Lead Stories

The Final Fiduciary Rule – A Victory for the US Listed Options Market
Callie Bost – TABB Forum
The Department of Labor’s new rule addressing advisors’ conflicts of interest has largely spared the US listed options industry. While the first draft of the rule included provisions that ultimately hindered the investors it was striving to protect, among other important changes, the DOL scrapped the clause that would have banned fiduciaries from recommending or facilitating listed options trades in self-directed IRA accounts.

****SD: Much more coverage of the DOL’s fiduciary rule and its implications for the options industry under “Regulation.”

Bond traders flock to equity options – report
Julie Aelbrecht – Futures & Options World
Regulatory reforms have conspired to dry-up the credit default swap market Corporate bond investors are turning to equity options to hedge their exposure because regulation has made their traditional credit derivative hedging tools too expensive, according to a new study. US research firm the Tabb Group issued a paper on Thursday that said equity options are being used by bond-holders as a substitute for credit default swaps, which are the normal instrument of choice for hedging corporate exposure. “We’re seeing certain classes of listed equity options explode in volume. Bond traders are increasingly turning to this liquid market to hedge their trades,” Callie Bost, analyst at Tabb Group and the author of “Broken Hedges: Credit Traders and the lure of Equity Options”.

****SD: Abstract for the study from TABB here

Basically all of Wall Street is betting Donald Trump will lose
Ylan Q. Mui – Washington Post
Billionaire mogul Donald Trump’s odds of winning the White House have plunged over the past six weeks to just 12 percent at ElectionBettingOdds.com. But to Wall Street, the prospect of a President Trump is even more remote. Maybe too remote. That’s according to an analysis by Pravit Chintawongvanich, head derivatives strategist at Macro Risk Advisors. He looked at options placed on the Standard & Poor’s 500-stock index between September and December, an indicator of how tumultuous investors expect the market will be. What he found was that investors think the level of volatility in the fall won’t be much higher than it was over the summer — despite a little election on Nov. 8.

****SD: “The Big Shrug.” Also take a look at Bloomberg’s Vitriolic Presidential Rhetoric Curbing Economic Uncertainty

Volatility Update: Sizing Up Volatility Spikes
Frederic Ruff – The Ticker Tape
The S&P 500 eked out a small gain of less than 1% during the first quarter of 2016, but the modest advance masks an otherwise up and down quarter for the equities market. Indeed, it was a 6.6% rally during March that recently buoyed the S&P 500 into positive territory for the year. Prior to that, the index was deep in the red.

Sterling insurance rises on Brexit risk
Katie Martin – Financial Times
The price of protection against a big drop in sterling around the date of the EU referendum continued rising on Thursday, in a sign of intensifying nervousness within the currency market. The benchmark measure of implied volatility in sterling against the dollar over a three-month time horizon, which includes the June vote, pushed above 16 per cent for the first time in six years.

****SD: More pressure arrived in the form of yesterday’s Dutch referendum

VIX Volatility Issues Are Now Playing A Confusing Game
Seeking Alpha
When the VIX index calculation produces a low number, say 10 to 15, the inference is that investor notions about prices of the subject of the options (here the S&P 500 index) are reasonable, and the market is not troubled about present stock values. But just as nature abhors a vacuum, the market abhors OVER-confidence. There are always surprises that can arise; it is the unexpected that can cause damage because it is not prepared for. The paradox is that too much confidence creates concern, sometimes to the point where minor troubles get magnified into great worries and rampant uncertainty takes over, in worst cases as a panic.

****SD: When I personify the market, I imagine an even more monolithic version of the Colossus of Rhodes dressed in a bespoke suit with a Bloomberg Terminal array for a head. It looks at a low VIX and shakes its monitors while charting a frown.

Small-cap volatility measure reaches tipping point, may signal caution
Anora Mahmudova – MarketWatch
A little-known indicator of risk perception among stock investors is flashing caution. For starters, it reveals what may be an investor obsession with the domestic economy and earnings, perhaps at the expense of caution for the global outlook. That indicator measures the relative risk level of small-cap versus large-cap stocks. And when it leans too far one way or the other, it historically has signaled a change in the broader stock market.

