Observations & Insight
Sweet 16: The Tops For 2016 – Economics
From the Federal Reserve Bank moves on rates to the supply and demand for crude oil, 2016 is expected to be a big year for the derivatives industry. In our JLN Sweet 16 Series, we spoke with industry executives who gave us their top economic trends to watch in 2016. Here’s what Don Wilson, Terry Duffy, Christian Hauff and Derek Sammann had to say.
Fed Takes the Fear Out of Markets as BlackRock Backs Yellen Move
Adam Haigh, Candice Zachariahs and Anna Kitanaka – Bloomberg
Federal Reserve Chair Janet Yellen has convinced investors around the world to breathe a little easier.
Measures of anxiety in bond, currency and equity markets declined after Yellen said the U.S. economy is improving and the central bank is in no rush to raise interest rates again after the first increase in almost a decade on Wednesday.
Options on Futures: Use Cases in Efficient Risk Management
Andy Nybo & Bob von Halle – TABB Group
Recent market volatility is playing havoc with the investment strategies of portfolio managers around the world who are still trying to make sense of shifts in international economies, changes in market sentiment and spiking volatility across nearly all asset classes. The challenges of managing risk exposure never abate but recent market conditions are testing the wherewithal of all but the most placid investment strategists.
Interest Rates and Stock Splits
Matt Levine – Bloomberg
Yesterday the thing that everyone expected to happen happened, and people were pretty happy about it, not so much because they like higher interest rates but because they like being right. There are those who thought, and think, that it is misguided to raise rates with low inflation and slack in the labor market, but I like my Bloomberg View colleague Noah Smith’s take, which is that it was getting to be really weird to have zero interest rates, and so the Fed just had to raise rates to make things less weird.
Currency options warm to clearing
Joel Clark – Futures & Options World
Central clearing in foreign exchange has proven much more complex than other asset classes. A new service developed by LCH.Clearnet and CLS may see the first FX options cleared in 2016 despite there being no regulatory mandate on firms to do so, Joel Clark reports
From the advent of the single European currency to the pegging of the Swiss franc, the foreign exchange market has dealt with its fair share of structural challenges over the years. Central clearing of FX options, likely to begin in 2016, might sound like a more niche development, but given the complexity of introducing clearing in a physically settled market, it may be no less significant.
The Big Long: Bank Trade Gets Liftoff in Stocks as Fed Tightens
Lu Wang and Anna-Louise Jackson – Bloomberg
ETF flows and options volume climbing for financials
Banks overtook technology as most favored in fund survey
Seven years after American banks brought the global economy to its knees, stock investors want nothing more than to own them again now that the Federal Reserve is back to raising interest rates.
The VIX Event You Probably Missed
Adam Warner – Schaeffer’s Investment Research
I got so excited about the Historic and Most Important Fed Decision Ever that I literally forgot that CBOE Volatility Index (VIX) options expired on the opening rotation. And… it wasn’t really all that exciting. December VIX “settled” at 19.23, which was actually in line with the opening range.
OCC Declares Clearing Member Refund and Dividend for 2015 and Reduction of Fees under Approved Capital Plan
OCC, the world’s largest equity derivatives clearing organization, today announced the declaration of a refund, dividend, and fee reduction under its approved capital plan.1 The refund of approximately $39 million2 to clearing members and the dividend of approximately $17 million3 to Stockholder Exchanges will be paid in Q1 2016 following issuance of OCC’s financial statements. The new fee schedule, included below, will commence on March 1, 2016, and will result in a reduction in the average clearing fee of approximately 19% from current levels.
What could come after the rate hike rally
Anthony Mirhaydari – CBS News
Wall Street’s response on Wednesday to the first Federal Reserve interest rate hike in nearly a decade was a bit anticlimactic. And something of a letdown after all the buildup in recent times about the looming end of the near-zero interest rate policy that has been in place since 2008.
India’s VIX Drops to Eight-Month Low as Fed Uncertainty Passes
Santanu Chakraborty – Bloomberg
The benchmark gauge of Indian option costs fell the most in three months as demand for protection against stock swings slumped after the Federal Reserve’s first interest-rate increase in almost a decade.
