Observations & Insight

Swap Meet: Eris Exchange’s Neal Brady Sees Capital Efficiency Driving Growth of Standardized Swap Contracts

Basel III and other capital rules are coming into into force, making efficient use of capital a global priority. As Eris Exchange’s swap futures contracts continue to set new volume and open interest records, and as ICE begins listing interest rate and credit derivatives based on the Eris methodology, Eris CEO Neal Brady sat down with John Lothian News editor-at-large Doug Ashburn to discuss the emergence of swap futures as an important tool in the new financial order.
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Lead Stories

Fed Statement Not Expected to Move Markets — So it May
By Amey Stone – Barron’s
The biggest event of the week is the Federal Reserve statement and press conference following the conclusion of its two-day meeting at 2 p.m. ET Wednesday. Already, several Fed Watchers are daring to guess the decision may not have much impact on markets.

***DA: When you least expect it, expect it. But now you should expect it. So don’t.

To the S&P Mattresses! Bearish Bets Spike
By Adam Warner – Schaeffer’s Research
If you’re looking for another data point that suggests there’s more fear and bearishness out there than meets the CBOE Volatility Index (VIX) Eye, there’s this from Bloomberg:
“Large speculators held about 12,000 more short positions in S&P 500 futures than long ones through June 9, according to data compiled by Bloomberg and the U.S. Commodity Futures Trading Commission. That’s the highest amount of bearish bets relative to bullish ones since the five days ending Oct. 24.
… [A]bout 8.5 percent of shares in the SPDR S&P 500 ETF Trust had been sold short as of Friday, the biggest proportion since Oct. 27, Markit Ltd. data show.”

***DA: More people are expecting a big move. Given the logic from the last story, should we not expect a big move? Oh, I am so confused.

It’s a Volatility Uprising in Germany (EWG)
By Tyler Craig – InvestorPlace
Something is afoot in Germany.
Call it an uprising — not of disgruntled bulls or bears, mind you, but of something altogether more important to the option savants among us.
Implied volatility.

Rising volatility suggests a repeat of 2011 for S&P
By Simon Maierhofer – MarketWatch
By one measure, 2015 S&P 500 volatility is the highest since the beginning of this bull market.
There are various ways to measure stock market volatility. The CBOE Volatility Index (VIX) is one of them. A VIX reading of 15.39 (Monday’s close) implies a 15.39% S&P 500 move (up or down) over the next 12 months, or 4.44% over the next 30 days.
But there’s a difference between implied VIX volatility and real volatility (as in actual stock market swings).

You’ve Been Warned: Central Bankers Turning Less Market-Friendly
By Simon Kennedy – Bloomberg
Some things seem permanent. Greece is fighting for a bailout. A Bush and a Clinton are running for the White House. FIFA is plagued by scandal.
But for those who track the world’s central banks, change is afoot.
Having soothed investors for the past seven years with low interest rates, bond-buying and other interventions aimed at shoring up weak economies, monetary policy makers are slowly stepping out of markets in a variety of ways.

***DA: Dreaming of the day when a rising stock market is no longer considered a proxy for the health of an economy.

There’s a storm brewing for gold — look at the options skew
By Ole Hansen – TradingFloor
The rangebound nature we have witnessed in gold for the past three months has left many investors sidelined looking for opportunities elsewhere. Greece has seen one deadline come and go and at this stage we seem to be further away from a solution than ever. The gold reaction to these uncertainties has been unimpressive with the price sitting near the lower end of its range.

2015 Russell Reconstitution Update
By Russell Rhoads – CBOE Options Hub
Each June the Russell family of equity indexes are adjusted to reflect changes in the markets. This annual process is commonly referred to as the Russell Reconstitution. The Reconstitution occurs once a year in order to keep the cost associated with maintaining an index portfolio at a minimum or specifically to keep trading costs low.

Record Volume Today in ETH Session for VIX Options
By Matt Moran – VIX Views
Yesterday the CBOE Volatility Index (VIX) rose to its monthly closing high of 15.39, and earlier today in the June 16 Extended Trading Hours (ETH) sessions, the estimated trading volumes during ETH were 30,920 for VIX futures (the high for the month), and 6,984 for VIX options (the all-time record high). CBOE Holdings is now offering Extended Trading Hours (ETH) on key popular index futures and options contracts in order to provide investors with the ability to take advantage of market opportunities as they happen, and to manage portfolios and volatility throughout more trading hours around the clock.


The Saudi Stock Exchange Opens To International Investors
Mondovisione – Press Release
The Saudi Stock Exchange has opened to qualified foreign investors (QFI) yesterday for the first time. The exchange, which has a market capitalisation of US$590 billion, is the biggest in the Middle East.

Euronext Introduces Equity Options On Pershing Square Holdings
Mondovisione – Press Release
Euronext, the primary exchange in the Eurozone, today announced the launch of options on the shares of Pershing Square Holdings, Ltd. The new options, that are available for trading on the Amsterdam market as of Friday 26 June, follow the company’s successful IPO on Euronext Amsterdam in October 2014.