Airline hedges fuel rally in later dated oil prices
Catherine Ngai – Reuters
Big airlines are making waves in the oil market for the first time since prices went into a tailspin nearly two years ago, betting this may be their best chance to lock in cheap jet fuel for years to come, industry and market sources say. A number of airlines moved last week to place significant oil price hedges for 2017, 2018 and even 2019, according to three trading sources familiar with money flows.


Bats CEO: ‘We’re kicking the cr*p’ out of rivals
Tim Cave – Financial News
Bats Global Markets plans to begin life as a publicly-listed company on April 15 – and its CEO is in a bullish mood. According to an investor presentation seen by Financial News, the operator of stock exchanges in the US and Europe describes April 15 as ‘IPO day’. The IPO, which will take place on Bats’ own exchange and has been dubbed internally as Project Wooden, has been in testing since July 31, 2015, according to the presentation.

****SD: Nice to see a C-level speaking his mind and not just boilerplate copy. Another quote: “Nasdaq were bigger, the [New York Stock Exchange] were bigger from 9.30am to 4pm. CBOE is petrified of what we’re about to do in their space. ISE? It’s going to be a writedown for Nasdaq. London Stock Exchange were bigger. Deutsche Börse were bigger. Reuters FX, we’re stealing market share. Icap FX, we’re stealing market share.” Them’s fightin’ words!

London Stock Exchange Deal May Spark Industry Buyout Frenzy
John Detrixhe, Matthew Monks and Edith Fishta – Bloomberg
The more than $30 billion of buyouts among companies at the heart of global financial markets have in the past six months turned little-known data firms into some of the industry’s hottest takeover targets. Deutsche Boerse’s $13.8 billion proposed buyout of London Stock Exchange Group Plc would be among the biggest in the industry’s history, sweeping into play information-service companies that might also tempt the exchanges. Those smaller deals have already racked up more than $10 billion.

****SD: I think the spark has already been lit.

Nasdaq adds Bloomberg’s Allan Schoenberg in global comms role
PR Week
Nasdaq has hired Bloomberg’s Allan Schoenberg as its VP of global communications. Schoenberg’s responsibilities include positioning Nasdaq as a thought leader, developing relationships with the press that raise the company’s profile, and creating strategies that support company initiatives.

***DA: JLN first reported Schoenberg’s move a couple weeks ago, but here is the story in PR Week. Of note, there is a job opening at Bloomberg for a senior communications professional. Also, see Schoenberg’s updated MarketsWiki bio here

HKEx, TMX and BM&F report mixed March results
Julie Aelbrecht – Futures & Options World
Hong Kong quarterly futures and options rose 11% on last year in March
Hong Kong Exchanges & Clearing, Brazil’s BM&F Bovespa and the Toronto Exchange have reported their March volumes, underlining a theme of mixed fortunes for the world’s top markets last month. HKEx reported on Thursday an average March daily turnover of futures and options of 739,968 contracts, an 11% increase on the 663,984. Daily average volume for futures stood at 342,937 at the end of the month, 45% up on the same period last year, while options saw a 7% drop in volume to 397,031 contracts.

Brazil’s Cetip agrees to BM&FBovespa offer, source says
Cetip SA Mercados Organizados (CTIP3.SA), Brazil’s biggest securities clearinghouse, has agreed on most terms of a revamped, unsolicited offer by bourse BM&FBovespa SA (BVMF3.SA), a source with direct knowledge of the matter said on Wednesday.

Worst is over for MCX, will see revival in company: PK Singhal, MCX
Economic Times
In a chat with ET Now, PK Singhal, President & Whole Time Director, MCX, says volume has slightly increased by about 5%. Excerpts:
ET Now: All the expectations that people have about some different options being allowed, FIIs being allowed, out of the blue comes this move of SEBI indicating that they are allowing weather derivatives. What is your take on how would a commodity exchange will benefit out of such a move?