Hedge funds could see first negative year since 2011
Despite overall industry returns being negative in 2015, the distribution of returns across funds is very slightly in favour of positive performance (50.2 per cent positive, 49.8 per cent negative). The average positive return is 7.28 per cent and the average negative return is -9.23 per cent.
U.S. natgas futures fall to fresh 14-year low on weak heating demand
U.S. natural gas futures set a 14-year low on Wednesday on forecasts for continued unseasonably mild weather that should keep heating demand extraordinarily light through late December.
****SD: Relevant portion of the article: “With futures at 14-year lows, speculators were mixed on whether prices would move higher or lower. Some of the most active American-style options on the NYMEX were the $1.90 and $1.95 January 2016 calls and the $1.50 and $1.75 January 2016 puts. Open interest in the contracts was near all-time highs.”
ETF markets pass December’s volatility test without major disruption
The Globe and Mail
After a year that has reignited concerns about how exchange-traded funds work during volatile periods, junk bond ETFs came through a test this month, registering their highest trading volumes ever without any major disruption.
Nasdaq NFX passes key trading milestone
Alice Attwood – Futures & Options World
Nasdaq has said its new energy exchange passed a key milestone on Monday by trading more than three million contracts, less than five months after the launch.
The number of contracts traded on Nasdaq Futures (NFX) passed the three million mark on Monday, with open interest on the platform also increasingly steadily, buoyed by strong activity in natural gas options, chief executive of NFX Magnus Haglind told FOW.
Dutch court sides with Euronext in row with govt over equity
A court has sided with Euronext in a dispute with the Dutch government over capital requirements, a court spokesman said on Thursday.
“The court ruled in favour of the appeal filed by Euronext,” Pelle Biesmeijer of the Rotterdam District Court told Reuters. “The government’s decision was thrown out.”
Euronext was protesting requirements that it hold 250 million euros ($271.5 million) in equity and maintain positive tangible equity through 2017.
Intercontinental Exchange, Inc. announces secondary offering by selling stockholders related to Interactive Data acquisition
Intercontinental Exchange, Inc. (NYSE:ICE), a leading global network of exchanges and clearing houses, today announced that Silver Lake Partners III, L.P., Silver Lake Technology Investors III, L.P., Warburg Pincus Private Equity X, L.P., Warburg Pincus X Partners, L.P., WP X Finance, L.P. and Igloo Co-Invest, LLC (collectively, the Selling Stockholders) intend to offer for sale in an underwritten secondary offering 5,669,002 shares of ICE’s common stock pursuant to ICE’s shelf registration statement filed with the Securities and Exchange Commission (SEC). The shares being offered were originally issued to the Selling Stockholders in connection with the acquisition of Interactive Data Holdings Corporation which ICE completed on December 14, 2015. ICE is not selling any shares and will not receive any proceeds from this offering. The closing price of ICE’s common stock on December 16, 2015, was $247.72 per share.
CME Group Announces 2016 Annual Meeting Date
CME Group Inc., (NASDAQ: CME) the world’s leading and most diverse derivatives marketplace, today announced that its 2016 Annual Meeting of Shareholders will be held at 3:30 p.m., Central Time, on Wednesday, May 18, 2016, in the Auditorium at CME Group, located at 20 South Wacker Drive, Chicago, Illinois.
The presentation will be broadcast live over the Internet and can be accessed via the exchange’s web site at http://investor.cmegroup.com.
CBOE, C2 and CFE Trading Schedule for the Christmas and New Year’s Holidays
CBOE Holdings, Inc. (NASDAQ: CBOE) announced the following trading schedule for Chicago Board Options Exchange (CBOE), C2 Options Exchange (C2) and CBOE Futures Exchange (CFE) in observance of the Christmas and New Year’s holidays
Regulation & Enforcement
Fraud, $57 Million in Losses in 2 Weeks and Not Yet 30 Years Old
Bob Van Voris, Edvard Pettersson and Matt Robinson – Bloomberg
Canarsie Capital founder Owen Li managed to lose $57 million in two weeks, leaving his investors with only $200,000 and a letter of apology.
Now, he can add a felony conviction to that record after admitting he lied to investors and regulators about his hedge fund’s performance. All before his 30th birthday.