Nasdaq Commodities Clears the Freight Market’s First Option Contracts on the New Capesize Basket
Globe Newswire
Nasdaq is proud to announce that it has cleared the market’s first CS5TC option contracts, which are options on the Capesize Basket consisting of 5 time charter routes. The trades were reported as block trades on June 15, 2015 by Clarksons Platou Futures Limited.

Regulation & Enforcement

Regulators urged to agree on derivatives trade data
Funds Europe
Eleven industry associations, including fund bodies, say they support a set of principles developed by the International Swaps and Derivatives Association (Isda) that aim to improve regulatory reporting standards for derivatives.

Libor trial: Tom Hayes compares derivatives market to wild west | UK news
Tom Hayes, a former trader on trial for alleged interest-rate rigging, described the broking market he worked in as the wild west, a place with no rules and where relationships relied on lavish entertainment, a court has heard.

More Transparency For Securities Financing Transactions: European Council And Parliament Agree New Rules
Mondovisione – Press Release
On 17 June 2015, the Council presidency and the European Parliament reached an agreement on a regulation to improve the transparency of securities lending and repurchase transactions.

IOSCO Publishes Report On Credible Deterrence Approaches In Securities Market Regulation
Mondovisione – Press Release
The International Organization of Securities Commissions has published the report Credible Deterrence, which identifies key enforcement factors that may deter misconduct in international securities and investment markets.

Swiss Trader Sued For Alleged Apple Inc. Linked Insider Trading
By Marie Cabural – ValueWalk
The Securities and Exchange Commission (SEC) filed charges against a Swiss investor who allegedly made $1.8 million in illegal profits on insider information regarding a potential Apple Inc. acquisition.


Moscow Exchange currency market hit by latest glitch
By Alice Attwood – FOW
The Moscow Exchange (MOEX) was hit Tuesday by a data issue which interrupted foreign exchange market data transmission just hours after trading in its derivatives market trading system was hit by a technical problem on Monday.

CME data issue resolved after over two hours
By Luke Jeffs – Futures & Options World
CME Group said on Tuesday afternoon that trading had been returned to normal after a two-and-a-half hour issue with its historic data. The exchange giant said in a statement at 16.30 GMT: ” The issue that caused intermittent clearing confirmation delays in processing historical deal information has been resolved. We apologise for any inconvenience this may have caused.”


Time To Get Your Flock On Again With Release Of FOMC
By Darrell Martin – Benzinga
Four times a year the Federal Reserve releases the Federal Open Market Committee’s (FOMC) Economic Projections and has a Press Conference. The projections include the committee’s estimates on inflation and economic growth over the next two years along with a breakdown of each member’s interest rate forecasts. The Press Conference is in two parts: the first being the reading of their statement and the second part is after the release, where the press can ask questions. During the question asking and unscripted answering is when the market can get volatile.

John Carter Markets Analysis: What to Watch Into Options Expiration
By John Carter – TheStreet
We’ve got several things on the horizon this week, namely the Fed meeting on Wednesday and quadruple witching on Friday. Carter emphasizes that regular-way options expiration is much different than Weekly options expiration because of the amount of open interest in many stocks. The Facebook (FB) June 80 strike is one such example, with over 109,000 contracts on the put side and over 113,000 on the call side suggesting that the stock could “pin” to $80. It is not guaranteed to happen, but the odds are really high. Carter explains how that works by reviewing the dynamics behind the open interest and some strategies to trade. In terms of the overall market, Carter believes that the SPX contract will pin around 2100 due to the open interest. While the index is harder to control, this is the range traders should be looking at. Carter also reviews a trade in the SPDR S&P 500 ETF (SPDR) to mirror a trade in the index. Carter continues to like Cyberark Software (CYBR), Medtronic (MDT) longer term. Ambarella (AMBA) has had a nice, long run and Carter expects it to rally into options expiration.

Regulators urged to agree on derivatives trade data
Eleven industry associations, including fund bodies, say they support a set of principles developed by the International Swaps and Derivatives Association (Isda) that aim to improve regulatory reporting standards for derivatives.

Here’s Where I’m Hunting For Safe Stocks With High Yields
By Joseph Hogue – Nasdaq
Interest rates have jumped on stronger economic growth in the United States and abroad causing prices for rate-sensitive investments to plunge. Traditionally low-risk investments like the iShares 20+ Year Treasury Bond Fund and the Utilities Select Sector SPDR ETF have booked large losses that will likely extend when the Fed finally starts to lift rates.
But utilities still play a vital role for many investors that need consistent income and can be a blessing when the general market tumbles.
Using one of my favorite options strategies for reducing risk can provide extra income for those investors while maintaining a position in the sector for longer-term portfolio diversification.

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