JLN Options: CBOE’s Ed Tilly says SPXpm is just fine

Mar 15, 2012


CBOE’s Ed Tilly says SPXpm is just fine
By Jim Kharouf, John Lothian Newsletter
CBOE’s record trading day in the SPXpm options is good news for its C2 Options Exchange (see first lead story below for the press release). For some, the contract has been a bit of a slow starter.

CBOE’s Ed Tilly (president and COO of CBOE Holdings, Inc.) said at the FIA BOCA conference just prior to the record day, that the contact had grown “more slowly than we had anticipated.”

Tilly said he asked CBOE market participants at its Risk Management Conference this week if there was something missing or wrong in the design of the product.

“We’re quick to change and quick to make adjustments if there is a flaw. We asked if you do not like PM? And the answer was “no.”

The contract has seen uneven volume growth since its launch. Tilly believes some of the volume spikes have been newcomers to the PM contract, testing it out. He believes that as the contract continues forward, a more consistent level of participation and volume should follow.

“The best feedback we got was, we’d love to see more liquidity on the screen. We remind everyone that the SPX market is an indicative market. The implied spread is extremely tight. And that’s accomplished by traditional open outcry, or broker off-exchange gray pool, finding liquidity. In these early stages of PM, the same liquidity providers will give you the same market inside of the indicative electronic market.”

Tilly said they have the same liquidity providers in PM as in the SPX pit – 270 brokers and market makers. He added that CBOE is reminding market participants of the exchange’s paired-order mechanism, which can provide a higher participation rate than the pits.

“They will be happy to give you the same market in the PM contract, adding the trading day in. And then you can pair that order and bring it to the exchange.”

“As far as liquidity on the screen, that feeds on itself.”

Tilly also said that the exchange’s move to add the super-LEAPS are now extended out to five years.

“Not only can you point and click on the PM, but the Super LEAPS are now out there to five years, to give you an indicative quote where there hasn’t been one in the past. That allows us to raise awareness for the product with some fresh information.”


Daily Trading in C2’s SPXpm Option Reaches New High on Wednesday
Press Release
CBOE Holdings, Inc. (Nasdaq: CBOE) today announced that trading in SPXpm options at the C2 Options Exchange (C2) reached a new high of 38,225 contracts on Wednesday, March 14. Yesterday’s volume more than doubled the previous high of 18,965 contracts on November 17, 2011.
C2’s SPXpm product is an all-electronic, cash-settled index option based on the S&P 500 Index, the premier benchmark of the broader U.S. market. SPXpm is similar in structure to CBOE’s flagship S&P 500 SPX contract, the most actively-traded U.S. index options product, except it has a “p.m.” settlement – the settlement convention found in the OTC market. SPXpm also features European exercise, which eliminates the risk of early assignment.

Fear gauge at 5-year low ‘an optical illusion’
By Maureen Farrell, CNNMoney
One look a the market’s fear gauge and it sure looks like investors are decidedly less fearful. But look a little deeper and there are signs that volatility could be right around the corner.
The VIX, the Chicago Board Options Exchange’s index of market volatility, hit its lowest level since 2007 this week, following news that most major banks, except Citigroup (C, Fortune 500), Ally Financial, SunTrust (STI, Fortune 500) and financial firm Metlife (MET, Fortune 500), had passed the U.S. government’s so-called stress tests.


NYSE’s Jones: No Direct Attack Planned On Deutsche Boerse Futures Mkts
NYSE Euronext (NYX) isn’t looking to pull business away from European derivatives markets that have long been the stronghold of former proposed merger partner Deutsche Boerse AG (DB1.XE, DBOEF), according to the Big Board parent’s global head of derivatives.
NYSE Euronext will instead put effort into developing new futures markets linked to currencies, equities, stock dividends and interest-rate swaps, said NYSE’s Garry Jones, speaking in an interview on the sidelines of a Futures Industry Association event Wednesday.
“We’re not looking to directly attack Eurex,” said Jones, referring to Deutsche Boerse’s derivatives market.
NYSE Euronext and Deutsche Boerse are back to being competitors after the European Union in February formally blocked their plan to merge, citing concerns that the exchange groups’ combined 93% market share in exchange-listed futures and options would have created barriers to competition.

