Observations & Insight

Big Picture: Sandor Says Look Beyond US For Air And Water Markets
JohnLothianNews.com

Richard Sandor is one of the pioneers in financial derivatives and the environmental markets world as founder of the Chicago Climate Exchange. Now with his second book, Sustainable Investing And Environmental Markets, Sandor says this asset class has come a long way over the past 12 years but has a long way to go from here.

“I think we’ve made enormous progress,” he says. “You wouldn’t necessarily believe it was true because of the lack of federal action in the the United States. But I think that would be naive. In fact, you have proposals pending by the EPA that suggest there may be cap-and-trade.”
Watch the video »

Lead Stories

CBOE to cut expenses as 1st-qtr trading volumes, profits fall
Reuters
CBOE Holdings Inc, operator of the largest U.S. stock options market, will cut expenses in response to weak trading volumes, the company said on Friday as it reported a decline in quarterly earnings.
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***DA: Uh oh. That usually involves a change in headcount.

Bond investors urged to consider their ‘swaptions’
Reuters
Historically low volatility in credit default swap indices offers a cost-effective opportunity for investors to start hedging their bond positions through credit options in case of a liquidity crisis, some strategists say. But with prices failing to reflect any panic, many think it’s not worth the trouble – or expense – just yet.
Fears of a credit-market liquidity crisis have mushroomed in tandem with this year’s surge in debt issuance.
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***DA: Then the writers of default protection begin viewing the premiums as free money, and all of a sudden it’s 2008 all over again.

Debt Options Traders Capitulate on Hedges for Lower U.S. Rates
Liz McCormick – Bloomberg
Options traders are making an about face on whether long-term government debt yields can go lower.
The difference between volatility, a gauge of price and demand, on three-month options that allow investors to lock-in paying fixed rates on 10-year interest-rate swaps and those that grant the right to receive them turned positive Thursday for the first time since November. The so-called swaption skew shows a bias for hedges against 10-year rates rising.
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Wall Street’s Thinking About Creating Derivatives on Peer-to-Peer Loans
Tracy Alloway and Matt Scully – Bloomberg
It began with a seemingly wacky idea to reinvent banking as we know it. But no one is scoffing at peer-to-peer lending anymore — least of all, Wall Street.
Barely a decade old, “P2P” has gone mainstream and is now being co-opted by some of the big financial players it was supposed to bypass.
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***DA: Before, it was the fear of disintermediation. Now the street has found a way to make money on P2P.

Random Friday Thoughts: Contrarian Tells, the Dollar Fake, and Football
Adam Warner – Schaeffer’s Investment Research
Bulls are nowhere to be found, the dollar is retreating, and point spreads are now available for the upcoming football season
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***DA: They are back today.

OCC Cleared Contract Volume Declined 8% in April
OCC Press Release via StreetInsider
OCC, the world’s largest equity derivatives clearing organization, announced today that cleared contract volume in April was 331,552,965 contracts, an 8 percent decrease from the April 2014 monthly volume of 360,854,580 contracts. Average daily volume at OCC is down 9 percent in 2015 with 16,317,845 contracts. OCC’s stock loan program reported strong volume numbers in April with year-to-date activity up 12 percent.
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Exchanges

CBOE Holdings to List VIX “Weeklys” Futures and Options
Press Release – CBOE
CBOE Holdings, Inc. (NASDAQ: CBOE) today announced that it plans to list futures and options with weekly expirations on the CBOE Volatility Index (VIX Index), the leading market barometer of U.S. equity market volatility.
VIX Weeklys futures are expected to begin trading at CBOE Futures Exchange (CFE) in July, subject to regulatory review. VIX Weeklys options are expected to begin trading at Chicago Board Options Exchange (CBOE) shortly thereafter, also subject to regulatory approval.
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CBOE Holdings, Inc. Reports Results for First-Quarter 2015
Press Release – CBOE
CBOE Holdings, Inc. (NASDAQ: CBOE) today reported net income allocated to common stockholders of $42.1 million, or $0.50 per diluted share, for the first quarter of 2015, compared with $48.5 million, or $0.56 per diluted share, in the first quarter of 2014. On an adjusted basis, net income allocated to common stockholders was $42.3 million, or $0.50 per diluted share, compared with $50 million, or $0.58 per diluted share, in the same period last year. Operating revenue for the quarter was $142.8 million, down 10 percent compared with $157.9 million in the first quarter of 2014.
Financial results presented on an adjusted basis for the first quarter of 2015 and 2014 exclude certain items, including accelerated stock-based compensation and impairment charges, which are detailed in the reconciliation of non-GAAP results.
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ICE Benchmark Administration Publishes Feedback Statement on LIBOR Evolution Position Paper
Press Release – Intercontinental Exchange
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, has published a feedback statement on the responses received to the ICE Benchmark Administration (IBA) position paper on the evolution and enhancement of ICE LIBOR.
IBA’s position paper sought comments from stakeholders on the proposed evolution of LIBOR. The position paper covered submission criteria, the implementation of a more transaction-based approach to the greatest extent possible, having a waterfall of calculation methodologies to ensure the continued availability of LIBOR rates and the consistency and reliability of data, as well as other enhancements to the benchmark.
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CME speaks out on new Nasdaq energy threat
Luke Jeffs – Futures & Options World
The CME Group has spoken out for the first time about the threat of Nasdaq’s planned energy futures, claiming the Nasdaq Futures Exchange is not sufficiently different from what the CME already does to be sure of success.
Derek Sammann, head of commodities and options products at the CME Group, said NFX is the latest in a long list of exchanges that have tried to move in on CME’s core markets.
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Regulation & Enforcement

CME Suspends Traders for Alleged Sarao-Like Manipulation
Nick Baker – Bloomberg
CME Group Inc. said it suspended two traders for placing manipulative trades similar to the ones that catapulted Navinder Singh Sarao into headlines around the world last week.
Heet Khara and Nasim Salim engaged in a practice called “layering,” in which orders are placed with no intention of following through on them, according to CME, the owner of the futures exchange where the two gold and silver traders did business. Khara and Salim are barred from trading on CME markets for 60 days.
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Spoofing Elephant in Room Goes Unmentioned During CME Call
Matthew Leising – Bloomberg
For 10 days, it’s been the top story in the world for the futures market. You’d never know it from Thursday’s quarterly earnings call for CME Group Inc., operator of the market where it happened.
The April 21 arrest of U.K. trader Navinder Singh Sarao for allegedly manipulating the market for five years by spoofing, or placing then canceling orders to move prices, was never brought up by analysts questioning CME Chief Executive Officer Phupinder Gill and Chief Financial Officer John Pietrowicz.
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