former US secret agent Haggai Carmon explains how he has the ability to finish the binary options business saying that he can “bring the whole house down”. Here is the full account.
Exchanges and Clearing
BRIEF-CBOE Holdings enters into a term loan credit agreement
On December 15, 2016, Co entered into a term loan credit agreement- SEC filing; Term loan agreement provides for a senior unsecured delayed draw term loan facility in an aggregate principal amount of $1.0 billion
Why China Needs Modern Futures Markets
By Leo Melamed – CME Group
Although futures markets themselves are centuries old, the modern futures model which the financial world centers have adopted began in the 1970s with the introduction of financial futures at CME Group. The most important factor which propelled this success was the technological revolution which ensued almost at the same time.
****SD: Yes this is futures, but indicative of China as an options frontier. Just last week Chinese regulators approved soymeal and white sugar options. Soymeal futures on Dalian and white sugar futures on Zhengzhou are the two of the three most traded agricultural contracts in the world. That’s a pretty nice underlying. So, yes, China needs modern futures markets – without those, they won’t succeed with futures options.
HKEX derivatives records offset by LME declines
Global Investor Magazine
Investors traded a record number of futures contracts via Hong Kong’s bourse in the first eleven months of this year, although the exchange’s commodities arm LME saw volumes slide.
Hong Kong Exchanges and Clearing (HKEX) statistics show 80.9 million futures contracts occurred between January and November – a new record and 10% up on last year.
That included over 30 million Hang Seng futures, levels not seen since 2011.
Regulation & Enforcement
Igor Oystacher settles CFTC Spoofing Suit
The CFTC announced on 20 December 2016 the terms of the settlement it reached with Igor Oystacher and his firm 3Red Trading LLC earlier in the year. Under the terms of the settlement, he is permanently prohibited from ‘spoofing’ or employing other manipulative or deceptive devices while trading futures contracts. Which seems kind of obvious if you think about it, but he will be able to continue trading.
****SD: Snuggs gets to keep on keepin’ on.
5 Key Elements for CAT Cybersecurity
Joanna Fields – MarketsMedia
Target, Yahoo! and even the IRS have been the targets of cybercrime in recent years. But those entities aren’t the only victims. Instead, it’s you who suffers when a company is hit with a cyberattack. This is why, in today’s increasingly digital world, it’s absolutely necessary for all companies to make cybersecurity a top priority.
Section 871(m) and US withholding on dividend equivalent payments on US equity derivatives – a view from the UK
Andrew Loan, Guy Usher, Edward Miller and Luke Whitmore – Field Fisher
Section 871(m) is a US legislative measure that is intended to prevent the avoidance of withholding of US tax on dividends paid by US corporations. Previously, US dividend withholding did not apply to returns on certain financial instruments – such as notional principal contracts and equity linked instruments – which are related to underlying US equities.
****SD: This is a very lawyer-y piece on an important subject.
EU regulatory changes affecting derivatives: what’s already in force and what’s to come
James Doyle and Isobel Wright – International Law Office
Five years on from the G20’s commitment to implement measures to increase transparency and reduce counterparty credit risk and operational risk in the derivative markets, there have been significant changes to regulations affecting the derivatives markets in the European Union. However, many new rules are still not yet in force and some, such as the margin requirements under the European Market Infrastructure Regulation (EMIR), will not be fully implemented until 2020. Nevertheless, the European Commission intends to propose a legislative review of EMIR in 2017, which will look at specific issues, including adjusting the requirements for non-financial counterparties (NFCs).
Big Banks Are Stocking Up on Blockchain Patents
Olga Kharif – Bloomberg
In the headlong rush to revolutionize modern finance, blockchain enthusiasts are overlooking one potentially costly problem: their applications, built on open-source code, may actually belong to someone else.
Someone Bought a ‘Relatively Cheap Lottery Ticket’ That Will Pay Off If Oil Hits $100
Alex Longley – Bloomberg
December 2018 call single most-traded Brent option on Tuesday; Investor optimism returning to oil markets after OPEC deal
Call it a pre-Christmas lottery ticket, but someone in the oil market has been busy making a bold bet, buying contracts that will be profitable if oil surges again to $100 a barrel. The $100 December 2018 call option — a contract that gives the right to buy Dec. 2018 futures at $100 per barrel — was the most traded contract on Tuesday across the whole ICE Brent market, the latest sign of resurgent optimism in oil.
BGC Partners completes acquisition of Sunrise Brokers
BGC Partners, Inc. (“BGC Partners,” “BGC,” or “the Company”) a leading global brokerage company servicing the financial and real estate markets , today announced that it has completed the acquisition of the businesses of Sunrise Brokers Group (“Sunrise Brokers”), an independent financial brokerage with a leading reputation in worldwide equity derivatives. Details of the transaction were not disclosed.
Blue Isle FX Launches Prime-of-Prime Accord With Geluk Global Fund
Blue Isle FX, a prime of prime (PoP) and foreign exchange (FX) broker-dealer has launched a strategic partnership with Geluk Global Fund Ltd SAC, comprising a total of three hedge funds – the accord will see Blue Isle support a trifecta of funds as a PoP broker, whilst providing institutional pricing and access to its platform services, according to a Blue Isle statement.
Yuan Bears Strike as Capital Outflows Override PBOC Support
The currency is set for its biggest annual plunge since 1994; Forwards and options show traders see more losses ahead
China’s renewed efforts to curb declines in its currency are doing little to dissuade yuan bears. Traders have turned increasingly negative amid tighter liquidity, sending bets for further losses soaring.
AlphaCentric Converts Hedge Fund to Mutual Fund
Liquid alternative provider AlphaCentric has announced the conversion of an options-focused hedge fund managed by Theta Capital Partners managing director Russell Kellites to a mutual fund format.