Commentary and Insight

The CME Should Buy the CBOE Soon
John Lothian – John Lothian News

The CME Group should buy the CBOE soon. I can’t believe I am writing this, but that is  the conclusion I have come to. The reason why is that if they don’t act soon, the CBOE may become too expensive to justify buying.

The CBOE stock price was up 76 percent last year and its market cap is $4.3 billion. The CME’s stock was up 55 percent, still outperforming the market, but not the CBOE. CME’s market cap stands at $25 billion, just a shade above InterContinentalExchange’s (ICE)  $23.7 billion.

The other reason is that the CME is the natural buyer for the CBOE and the market knows it. In fact, I think some of that 76 percent gain last year is just pure takeover speculation premium after ICE closed the deal for NYSE Euronext.

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Lead Stories

Demand for protection against U.S. equity selloff soars to record
Angela Moon – Reuters
Demand for protection against a U.S. stock-market selloff soared on Friday as traders scooped up call options in CBOE Volatility index VIX .VIX, Wall Street’s favorite index of anxiety.
January call options – contracts betting on the rise of the underlying security – on the VIX this week rose to a record 8.4 million contracts at the Chicago Board Options Exchange (CBOE.O) while the index itself jumped nearly 30 percent on Friday and about 44 percent for the week.

Two Record Volume Days for SPX Weeklys; 426,955 Yesterday
Matt Moran – CBOE
Yesterday (Jan. 23) the daily volume for the S&P 500 Weeklys options (SPXW) hit an all-time high of 426,955 contracts.
Today (Jan. 24) reported estimated volume for the S&P 500 Weeklys options had topped 460,000 contracts by 1:00 PM Chicago time, so today will be the second day in a row with record SPXW trading volume (a future CBOE Options Hub Blog will provide an update).
The average daily volume for SPXW options rose from 99,358 in 2012 to 197,126 in 2013, an increase of 98%.

Bank of America Simplifies Options Algo Offering
John D’Antona Jr. – Traders Magazine
Make it simple, stupid.
That’s what Bank of America is doing to its options algorithm suite. The bulge firm, in response to its institutional clientele, has reduced the number of algos it’s offering clients to make trading easier and more efficient.

VIX Traders Gear Up for More Fear Ahead
Kaitlyn Kiernan – The Wall Street Journal
With stocks suffering a second straight day of declines amid growing emerging market turmoil, options traders are increasingly betting that the months of calm in the stock-markets fear gauge won’t last much longer.

Banks Extend Surveillance Beyond Equities
Financial services firms are spending hundreds of millions of dollars on surveillance systems as regulators push for monitoring across asset classes and both cash and derivatives markets.
Richard Bentley, vice president at Software AG told Markets Media: “Financial services firms are spending hundreds of millions of dollars as a direct response to regulatory action – it is their number one business priority.”

Emerging market opportunity in long term: Blankfein
Matthew J. Belvedere – CNBC
Goldman Sachs Chairman and CEO Lloyd Blankfein told CNBC that he’d be “long, not short” emerging markets in the long term, despite the sharp selloff in their currencies Friday.

Dimon’s Pay Jumps to $20 Million in a Year of Legal Woes for JPMorgan Chase
Peter Eavis – The New York Times
 Jamie Dimon, JPMorgan’s chief executive, has been awarded total pay of $20 million for 2013, a huge increase over the amount he received for 2012, according to a regulatory filing released on Friday.

Goldman Looks to Ban Some Chat Services Used by Traders
Liz Rappaport and Katy Burne
Goldman Sachs Group Inc. is planning to ban traders from using some computer-messaging services in a bid to protect proprietary information at the heart of its sales-and-trading operation.


S&P Dow Jones Indices and CBOE Announce Successful Conclusion of ISE Index Litigation
Press Release (CBOE)
S&P Dow Jones Indices LLC (SPDJI) and Chicago Board Options Exchange, Incorporated (CBOE) reported today that the International Securities Exchange (ISE) has not appealed a federal court decision that rejected ISE’s attempt in the New York courts to challenge SPDJI’s rights to control the use of the S&P 500 and the Dow Jones Industrial Average as the basis of index options.  CBOE holds an exclusive license to list options on the S&P 500 index, the Dow Jones Industrial Average, and select other indices calculated and published by SPDJI.

Euronext launches Multicurrency Trading Service for ETFs
-The first U.S. or European exchange to launch the CNY and the HKD
-20 currencies available-
Press Release (NYSE)
Euronext, a wholly owned subsidiary of IntercontinentalExchange Group (NYSE: ICE), today announced the launch of a multicurrency trading service for Exchange Traded Funds (ETFs), including for the first time on a U.S. or European exchange, the Chinese Yuan Renminbi (CNY) and the Hong Kong Dollar (HKD), subject to approval of relevant clearing authorities. The new service will allow international investors to trade any Euronext listed ETFs in 20 different currencies1 . Euronext plans to make it available from Monday 17th February 2014.

Regulation and Enforcement

Are tougher regulations on the way for futures firms?
Lynne Marek – Crain’s Chicago Business
The National Futures Association, a trade group charged with policing its members’ businesses, said today it may boost regulations for firms that invest in futures contracts on behalf of clients.
Specifically, the NFA said it may require the firms to hold minimum levels of capital to back their business operations and be subject to independent oversight of disbursement of funds, in addition to reporting on customer funds and performance results.

Derivatives Debacle Continues
Barry Elias – MoneyNews
More than five years after the global financial crisis, over-the-counter derivatives remain unstable.
Unlike equities, most derivatives are not traded on exchanges. Instead, they are merely contracts between counterparties that are extremely difficult to identify, especially during high-stress periods.


OptionsCity Selects Equinix to Expand its Global Hosted Solution
Press Release (OptionsCity)
OptionsCity, a leading provider of multi-asset electronic trading solutions for professional futures and options traders, today announced that it has selected Equinix, Inc. to support the company’s expanding global hosting infrastructure. Launching from the Equinix data center campus in Frankfurt, Germany, OptionsCity’s colocation site positions the company to further provide clients with consistent performance.


Bond Volatility Is Still Cheap, HV Is Not
Andrew Giovinazzi – The Options Insider
Argentina devalued the peso yesterday, and China provided less-than-stellar manufacturing data.  It all added up to a mad dash for Treasuries and other safe havens like the Euro.  What a difference a year makes.

Don’t Expect FX Volatility to Subside Next Week
Kathy Lien – BK Asset Management
At the beginning of the week, we warned our readers not to become complacent because of the lack of U.S. economic data. The abundance of key economic reports from other parts of the world along with the earnings season meant there could still be big moves in currencies.

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