JLN Options: CME’s Donohue to step down; Gill named new CEO

Mar 13, 2012

Lead Stories

CME’s Donohue to step down; Gill named new CEO
By Ann Saphir and Tom Polansek, Reuters
Craig Donohue, CME Group Inc (CME.O)’s chief executive officer since 2004, will step down at year end, to be replaced by current CME president Phupinder Gill, the company said on Monday.
Chairman Terrence Duffy, who has been the face of the company as it navigates the fallout from the failure last October of giant broker MF Global, will take on the additional role of president, the company said.
Donohue, speaking on a conference call with analysts, said his exit was not linked to MF Global’s failure, which has rattled confidence in the futures industry and dealt a blow to the exchange operator’s trading volume.

CBOE “happily solo,” no need for M&A: CEO Brodsky
Reuters (via Chicago Tribune)
BONITA SPRINGS, Florida (Reuters) – The Chicago Board Options Exchange sees no need for a merger and is “happily solo,” CBOE Holdings Inc CEO William Brodsky said on Monday.
In an interview with Reuters, Brodsky also confirmed that the Securities and Exchange Commission is investigating CBOE’s compliance with its obligations as a self-regulatory organization. He added that the SEC has ramped up its oversight of self-regulatory organizations in many ways.

Greek Crisis Ends With a Thud, but the Volatility Collapses for Good Measure
by Mark Sebastian, The Options Insider
So the CDS event for Greece happened, and the buildings are still standing, and the sun is still shining. I remember as a floor trader, during market crashes, when some fund or country melted down, it looked like the world was ending. Trading floors are generally windowless fish bowls with lots of blinky lights, so when markets implode, they look much worse in an active trading room. When the volatility starts to implode (melt down), things don’t feel so bad. It is more like letting the air out of a tire. So let’s look at the closing print in the VIX futures.


ISE Options Exchange May Open New Venue With Trading Floor
By Nina Mehta, Bloomberg
The International Securities Exchange may introduce a second platform for U.S. equity options, opening what may be the nation’s 10th venue for the contracts, according to Chief Executive Officer Gary Katz.
Should the New York-based market start a second venue, it may have a trading floor, Katz said during an interview in Boca Raton, Florida, at the Futures Industry Association conference. ISE was the first all-electronic U.S. options exchange when it began in May 2000. The company, owned by Frankfurt-based Deutsche Boerse AG (DB1)’s Eurex subsidiary, shelved plans for a second venue when the German exchange announced its takeover of New York-based NYSE Euronext.

ISE to List Options on ISE Max SPY™ Index
New Cash-Settled Option Product Tracks Most Popular ETF
Press Release
The International Securities Exchange (ISE) announced today that it has filed for approval with the Securities and Exchange Commission (SEC) to list options on the ISE Max SPY™ Index, a new proprietary index that represents ten times the value of the SPDR® S&P500® ETF Trust (SPY). Currently, options on SPY are the most actively traded contract in the options industry, with average daily volume of 2 million contracts on a year-to-date basis. Options on the ISE MAX SPY Index will build upon the success of SPY options by offering a large-sized, European-style option that is cash-settled, characteristics which appeal to the institutional segment of the market.
Gary Katz, ISE’s President and Chief Executive Officer, said, “ISE led the industry to introduce options trading on SPY, which grew to become the most popular options product ever. We believe options on the ISE Max SPY index are an equally exciting product that offer an alternative for institutional traders who are seeking exposure to the SPY but prefer to trade an index option that has a higher notional value and settles in cash instead of the traditional ETF option that settles in shares.”
http://jlne.ws/xzwDCo (PDF)

BSE kickstarts SME Exchange; NSE follows with soft launch
The Economic Times
MUMBAI: The BSE and the National Stock Exchange today launched the much-delayed and much-talked about SME exchange platforms in their bid to give alternative platforms to raise capital for the small and medium enterprises.
While the premier bourse kick-started its SME platform under the brand name of BSE SME Exchange with listing of BCB Finance, the NSE followed suit with a soft-launch of its platform called ‘Emerge’, with an online version of the bourse going active.

Citigroup Joins Bombay Stock Exchange Derivative Platform
By Eleni Himaras and Santanu Chakraborty, Bloomberg
Citigroup Inc. (C) and Bank of America Corp. (BAC) became the first two foreign firms to join the Bombay Stock Exchange’s derivatives platform in India as the bourse extends an incentive program that pays brokers to trade.
Richard Macfarlane, head of equities at Citigroup’s Indian unit, said today the bank will use the BSE Ltd.’s platform to provide institutional clients access to futures and options on the BSE India Sensitive Index, or Sensex. Bank of America has started trading on the BSE, spokeswoman Mona Kwatra said by phone. Two overseas firms have started using the platform, BSE Chief Business Officer V. Balasubramaniam said in a telephone interview on March 9, declining to name them.


ISE Announces Optimise Roundtrip Latency of 250 Microseconds
Press Release
The International Securities Exchange (ISE) announced that current median latency for its Optimise™ trading system equals 250 microseconds. This represents a reduction of approximately 39% since the completion of the Optimise rollout in August 2011. Significantly, ISE has reduced the latency tail so that 90% of all quotes submitted to the system are acknowledged within 340 microseconds, representing a 45% reduction in the past six months.
ISE is also now publishing its latency statistics for Optimise on a new, dedicated webpage, www.ise.com/latencystats. The latest statistics are measured and reported via the CorvilNet performance monitoring solution, which was implemented in February 2012. As part of ISE’s commitment to continually enhance its leading technology platform, the statistics will be updated approximately every two months, following each new technology release.
http://jlne.ws/AlRFdj (PDF)


New Study Finds That Certain Options- and Futures-Based Benchmark Indexes Could Help Manage Tail Risk of Traditional Indexes
Press Release
CHICAGO and BONITA SPRINGS, Fla., March 12, 2012 /PRNewswire/ — The merits of using options-based and futures-based strategy benchmark indexes to hedge and manage tail risk is the subject of a new study – “Key Tools for Hedging and Risk Management” – released today by investment-advisory firm Asset Consulting Group (ACG).
The study, the second of two ACG
papers commissioned by Chicago Board Options Exchange (CBOE), compares the performance of “traditional” indexes with the performance of five strategy benchmark indexes that use index options or VIX® futures: the CBOE S&P 500 95-110 Collar Index (CLL), CBOE VIX Tail Hedge Index (VXTH), S&P 500 VIX Mid-term Futures Index (VXMT), S&P 500 Dynamic VIX Futures Index (DyVX), and S&P 500 VIX Futures Tail Risk Index – Short Term (VTRsk).
The study focuses on two different time periods: 25-1/2 years (back to mid-1986) for the CLL Index, and 70 months (back to April 2006) for the four VIX-based benchmark indexes. VIX Index options opened for trading in February 2006.

Using VIX Options for Protection
By James Bittman, MoneyShow
[P]eople who watch the Volatility Index (VIX) should be aware that when the market goes down, VIX tends to go up. The logical portfolio protection strategy is to buy call options on VIX.
When VIX is low, there does not appear to be a disaster on the horizon. It’s kind of like how you buy an insurance policy on your car not when you’re sliding into the brick wall, but when you’re home and the car is parked in the garage and there is no danger in sight.
When VIX is low, that implies there’s a lot of complacency in the market. Nobody expects anything bad to happen, but as we all know, the market has downdrafts. News comes out of nowhere; economic reports; developments from Europe; any number of things can cause the market to go down.

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