Observations & Insight

Editor’s Note
Due to the Good Friday holiday, there will be no JLN Options newsletter tomorrow. We will be back in action on Monday. Have a great weekend!

Lead Stories

Chinese Backers Planning Singapore’s Third Derivatives Exchange
Singapore may be set to get a third derivatives exchange, this time backed by China. If the new bourse, which would be called Apex, goes ahead, it would be operated by Asia Investment Pte, according to people with knowledge of the matter. Asia Investment is majority-owned by former China Financial Futures Exchange and Dalian Commodity Exchange chief Eugene Zhu Yuchen, with a minor stake held by the firm of hedge fund manager Ge Weidong, according to corporate records in the city-state.

****SD: Wonder how Apex Clearing feels about this…

Some Big Bond Managers Are Buying Volatility Again
Brian Chappatta – Bloomberg
Measures of asset price swings make comeback in turbulent week; Shorting volatility grew in popularity as a way to boost yield
Financial-market volatility has awakened from its doldrums. It only took the Federal Reserve considering reducing its balance sheet, geopolitical tensions flaring in North Korea and Syria, and a new contender emerging in the French presidential election to make it happen.

Credit Suisse has its own ‘Fear Barometer,’ and it’s flashing red
Greg Hoffman – Business Insider
The Credit Suisse Fear Barometer, which measures the cost of protection against a market crash, is closing in on all time highs. The index now sits just below its peak just before Brexit, and the investment bank has “gotten a lot of questions on what’s driving the sharp increase,” according to Mandy Xu, an equity derivatives strategist at the Swiss bank.

Fear Is Creeping Back Into Markets
Eric Lam, Garfield Clinton Reynolds, Sid Verma and Cecile Vannucci – Bloomberg
The calm in stocks worldwide is giving way to concern, with investors in Europe and the U.S. rushing to hedge against declines and a Credit Suisse Group AG index flashing a warning as the list of economic and political obstacles grows.

****SD: If there’s one thing worse than fear, it’s creepy fear.

Trump Says Dollar ‘Getting Too Strong,’ Won’t Label China a Currency Manipulator
Gerard Baker, Carol E. Lee and Michael C. Bender – WSJ
President Donald Trump said Wednesday the U.S. dollar “is getting too strong” and he would prefer the Federal Reserve keep interest rates low. Mr. Trump, in an interview with The Wall Street Journal, also said his administration won’t label China a currency manipulator in a report due this week.

****SD: I was really hoping he’d comment on the dollar and then declare China a currency manipulator. I love the smell of irony in the morning. On the related note, MarketWatch has this – Trump is flip-flopping on everything — and it may make him great again

Jumpy VIX Is Untethered From Placid Markets
Chris Dieterich – WSJ
The U.S. stock market continues its languid stroll through a holiday week, but traders aiming to protect themselves against a raft of geopolitical risks have sparked an unusual jump in the CBOE Volatility Index. The VIX, a measure of the cost to use options to insure against declines in the S&P 500 over the next month, closed Tuesday above 15 for the first time since Election Day. It added another 5% Wednesday, putting the so-called fear gauge up more than 20% over the past four days.

Trump takes on global hot spots at delicate time for financial markets
Patti Domm – CNBC
The Trump administration jumped into global hot spots with both feet in the past week, bombing Syria in its first major military action and threatening to move unilaterally against North Korea over its nuclear program. Both of those events unsettled markets and sent investors looking for cover in the safety of bonds and gold.

****SD: Wouldn’t taking on geopolitical hot spots at any time make financial markets delicate regardless of the economic circumstances?

Emergence of New Extreme Spooks Markets: French Election Monitor
V Ramakrishnan – Bloomberg
The prospect of a four-way French election rattled markets after odds for centrist Emmanuel Macron flat-lined and those of far-left candidate Jean-Luc Melenchon surged.

****SD: The more the drearier.

Brokers Likely to Hike Margin Requirements Before French Election Volatility
Victor Golovtchenko – Finance Magnates
Danish multi-asset brokerage Saxo Bank has issued a note to clients, preparing them for volatility and uncertainty across the euro crosses and European indices.

****SD: “Knock knock.” “Who’s there?” “Margin call.” “Dang.”

Exchanges and Clearing

ZCE eyes methanol and PTA options
William Mitting – Futures & Options World
Exchange will launch options on white sugar futures next week.
The Zhengzhou Commodity Exchange is looking to develop methanol and pure terephthalic acid options following the upcoming launch of white sugar options next week. The launch of options on white sugar futures on April 19 will be the second options launch in China following the launch of options on soybean futures on the Dalian Commodity Exchange last month.

****SD: To those of you – like me – who are wondering “what the heck is terephthalic acid?” it’s just a chemical used in the making of some plastics.

CME March Options Review
CME Group
Q1 ADV of 3.75M is an all-time quarterly record; March Options ADV reached 3.96M, +47% YoY; March Electronic ADV reached 2.3M, +52% YoY

No relief for the London Metal Exchange as volumes fall again: Andy Home
Andy Home – Reuters
The London Metal Exchange (LME) has just laid to rest its steel billet contract. No need to panic if you didn’t notice. The contract hasn’t traded since June 2015. The last 65 tonnes of registered billet stock left the LME warehouse system a year ago. The exchange has tweaked and prodded the contract many times since its launch in 2008 but to no avail.