MIAX Options Exchange: MIAX 2016 Disaster Recovery Data Center Test Plan
Press Release
MIAX will be participating in the annual SIFMA BCP test expected to take place in October 2016.

Regulation & Enforcement

U.S. options industry dodges a bullet with fiduciary rule
Saqib Iqbal Ahmed – Reuters
The U.S. options trading industry and people hoping to include exchange-listed options individual retirement accounts were relieved on Wednesday to learn U.S. regulators had decided against prohibiting those financial instruments in IRAs.

****SD: Hard to believe “The Matrix” came out in 1999 and it’s still the first thing I thought of when I saw the title. Second thought: central bankers need to steal some ammo from the DOL — apparently they have some lying around.

DOL fiduciary rule change: assessing the implications of change
FTSE Global Markets
The Labor Department announced new rules yesterday that are expected to have a big effect on how Americans save for retirement. The regulation extends to individual retirement accounts a revamped version of the “fiduciary” standard that governs corporate retirement plans such as 401(k)s. The DOL explains that individuals providing fiduciary investment advice to employer-based plan sponsors and plan participants are required to act impartially and provide advice that is in their clients’ best interest. Under ERISA and the Internal Revenue Code, individuals providing fiduciary investment advice to plan sponsors, plan participants, and IRA owners are not permitted to receive payments creating conflicts of interest without a prohibited transaction exemption (PTE).

OCC Gratified by Changes to DOL Fiduciary Rule That Benefit Users of Listed Options
Press Release
OCC, the world’s largest equity derivatives clearing organization, and a leader of the U.S. Securities Markets Coalition, said today that it is gratified that the Department of Labor’s final fiduciary rule appropriately moved away from limiting the ability of investors to hold listed options in their retirement accounts. However, OCC continues to review the final rule to determine whether it may inappropriately limit options education provided by firms to their retirement customers.

EU Lawmakers Approve MiFID II Market Rule Delay by One Year
Julia-Ambra Verlaine – Bloomberg
European lawmakers agreed to delay the overhaul of Europe-wide market-rules known as MiFID II by a year in a vote on Thursday in Brussels. The European Parliament adopted the European Commission’s proposal to postpone the start date for MiFID II, the complex law that affects nearly every financial firm operating in the 28-nation bloc, by a year to 2018 and solidified a position on “targeted amendments” that should be made, including exemptions on certain securities-financing transactions in the law.

Basel leverage ratio paper spooks banks
Luke Jeffs – Futures & Options World
Basel issued paper that conceded one point to the banks but refused another and pushed ahead with a third they will not like The announcement on Wednesday that the Basel Committee on Banking Supervision had opened a consultation on its controversial leverage ratio may have looked promising to the world’s top investment banks. But any optimism would have quickly evaporated as the derivatives clearing firms studied the consultative document and realised the plan did not go as far as they might have hoped.

CBOE Holdings CEO Edward Tilly Comment On DOL Fiduciary Proposal
Press Release
Comment from CBOE Holdings Chief Executive Officer Edward T. Tilly on the Department of Labor Fiduciary Proposal.

NSE seeks Sebi approval for commodity futures trade
Economic Times
Leading bourse National Stock Exchange (NSE) has sought capital markets regulator Sebi’s approval for launching a commodity futures trading segment. The exchange has written a letter to the Securities and Exchange Board of India (Sebi) in this regard. “We are exploring the possibilities in commodities derivative segment. Recently, we have written to Sebi. We expect to hear from them soon about broader framework among other things,” a NSE spokesperson said. In commodity market, only futures trading is allowed currently, while products like index options are not permitted and restrictions exist with regard to participant as well

