Lead Stories

For Some Investors, a Glass-Half-Empty Wager
Kaitlyn Kiernan, The Wall Street Journal
The options market may be flashing a warning sign for stocks.
Investors are snapping up options that pay off if there is a rise in the “fear gauge,” the Chicago Board Options Exchange Volatility Index, or VIX. A record 6.2 million contracts were outstanding as of Monday, a rise of 12% over the past month.
That could be a signal that investors are becoming wary of the recent rally that has driven the Standard & Poor’s 500-stock index up 16% this year, including Tuesday’s 1% gain.
http://jlne.ws/S3yMES

CME Buys Kansas City Wheat Exchange
Ian Berry and Jacob Bunge, The Wall Street Journal
CME Group Inc. agreed to buy Kansas City Board of Trade, a historic wheat-futures exchange, for $126 million as the derivatives-exchange giant seeks to expand its agricultural products.
With the acquisition, CME will take over an exchange that dates to 1856 and add futures contracts in hard-red winter wheat, the dominant variety of wheat grown in the U.S., to its array of grain, soy and livestock futures. 
http://jlne.ws/T0vhjA
** Press release is listed below under “Exchanges” –JB

Lows in forex volatility prompt hedge funds to retreat from options
Miriam Siers, FX Week (via Hedge Funds Review)
Volatility in the forex market is plunging to record lows in Q4, leading to changes in the composition of the options market, but tighter bid-offer spreads have increased flow in some segments.
A steady fall in volatility in the foreign exchange market this year as a result of widespread central bank intervention and ongoing eurozone uncertainty has led to a sharp decline in hedge fund and corporate demand for forex options, according to senior traders.
http://jlne.ws/RBdvQs

One-year-old ETF beats hedge funds, stock market in first year
Katya Wachtel, Reuters
A one-year-old actively managed exchange-traded stock fund has beaten a number of market benchmarks in its first year, including most hedge funds, the ETF sponsor AdvisorShares said on Tuesday.
Through September 30, the TrimTabs Float Shrink ETF gained 35.14 percent since it launched on October 4 last year, beating the benchmark Russell 3000 Index, which rose 32.85 percent over the same period, as well as the S&P 500 index.
http://jlne.ws/T0tF9j

Options market sees less risk long term for Citi after CEO exit
Doris Frankel, Reuters
The surprise departure of Citigroup Inc’s Chief Executive Vikram Pandit could be a sign of near-term uncertainty for the stock, but the options-market shows many investors are bullish on the shares in the longer term.
http://jlne.ws/T0tLxV

Is the euro rain in Spain over?
Andrew Giovinazzi , MarketWatch
Last week, as I noted the steeper skew in the index volatility, paper was pricing in very large moves in relation to the at-the-money movement. This kept the volatility products artificially high and most of it was doubt about outcomes in Europe. The soft movement since (mostly up) is attributable to … Spain. After all the bad news surrounding the European Debt crisis, the result is that the solid governments might monetize the weaker ones, similar to what Germany did with East Germany in the 1990s.
http://jlne.ws/RBc7h1

The Dark Side of The Vanguard Effect
NASDAQ
ust this month, Vanguard has directly and indirectly rocked the ETF world twice. On October 2, Vanguard, the third-largest U.S. issuer, announced it would drop MSCI (NYSE: MSCI ) on 22 of its ETFs . On Monday, BlackRock’s (NYSE: BLK ) iShares unit, the world’s largest ETF sponsor, announced significant fee reductions on some currently existing funds and new low-cost products aimed at buy-and-hold investors…
Not all ETFs have options trading on them. In fact, the list of optionable ETFs from the Chicago Board of Options Exchange is small relative to the total number of exchange-traded products on the market today.
Maybe it is due to the belief that Vanguard ETFs are heavily embraced by buy-and-hold retail investors. Perhaps there is another reason, but whatever the reason is, many of Vanguard’s ETFs currently do not have robust options activity compared to direct rivals.
http://jlne.ws/RBdY5b