CME Group’s rising CEO mixes wit, swear words, diplomacy
By Ann Saphir, Reuters
Phupinder Gill – named this week to be CME Group Inc’s (CME.O) next CEO – made a caustic comment that nearly wrecked talks in the late 1990s over linking up with cross town rival Chicago Board of Trade.
Quickly seeking to patch things up, Gill sent a bouquet of flowers to Tom Hammond, the Chicago Board of Trade Clearing Corp executive across the table. The note was brief but quintessential Gill: “Do you still love me?” Gill did not clinch a deal that year, but CME eventually did forge a clearing link with CBOT and bought the exchange outright in 2007. Born in Malaysia and raised in Singapore, Gill is known in the close-knit U.S. futures industry as the behind-the-scenes “plumber” who understands the inner workings of the exchange and its all-important clearing operations.

ICE U.S. Dollar Index Sets Daily Volume Record

Press Release
IntercontinentalExchange, a leading operator of regulated global futures exchanges, clearing houses and over-the-counter (OTC) markets, reported record daily volume in the ICE U.S. Dollar Index (USDX) futures contract of 82,689 contracts on March 14, 2012. The notional value of USDX contracts traded was more than $6.6 billion. The previous daily volume record of 81,814 contracts was established on June 9, 2011. For the month of February, average daily volume in USDX futures was 29,073 contracts, up 34% year-to-year. ICE USDX futures trade exclusively on ICE Futures U.S. 22 hours a day. USDX options on futures will trade side-by-side electronically and on the ICE Futures U.S. options trading floor until May 2, 2012, when options will trade exclusively electronically.

BRICS Exchanges To Cross-list Benchmark Equity Index Derivatives
RTTNews.com (via NASDAQ)
Bombay Stock Exchange said the five of the world’s leading emerging market indices would commence cross list their derivative indices on each other’s trading platforms from March 30.
The cross-listing of benchmark equity index derivatives is likely to facilitate liquidity growth in the BRICS
markets and will considerably strengthen their international position.
The derivatives to be cross-listed and offered in the local currency and local trading hours of each of the exchanges will include Brazil’s IBOVESPA futures, Russia’s MICEX Index futures, India’s Sensex Index futures, Hong Kong’s Hang Seng Index futures and Hang Seng China Enterprises Index futures, and South Africa’s FTSE/JSE Top40 futures.
Further, JSE will also list options on the benchmark futures of the other four member exchanges.


CFTC Charges Ex-MF Global Broker With Attempted Market Manipulation
By Tatyana Shumsky and Jamila Trindle Of DOW JONES NEWSWIRES
The U.S. Commodity Futures Trading Commission has charged a former MF Global broker with attempted manipulation of palladium and platinum futures prices, the regulator said Wednesday.
The CFTC alleges that Joseph F. Welsh III attempted to manipulate the price of palladium and platinum futures traded on the New York Mercantile Exchange from at least June 2006 through May 2008, citing 12 specific occasions. Welsh facilitated a scheme that is commonly known as a “banging the close,” or trying to push up the settlement price of a commodity in the last few minutes of floor trading, the CFTC alleges in a press release…
The regulator imposed a $25 million civil monetary penalty and restricted the successor company’s trading in the palladium and platinum futures and options markets–in the closing moments of the session–for two years.
Pia was required to pay a $1 million civil monetary penalty and was permanently banned from trading during the closing periods for all CFTC-regulated products.


Stocks Climbing Through the Wall of Worry?
Digging into the most popular broad-market sentiment indicator
By Chris Johnson, CEO, Johnson Research Group (via InvestorPlace)
In last week’s article, Is Light-Volume Trading a Good Thing?, we discussed the current trend in options volume and its potential effect in helping drive the market higher. As promised in that article, we’re going to take a quick look at the CBOE Equity Put/Call Ratio and its potential to identify the market’s near-term direction.

What Does VIX^2 Equal?
By Fisher Investments Editorial Staff, MarketMinder
The Chicago Board Options Exchange announced Tuesday a new benchmark index—the VVIX, or the VIX of VIX Index. As the name might imply, the new index will track the volatility of … volatility.
But before we get to the VVIX, consider what the VIX is: It aims to track the market’s expectations of 30-day volatility for the S&P 500. Typically, VIX watchers interpret a high VIX as a sign investors are exceedingly fearful—signaling a good time to buy—and a very low point means a worrisome lack of fear and a good time to sell. Hence the saying, “When the VIX is high, it’s time to buy. When the VIX is low, it’s time to go.” After all, a wise man once said we should be greedy when others are fearful and fearful when others are greedy. So an “extreme fear” index might seem useful.

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