****SD: Also from Reuters – LME reform controversy highlights divisions between members. JLN sat down with LME’s interim CEO Matt Chamberlain at FIA Boca last month and he talked about the LME’s plan for the year. Check it out. And for anyone wondering, yes, Matt Chamberlain is also the name of a drummer who played with Pearl Jam, Soundgarden and had a stint with the SNL band (not to be confused with Jimmy Chamberlin, the drummer for the Smashing Pumpkins.)

Nasdaq’s Equity Options Trading Volumes Continue Strong Growth In March And Q1
Trefis via Nasdaq
NASDAQ ‘s ( NDAQ ) equity options trading volumes saw significant improvement in March, with around 136 million contracts traded in the U.S. market, in comparison to the previous month’s 120 million shares. The volumes grew at over 70% year-on-year over the past few months.

UBS: Nasdaq is undergoing a transformation, and it could lift the stock 25%
Frank Chaparro – Business Insider
One of the top stock exchanges in the US could see its stock price increase by 25% over the next 12 months despite a first quarter slowdown in activity.

US uncertainties drive up volume of commodities trade
Nikkei Asian Review
Commodities trading in major global exchanges edged up in the first three months of the year, against a backdrop of rising U.S. interest rates and uncertainty over President Donald Trump’s economic policy. In particular, gold and copper markets saw an influx of speculative funds.

Deutsche Boerse reluctant to extend CEO contract after failed merger: sources
Deutsche Boerse’s (DB1Gn.DE) supervisory board is reluctant to approve quickly an extension of Chief Executive Carsten Kengeter’s contract following the German exchange operator’s failed merger with the London Stock Exchange (LSE.L), two people close to the matter said.


Head of marketing Mead leaves CME
Julie Aelbrecht – Futures & Options World
The Chicago Mercantile Exchange’s head of marketing Christopher Mead has resigned from his role at the firm, marking the latest management change under new chief executive Terry Duffy. Mead will leave the Merc after over 11 years in its US marketing department. A spokesperson from the Chicago Mercantile Exchange (CME) has confirmed Mead will be leaving the firm at the end of the month.

****SD: We were unaware that the CME listed mead, let alone had a head of marketing for the libation. (But seriously, best to Chris in his future endeavors.)

IMC hires ETF expert Van Leeuwen from Source
Luke Jeffs – Futures & Options World
IMC has hired exchange-traded fund expert Rick van Leeuwen to lead its institutional trading business, marking a strong statement of intent by the Dutch trading firm to grow its European ETF business. Van Leeuwen joined IMC in Amsterdam at the start of this month, according to a spokesman for the firm.

Regulation & Enforcement

Who Should Have the Keys to the CAT?
Michael Friedman – TABB Forum
The Consolidated Audit Trail plan was finally approved by the SEC in November. But the CAT plan stops short of specifying what will be done with all that data once it is collected and is available in one place. Who will be responsible for sifting through it to look for spoofing and layering and other forms of manipulation?

A Barclays exec who went to prison for LIBOR-rigging breaks his silence: ‘Traders have been served up as fall guys to protect these more powerful senior bankers’
Lianna Brinded – Business Insider
One of the biggest financial scandals in recent history reared its head again when secret recordings of phone calls between two former Barclays traders were leaked this month. The transcripts suggested that the Bank of England (BOE) gave instructions to commercial banks to keep the London interbank offered rate (LIBOR) low.

****SD: Are we supposed to be surprised that lower level employees get scapegoated?


FIA launches interactive FCM Tracker
FIA announced the launch of a new data product today. The FCM Tracker provides a series of data visualizations that give market participants powerful insights into the ecosystem of U.S. futures commission merchants (FCMs).


Do Buyers Of Options Benefit From High Volatility?
Search “options and volatility” in Google and you’ll get a dozen websites that say the same thing: option buyers want high volatility and option sellers want low volatility. Oddly enough, this old and relied upon rule of thumb isn’t completely correct. In reality, as an option trade plays out, trend has a far more powerful effect than volatility on final P&L.

Iron Condors to Trade Earnings: Looking for a Soft Landing
T.J. Neil – The Ticker Tape
Earnings season is upon us, and with it brings increased volatility for those stocks reporting results. Highly anticipated by investors, quarterly earnings announcements can provide important insight into how well a company is doing. These one-day events can be extremely volatile for individual stocks because of the uncertainty surrounding these announcements.

VIX Call Buyers Vanished Ahead of Volatility Spike
Karee Venema – Schaeffer’s Research
It was a range-bound first-quarter for the CBOE Volatility Index (VIX – 16.02), with the market’s “fear gauge” churning between 11.25 — half its pre-election high — and 14 (a level that, until recently, had contained VIX closes since the election). This week, the VIX has staged a break to the upside amid rising geopolitical tensions in Russia and North Korea, and yesterday, spiked to its highest close since Nov. 8.

Low Bond Volatility Not Surprising
Brian Romanchuk – Seeking Alpha
The low levels of implied volatility in the bond market have attracted a fair amount of commentary. Although it seems reasonable to believe that volatility selling strategies have reduced market volatility, there’s no fundamental reason to expect a big reversal (outside of another crisis).


Turkish Lira Falls, Volatility Climbs Before Sunday’s Referendum
Constantine Courcoulas – Bloomberg
The lira fell and bonds gained on the last trading day before U.S. and European markets close for Easter holidays, as Turks prepared to vote on constitutional changes that will endow President Recep Tayyip Erdogan with sweeping executive powers.

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