Exchanges

CME Group to Acquire Kansas City Board of Trade
Press Release
CME Group, the world’s leading and most diverse derivatives marketplace, and the Kansas City Board of Trade, the leading futures market for hard red winter (HRW) wheat, today announced they have signed a definitive agreement under which CME Group will acquire the Kansas City Board of Trade (KCBT).
Under the terms of the transaction, CME Group will pay $126M in cash for KCBT. In addition, KCBT will make a special distribution of excess cash to members concurrent with closing. CME Group has committed to maintain a committee made up of KCBT market participants to advise on HRW wheat contract terms and conditions for at least three years, and to maintain the historic KCBT trading floor in Kansas City for a period of at least six months.
http://jlne.ws/RAMIE6

CME Group to Offer Clients Margin Offsets on Rate Swaps, Futures
Matthew Leising, Bloomberg
CME Group Inc. (CME), the world’s largest futures exchange, received regulatory approval to reduce the amount of margin required of its customers to back interest-rate futures and over-the-counter derivatives that offset each other.
http://jlne.ws/WmrsaQ

Exchanges Defend Liability Limits When Systems Malfunction
Peter Chapman, Traders Magazine
Exchange executives are playing defense.
At a recent industry conference, options executives defended rules granting themselves immunity from prosecution in the event problems with their trading systems cause their members or customers to lose money.
Their assertions follow criticism by brokers of exchange operator Nasdaq OMX Group, for claiming immunity from lawsuits stemming from its botched handling of Facebook’s initial public offering.
http://jlne.ws/RF5IEu

CBOE Will Consider Asian Hub If London Center Succeeds
Nandini Sukumar, Bloomberg
CBOE Holdings Inc. (CBOE), the biggest operator of U.S. options markets by volume, may consider an Asian hub to tap growing demand in the region after it gauges the success of the one it will start in London next year.
http://jlne.ws/RBcgkm

Regulation

Despite Its Problems, Dodd-Frank Is Better Than the Alternatives
Steven M. Davidoff, Dealbook
Repeal Dodd-Frank? It sounds so simple. But repealing the Dodd-Frank Act won’t end “too big to fail” banks, and it may even make things worse.
Mitt Romney raised the issue at the first presidential debate, contending that Dodd-Frank should be repealed and replaced because “it designates a number of banks as too big to fail, and they’re effectively guaranteed by the federal government. This is the biggest kiss that’s been given to — to New York banks I’ve ever seen.”
http://jlne.ws/WmroYO

Framework for Audit Trail Expected By Year’s End
Tom Steinert-Threlkeld, Traders Magazine
Participants in an industry-wide effort to create a central repository of trade details on stock and options transactions for regulators say they expect to put out a request by mid-December for technical proposals to create that system.
The drafting of the req
uest for proposals will take until late November, a group of exchanges and the Financial Industry Regulatory Authority said, in a document produced as part of two days of working out the industry’s response to a mandate from the Securities and Exchange Commissionissued in July to create a so-called “consolidated audit trail” of trading activity.
http://jlne.ws/T0u1gi

Events

Montreal Exchange to Host Options Education Days for Retail Investors in Calgary and Edmonton
Press Release
Montréal Exchange Inc. (MX), a wholly-owned subsidiary of TMX Group Ltd. and Canada’s derivatives exchange, today announced that it is bringing its popular Options Education Day workshops to Calgary and Edmonton on October 20 and October 21, 2012 respectively.
MX has tailored these workshops to retail investors of all levels who are looking to gain the knowledge needed to successfully navigate the options market.
http://jlne.ws/RBcurK

OIC Announces Investor Education Day in Chicago October 27
Press Release
The Options Industry Council (OIC) today announced its next 2012 Investor Education Day (IED) will be held in Chicago on October 27.
The full day event offers two different tracks for attendees based on their investment experience and skill level – Options Basics or Advanced Strategies. While Options Basics will teach fundamentals, strategies to get started and the risks/rewards of trading; Advanced Strategies will focus on concepts such as butterflies, condors and implied volatility.
Register here: http://jlne.ws/P3LMtN

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