End of Libor Creates Uncertainty for CME’s Giant Eurodollar Market; Bets on a Strong Pound Are Getting in the Way of a Strong Pound

Nov 21, 2019

Lead Stories

End of Libor Creates Uncertainty for CME’s Giant Eurodollar Market
Alexander Osipovich – WSJ
The clock is ticking on a huge futures market where nearly $3 trillion changes hands on an average day. Eurodollar futures, which let traders bet on moves in short-term interest rates, are poised for the biggest shake-up since they were introduced on the Chicago Mercantile Exchange in 1981. The reason: the looming end of the London interbank offered rate, the interest-rate benchmark that was at the center of a manipulation scandal earlier this decade. Libor’s future is unclear after the end of 2021, when regulators have called for its replacement.

Bets on a Strong Pound Are Getting in the Way of a Strong Pound
Vassilis Karamanis – Bloomberg
Investor optimism on the pound hasn’t been this high for quite some time, yet that may have landed the currency in something of a Catch-22.
Unlikely as it sounds, one reason why sterling is struggling to extend October’s sizzling run is probably an overwhelmingly bullish option-market bias. For one, traders already positioned for a stronger U.K. currency via derivatives may wait to get past the uncertainty around the Dec. 12 election before adding to allocations. Also, investors long on options tend to sell the currency in the spot market every time it rallies, in order to protect the value of their contracts — a practice known as delta hedging.

Investors have already priced in a U.S. – China trade deal, according to these indicators
Andrea Riquier – MarketWatch
Markets may be more complacent about a U.S.-China trade deal than is obvious. After all, investors seem to hang on every whisper of perceived progress or setback. “Risk-on” trades have, of late, been “on”. Then came Wednesday, when Reuters reported a potential deal would most likely not get done in 2019, sending stocks lower and bonds rallying. But there may be more going on under the market’s hood.

A Tory Election Win Is All the Markets Can See
Todd White – Bloomberg
This week’s pre-election debate may have been too close to call, but for U.K. investors positioning for the December vote there’s not much doubt: Incumbent Boris Johnson remains on course for victory. Sterling held ground against the euro while its volatility versus the dollar has somewhat eased in the aftermath of the first televised contest between the Conservative Party leader and his opponent, Jeremy Corbyn. Early polls show the Labour leader was unable to sway many voters Tuesday night, vindicating traders with bets on a comfortable Tory win.

Here’s how Charles Schwab and TD Ameritrade stack up amid reports of a blockbuster discount-brokerage merger
Mark DeCambre – MarketWatch
Charles Schwab Corp. is reportedly in talks to acquire TD Ameritrade Holding Corp. in a monster deal that could send ripples throughout the brokerage world as the two biggest discount brokers attempt to combine. The deal, first reported by CNBC, could be announced as soon as later Thursday and would create a brokerage giant boasting some $5 trillion in assets under management. A hookup between the companies also would come amid a period of intense competition in the business that saw discount brokerages a few months ago slash their commissions on basic accounts to zero.

Exchanges and Clearing

SGX welcomes Samsung Futures as Derivatives Trading Member
Singapore Exchange (SGX) today welcomed Korea based Samsung Futures Inc. as a Trading Member of its derivatives market. Samsung Futures Inc. originally started as First International Futures Inc. in 1992 as an outbound commodity Futures Commission Merchant (FCM) until it was merged into Samsung Group in 1996 to become a full service derivatives brokerage firm. Chew Sutat, Head of Global Sales and Origination at SGX, said, “We are pleased to welcome Samsung Futures to our growing derivatives market and further extend our global community of members. We look forward to supporting their ability to meet the risk-management needs of clients as they reach out to more investors, particularly in South Korea.”

Regulation & Enforcement

FIA commends final rule on the standard for calculating the exposure amount of derivatives contracts
Washington, DC – FIA President and CEO Walt Lukken today released the following statement on the recently finalized rule on implementing the standardized approach for calculating the exposure amount of derivative contracts: “FIA welcomes the actions taken by the U.S. banking regulators this week to implement the international standard for calculating the exposure amount of derivatives contracts. The final rule will implement an updated methodology for calculating the exposure amount of derivative contracts.


(Video) Nasdaq Tech Spotlight: OCC
The Options Clearing Corporation’s CIO Dave Hoag discusses technology as an enabler for the financial industry, and how OCC is using the Cloud in their Renaissance project to improve resiliency and agility.

Itiviti partners with NBTrader to offer alternative path for order routing
Itiviti blog
London, November 21, 2019 – Itiviti, a leading technology, and service provider to financial institutions worldwide, has partnered with NBTrader, an independent specialist on the development and supply of trading technologies for the Professional and Private Investor UK market.


It’s Time to Hedge as VIX Nears 2019 ‘Floor’, Macro Risk Says
Joanna Ossinger – Bloomberg
The rally in U.S. stocks may have waned, but equities are still near record highs amid subdued volatility. For some strategists, that may be the perfect time to seek protection. Macro Risk Advisors suggests a trade that involves selling a put option on the Cboe Volatility Index with a strike of 12, while buying a 20 call and selling a 22 call. Derivatives strategist Maxwell Grinacoff wrote in a note Tuesday that he backtested the strategy, both unconditionally and when VIX was below 13, and found it has performed relatively well since the beginning of 2018.

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