FIX protocol update work commences
Alice Attwood – Futures & Options World
FIX Trading Community has said work to update the FIX trading protocol has begun after the industry body earlier this month accepted a proposal on the upgrade from one of its regulatory sub-groups.
The industry body on December 2 accepted a proposal from the FIX Clock Synchronisation subgroup which calls for the FIX standard to be upgraded to support more precise reporting, in as small as ‘pico-seconds,’ as first reported by FOW in November.
Martin Shkreli Arrested on Fraud Charges
Stephanie Clifford and Andrew Pollack – NY Times
Martin Shkreli, a pharmaceutical entrepreneur and former hedge fund manager who has been widely criticized for drug price gouging, was arrested Thursday morning by the federal authorities. The investigation, in which Mr. Shkreli has been charged with securities fraud, is related to his time as a hedge fund manager and running the biopharmaceutical company Retrophin — not the price-gouging controversy that has swirled around him.
****SD: Admittedly not an options story, but who doesn’t like reading about the ongoing saga of Martin Shkreli, the much maligned buyer of the only copy of the Wu-Tang Clan’s new album and drug price gouger?
Tech and Banking Giants Ditch Bitcoin for Their Own Blockchain
Cade Metz – WIRED
Several major companies from across both the technology and financial industries—including IBM, Intel, and Cisco as well as the London Stock Exchange Group and big-name banks JP Morgan, Wells Fargo, and State Street—have joined forces to create an alternative to the blockchain, the global online ledger that underpins the bitcoin digital currency.
Overseen by the not-for-profit Linux Foundation, this open source project aims to build blockchain-like technology that can bring a new level of automation and transparency to a wide range of services in the business world, including stock exchanges and other financial markets.
Bill Ackman comments on Valeant stake potential profits
Julia La Roche – Business Insider
Bill Ackman, the activist investor who runs Pershing Square Capital Management, is confident that his money-losing bet in Canadian drug company Valeant Pharmaceuticals will eventually pay off.
****SD: Further commentary on Ackman’s big options play.
How ‘Star Wars’ Could Send These 3 Stocks to the Moon
Alex Eppstein – Schaeffer’s Investment Research
With the national release of Walt Disney Co’s (NYSE:DIS) latest “Star Wars” installment just around the corner, there is no shortage of hype. Already, reviews are dubbing the movie “a spectacular homecoming” and a “rollicking adventure” — though not everyone has drunk the Kool-Aid. While the film is aiming to have an impact on viewers, it could also affect a number of stocks, including Hasbro, Inc. (NASDAQ:HAS), Electronic Arts Inc. (NASDAQ:EA), and AMC Entertainment Holdings Inc (NYSE:AMC).
****SD: Expectations are that “The Force Awakens” will gross nearly $2 billion globally.
‘Sell the News’ Isn’t Dead, Just Delayed
James DePorre – TheStreet
n the old days when we used to worry about things like global cooling, gas shortages and bid-ask spreads, there was a concept called “sell the news.” The way it worked was that the market would anticipate a news event and price it in. When the news actually occurred, market players would sell and lock in their gains. Even if the news was positive, further upside was limited because everyone knew it was coming and they didn’t expect many new buyers.
Be Cautious About Emerging Markets in 2016
Rebecca Patterson and Holly Macdonald – Barron’s
While we pride ourselves on being forward-thinking and longer-term investors, the end of the calendar year is always a good time for reflection. What dominated portfolio returns this past year? Did we successfully foresee the respective trends or were we surprised? What could we have done better?
****SD: This is a thorough rundown of main players in emerging markets, from India to Argentina.
Volatility Spillover Between The Chinese And Australian Stock Markets
Wei Chi, Robert D. Brooks and Emawtee Bissoondoyal-Bheenick – ValueWalk
Despite the increasingly tight economic relationship between China and Australia, little attention has been paid to the analysis of stock market volatility spillover across these two countries. This paper, based on industry data, fills the gap in the literature and provides a clear idea of the channels through which volatility is transmitted across countries. This paper finds that the volatility spillover across these two markets is bidirectional while there is single or insignificant spillover across industries between these two countries.