Observations & Insight
A Boca Oversight
Doug Ashburn – JLN
If you read last week’s newsletters, you know that we were publishing remotely from the FIA conference in sunny Boca Raton, Florida. Though I would say we, in general, did an admirable job pumping out the content amid all of the panels, side meetings and “extracurriculars,” a few few items may have slipped through the cracks.
One big news item we missed, due to a communications glitch, is the announcement Thursday that Société Générale Prime Services (formerly Newedge) is taking an equity stake in Eris Exchange. This move, aside from the fresh capital infusion, will be a welcome addition to Eris’ liquidity profile in voice and electronic markets for its swap futures products.
Of course, adding a major European bank to the stable is important as Eris contracts prepare to launch in Europe. Last December, the IntercontinentalExchange announced a licensing agreement with Eris that will bring euro- and pound sterling-based interest rate and credit derivative futures contracts based on Eris’ methodology in 2015.
Meanwhile, Eris continues to forge ahead on the liquidity and connectivity fronts, having recently added Virtu as a market maker and, last week, added CQG as a platform provider. Last Friday, March 12, the exchange set a new record open interest of 159,741, and will soon post its 10th consecutive quarter of total open interest growth.
And as we learned from the other big story from Boca 2015, Basel III and other capital rules will continue to drive capital and margin efficiency, which will continue to drive standardization.
Coincidentally, the FT’s Phil Stafford just wrote a story pointing to the slow uptake of the swap futurization movement (“US swaps market resists futures model” in Lead section below). Though some would point to this as a sign that futurization has not yet matured, Eris CEO Neal Brady would view it as proof positive of the growth potential of swap futures.
As U.K. Election Nears, Investors Brace for Sterling Volatility
Options market shows investors expect swings in pound’s value
By Chiara Albanese, The Wall Street Journal
Investors have increased their bets that the U.K.’s general election in May will lead to a bumpy ride for the country’s currency.
The options market, which traders and investors use to shield themselves—or profit—from swings in exchange rates, shows that investors expect a sharp rise in sterling’s volatility against both the euro and the U.S. dollar.
A-Shares ETF Soars, Crimps Bearish Options Buyers
Slack Chinese economic data is prompting some traders to make bearish options on a major U.S.-listed A-shares exchange traded fund and those traders are paying the price Monday.
Shares of the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR) is up 4% Monday and trading within pennies of its all-time reached in January, making it one of the day’s top-performing non-leveraged ETFs.
VIX Stress Thermometer Registering Little of Stock Market Chill
by Oliver Renick, Bloomberg
While U.S. stocks keep falling, an index that’s supposed to track investor angst is behaving as if it’s just another day in the market. What’s going on?
The Chicago Board Options Exchange Volatility Index climbed to 16 as the S&P 500 lost 3 percent from a record high on March 2, the second-lowest VIX level for a stock decline of that size since March 2007. Compare that to the previous six years: on average when the stock gauge dipped that much, it pushed the VIX to 30.
India’s VIX Rises for Second Day as Stocks Decline Awaiting Fed
by Rajhkumar K Shaaw, Bloomberg
The benchmark gauge of Indian equity options climbed for a second day as the CNX Nifty Index extended losses to reach a one-month low.
The India VIX index, a measure of protection against stock market swings, rose 1.4 percent to 15.18 at the close in Mumbai. The 50-stock Nifty index declined 0.2 percent to 8,633.15. Nifty 9,000 puts and 8,500 calls were the most popular options by number of outstanding contracts as of 3:51 p.m.
Intercontinental Exchange Announces Launch of 44 New Contracts; Including Energy and Euro Cocoa Futures and Options
ICE Press release: 13 March 2015
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, today announced the introduction of 44 new contracts, including Euro Cocoa and energy futures and options contracts, on March 30, 2015, subject to the satisfactory completion of applicable regulatory processes.
Following extensive market consultation, ICE will introduce the new Euro Cocoa contracts, which will operate in parallel with the existing pound-sterling London Cocoa contract. Excluding currency, the new Euro Cocoa contracts specification will mirror the London cocoa contract including physical settlement and will trade and clear at ICE Futures Europe and ICE Clear Europe. Customers will therefore be able to benefit from cross margin offsets with the London Cocoa contract.
BATS GLOBAL MARKETS COMPLETES ACQUISITION OF HOTSPOT FX MARKET
Acquisition Diversifies and Expands BATS into World’s Largest Asset Class
BATS Global Markets (BATS), a leading operator of exchanges and services for financial markets globally, today completed its acquisition of Hotspot FX, a leading institutional foreign exchange (FX) market, from KCG Holdings.
TRADOLOGIC seals partnership deal with Cantor Exchange
By Maria Nikolova, LeapRate
A very interesting piece of news from TRADOLOGIC, the provider of technology solutions for the binary options industry… The company has finalised a partnership deal with Cantor Exchange, a marketplace for trading binary options.
The news marks an important milestone for TRADOLOGIC, as the move technically means that its white label partners will be able to access the US market via Cantor Exchange.
Regulation & Enforcement
CFTC Orders ICE Futures to Pay $3 Million Over Reporting Errors
ICE Futures said to have submitted reports with thousands of inaccuracies for at least 20 months
By Chelsey Dulaney, The Wall Street Journal
The U.S. Commodity Futures Trading Commission has ordered ICE Futures U.S. Inc. to pay $3 million to settle charges that it submitted reports with thousands of inaccuracies over at least a 20-month period.
ICE Futures is the global futures and options unit of Intercontinental Exchange Inc., owner of the New York Stock Exchange.
Funds Run by Robots Now Account for $400 Billion
Smart-beta ETFs use machines to outperform humans and now account for $400 billion, but some can be less than brilliant.
By Anthony Effinger & Eric Balchunas, Bloomberg
Few people have profited more from the so-called smart-beta craze than Tom Dorsey. A new exchange-traded fund that he runs using a century-old charting methods took in $1.2 billion last year. Then, in January, he sold his 22-person investment firm, Dorsey, Wright & Associates, to Nasdaq OMX Group for $225 million.
Dorsey calls himself a money manager, Bloomberg Markets will report in its April issue, but his methods are more robot designer. He says so himself, proudly. If Dorsey and his team got abducted from their Richmond, Virginia, office by aliens, their algorithms could keep picking investments for the firm’s new money magnet, the First Trust Dorsey Wright Focus 5 ETF, forever.
Options trading firm bets on GBP18m Aim float
TechFinancials, a binary options trading firm, makes at its stock market debut at 27p a share
By Ben Martin, The Telegraph (UK)
An Israeli trading software firmed backed by two heavyweights from the gambling industry will float on Aim today with an GBP18.4m valuation.
TechFinancials, which counts former Ladbrokes chief executive Chris Bell as chairman and ex-888 Holdings boss Gigi Levy as an investor, has raised GBP3.05m from the initial public offering.
Shares in the business start trading on London’s junior market today at a price of 27p.
Traders pay up for crash protection—time to worry?
Alex Rosenberg, CNBC
Options traders are starting to pay up for crash protection, according to a recent note from Goldman Sachs. The question is whether that points to a heightened chance of a major correction.
“Long-dated crash put protection costs on the [S&P 500] have more than doubled over the past 9 months,” a Goldman Sachs options research team led by John Marshall wrote. “We believe it is an important development to watch as it implies investors are increasingly concerned about downside risk even as U.S. equities trade near all-time highs.”