SpotOption Founder: Israel Should Follow Major Regulators on Binary Options
Avi Mizrahi – Finance Magnates
Finance Magnates sat down with one of the most important figures in the binary options world, Pini Peter – the founder of leading software developer SpotOption – for an exclusive first interview about the international regulatory landscape. The subject that the SpotOption founder most wanted to talk about was the financial nature of binary options. He gave numerous examples of how different authorities determined that they are not gambling products, like the landmark Dutch court ruling from over a year ago, as well as an extensive century-long track record as financial instruments


Five Questions With Mike Mayhew, CIO At Trading Technologies
Trading Technologies
Speed and accessibility are the key benefits most often talked about when promoting the TT platform. But what is less frequently highlighted is the infrastructure and support structure that keep operations moving smoothly. That responsibility falls on Mike Mayhew, CIO at Trading Technologies. In this edition of “Five Questions with…,” we talk with Mike about his team and the behind-the-scenes work that goes into making the TT platform dependable and secure.

Start-ups take on hedge funds with ‘social trading’
Imagine you knew a friend of a friend who kept bragging about the killing they were making trading. You don’t know where they were investing, all you know is that they are doing really well. But imagine if you could invest directly into that person’s strategy and also make money like them. This is the premise of so-called “social trading” platforms that have been on the rise aiming to shake up the hedge fund industry. Darwinex is one of the latest entrants in the space. The company allows traders to sign up and people can buy into their strategy. The trader’s trades and strategy are wrapped into a “Darwin”. Users can buy a Darwin which means that any money they invest will be traded exactly how the trader would do it.

****SD: Glad the author did some distancing in the lede by saying “a friend of a friend” and not just a friend. Most of the braggarts I encounter are, in essence, pretty Neolithic, and not great companion material.


Learn How to Narrow Your Options Search to the Optimal Strike Price
Ticker Tape
Have you ever felt a little intimidated when looking at an option chain? There’s a tremendous amount of information available. Not only are there many different expiration weeks and months to choose from, which is a subject all to itself; there’s also an almost unending number of available strikes. The challenge becomes even more pronounced as $1-wide and $0.50-wide strikes become more popular.

Tech Stocks Too Hot to Hedge as Pre-Earnings Momentum Seized
Joseph Ciolli – Bloomberg
Just because technology companies are about to disclose their biggest profit contraction in seven years doesn’t mean investors are rushing to hedge their stocks. Even with analysts estimating a 7 percent decline in earnings and the stocks up 16 percent to near a four-month high since mid-February, short interest in an exchange-traded fund tracking the technology group has tumbled and now sits close to the lowest level of 2016, according to data compiled by Bloomberg and Markit Ltd.

Earnings Next Week – 4/11 – 4/15
CBOE Options Hub
Just like the beginning of baseball season witnesses a few games before we have days of a full slate of games, earnings season kicks off next week with just a dozen stocks that have short dated options available for trading reporting their numbers. As always, the numbers below represent three years of history. After the ticker the columns show the biggest gain, biggest drop, average move (non-directional) and stock price reaction last quarter.

Don’t Be Allured By This High-Yield Covered Call ETF – Recon Capital Nasdaq 100 Covered Call ETF (NASDAQ:QYLD)
Seeking Alpha
I recently read an interesting article, which emphasized the advantages of the Recon Capital Nasdaq 100 Covered Call ETF (NASDAQ:QYLD). The ETF pays a dividend on a monthly basis and offers a remarkable annual dividend yield, almost 9%. In addition, as it sells call options of its stocks, it is likely to outperform the market during a downtrend. However, investors should be well aware of some caveats before they purchase this ETF. First of all, I have to admit that the profile of QYLD is quite attractive. More specifically, it holds a number of large-cap stocks of Nasdaq, such as Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN), and sells covered call options of these stocks every month.


The Return of RUT Fest
CBOE Options Hub
Last September The Options Institute hosted a full day of webcasts focusing on trading Russell 2000 Options that we referred to as “RUT Fest”. By popular demand RUT Fest returns on Tuesday April 12th with all four of the instructors from CBOE being joined by Kerry Given from Parkwood Capital LLC and CBOE Live Vol’s Kevin Nichols.

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