JLN Options: Gamma of Volatility Gets Pasted – For Now; What to expect from the Vix; Some Investors Warn: Mandatory U.S. Derivatives Backstop Not Safe Enough

Apr 15, 2014

Lead Stories

Gamma of Volatility Gets Pasted – For Now
Mark Sebastian – CBOE Options Hub
It looked real ugly this morning toward noon.  From what I could tell there was enough decent news to push stocks higher pre-open and then the flood gates of selling opened, hitting the momentum stocks particularly hard.  The on again/off again saga of the Russians camping out in the Ukraine is putting the market into a tizzy.  A near term weak market gets downright ugly when the liquidity dries up after countries start shooting at each other.

What to expect from the Vix
Andrew Wilkinson – Futures
As selling accelerated last week the S&P 500 index (CME:SPM14) closed below its 50-day moving average, which currently stands at 1843. The 200-day average by comparison comes into play at 1761. And while the overall level of volatility has picked-up recently it remains well below highs that have coincided with prior negative breaches of the 50-day moving average level for stocks. The CBOE Vix index closed last week at 17.03.

Some Investors Warn: Mandatory U.S. Derivatives Backstop Not Safe Enough
Katy Burne – The Wall Street Journal
Some large investors are warning that the plumbing touted by regulators as a key safety net for the financial system still isn’t safe enough, a year after it became mandatory in the U.S. to use clearinghouses to backstop certain derivatives.

Does the Market’s ‘Fear Gauge’ Have a Magic Number?
Adam Warner – Schaeffer’s Investment Research
We must be getting close to a near-term top in the CBOE Volatility Index (VIX). I say that because I see Zero Hedge looking at it … or rather, looking at someone else looking at it:
    While US equities have spent much of the past several weeks under pressure (the NASDAQ bio tech index has fallen over 21%, the NASDAQ Comp is down over 8% and the S&P 500 is down over 4%), BofAML’s Macneil Curry is concerned that the VIX index suggests conditions should deteriorate further before greater signs of a base materialize.

GM Options Traders Most Bearish Ever Versus Ford on Rising Costs
Sofia Horta e Costa – BloombergBusinessweek
General Motors Co. (GM:US) shares are having the worst start to a year since returning to the market after bankruptcy. Traders are bracing for bigger declines.
The cost of GM options, an indicator of demand for protection against losses in the stock, jumped to a record high (GM:US) versus Ford Motor Co., data compiled by Bloomberg show. Shares of the largest U.S. carmaker lost 7.5 percent since recalls began Feb. 13, wiping out about $4 billion in shareholder value (GM:US).

Derivatives Keep Gaining Currency with Forex Traders
Charles Wallace – Institutional Investor
During a recent webinar about foreign exchange trading, Derek Sammann, senior managing director for metals, options and forex at CME Group, made a startling disclosure. Last year trading in forex futures and options on the Chicago Mercantile Exchange surpassed volume on EBS, which had long been considered the primary institutional platform for spot currency trades.

RBI to ease curbs on exchange traded currency futures
The Hindu Business Line
The RBI may allow foreign institutional investors (FIIs) to participate in the exchange-traded currency derivatives market, where volumes have been dropping at an alarming rate. To resuscitate this market, the Reserve Bank has also relaxed some of the trading curbs imposed in 2013.


Eight ‘anchor’ investors to back Euronext listing -sources
Sophie Sassard, Freya Berry and Jean-Baptiste Vey – Reuters
A consortium of eight ‘anchor’ investors have committed to buying a 25-30 percent stake in stock exchange operator Euronext ahead of a potential 1.5 billion-euro ($3.5 billion) listing by current owner IntercontinentalExchange (ICE), which is expected in June, three sources familiar with the matter said on Tuesday.

CME wants to double its share of forex trades with new exchange
Tim Wallace – CityA.M.
EXCHANGES giant CME Group hopes to channel another $160bn (£95.6bn) per day of currency trades through its marketplaces when it sets up a new European unit this month.
CME Europe opens on 27 April and will initially offer futures contracts in 30 currency pairs as well as energy-related products like biofuels.

MCX-SX equity volumes plunge sans incentives [India]
Kashyap Shah & Sachin P Mampatta – Business Standard
The equity segment turnover of MCX Stock Exchange (MCX-SX) in April has fallen by 99 per cent from its all-time highs. The fall comes as the exchange moved to remove an incentive structure aimed at bringing volumes to its trading platform.
The average daily volumes in April dropped to Rs 10 crore, compared to Rs 81 crore in March. It was a high of Rs 1,466 crore in July 2013.

Moscow Exchange to Publish New Russian Market Volatility Indicator
Giulia Lasagni – WatersTechnology
The Moscow Exchange announced that, starting Wednesday, April 16, it will begin publishing a new index that provides an indicator of Russian volatility designed to give investors and traders a wider range of tools to assess the market.

Regulation and Enforcement

Regulators Weigh Curbs on Trading Fees
Scott Patterson and Andrew Ackerman – The Wall Street Journal
A fee system that is a major source of revenue for exchanges and some high-frequency trading firms is coming under the heightened scrutiny of regulators concerned that market prices are being distorted, according to top Securities and Exchange Commission officials.


S3 launches Buy-Side Execution Quality Suite
Press Release (S3)
S3 is pleased to announce its Buy-Side Execution Quality Suite, which allows both Buy-Side institutions and their Sell-Side providers to ensure the Buy-Side clients are getting the very best representation in both the equities and listed options markets.
S3’s Buy-Side Execution Quality Suite adds new information that can be used to determine how well orders are being handled, including new benchmark comparisons, new volume comparisons, additional filtering options and additional statistics.

Options Upgrades Low Latency Route Between Carteret and Weehawken
Press Release (Options)
The route is now the fastest available between both venues
New York – April 8, 2013 – Options, the leading private financial cloud provider for the global capital markets industry, today announced that it has upgraded the route between the firm’s data center facilities in Carteret and Weehawken, New Jersey (NJ2). The newly upgraded link reduces one-way latency on the route by 6.7% and sees the IaaS provider offer customers the fastest route currently available between both venues.

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