Observations and Insight

Data Dive: CFTC’s O’Malia says swaps analytics need work
JohnLothianNews.com

The CFTC is mandated to help police the futures arena and its much bigger relative, the swapsmarket. Collecting and monitoring data on the swaps market has been a vexing problem for the agency, but CFTC Commissioner Scott O’Malia said it will solve it.

“We have four different trade repositories, all of them accepting different data,” he said. “All of them have a different data architecture. So that means aggregating it is much difficult.”

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Lead Stories

HAP Trading, chief fined $1.5 mln for options manipulation
Reuters
Financial exchanges run by CBOE Holdings Inc, NASDAQ OMX Group Inc and IntercontinentalExchange Group Inc on Monday said they fined a trading firm and its chief $1.5 million for manipulating options markets.
In addition, a trader was fined $250,000.
http://jlne.ws/1ooaW8e

Kellogg Traders Bet on Buffett Takeover as Stock Climbs: Options
Namitha Jagadeesh – BloombergBusinessweek
Kellogg Co. options (K:US) traders haven’t been this bullish in seven years as speculation increases that Warren Buffett’s Berkshire Hathaway Inc. (A:US) may make an offer.
Options volume jumped last month and the cost of bullish contracts is the highest since 2007 relative to bearish ones, according to data compiled by Bloomberg. Among the 10 options with the highest ownership, seven were bullish (K:US). The shares have climbed 18 percent since the start of February as traders bet the maker of Corn Flakes and Pop Tarts would be acquired.
http://jlne.ws/1qAEwJU

Is The Stock Market’s Volatility On An Extended Spring Break?
JJ Kinahan – CBOE Options Hub
Mixed trading and vacillation are the stock market’s character traits for much of this year. From one day to the next, it seems to be a market of the haves and have-nots. And in some cases, the action of the few has set the course for the many. As a result, widespread volatility has seemingly been on vacation, limiting the opportunities for more risk-prone traders and investors. The next question: can this continue? The better question: what sector or group is set to take the lead into the last two quarters of 2014?
http://jlne.ws/1hKnkYO

Concerns over conflict of interest in large structured product hedges
Vita Millers – Risk Magazine
 Taking an average reading from several strike dates could help avoid a potential conflict of interest where UK traders put on multi-million-pound hedges that can move the level of a structured product’s underlying before it strikes, says industry source.
Bank traders hedging their structured product exposure have the capability to move the level of the underlying stocks or index by placing hundreds of millions of pounds worth of options trades just before a structured product strikes.
http://jlne.ws/1ljPOKe

Trading Patterns Point to Leaks Ahead of Federal Reserve Announcements
Peter Coy – BloombergBusinessweek
A research paper has found “robust evidence” that some traders have been getting early news of U.S. Federal Reserve rate announcements and then trading on it during the Fed’s media lockup.
The paper detects abnormally large price movements and imbalances in buy and sell orders that are “statistically significant and in the direction of the subsequent policy surprise.”
http://jlne.ws/1hKiniG

Marty Kearney Of The CBOE Group Discusses New Volatility Index And Saturday Expirations
Jayson Derrick – Benzinga
On Monday, Marty Kearney of the Chicago Board Options Exchange joined the Benzinga #PreMarket Prep broadcast…
…Without wasting any time, Kearney was immediately asked about the CBOE Short Term Volatility Index (^VXST) which provides a market-based gauge of expectations of nine-day volatility. This contrasts with the more widely known Volatility Index (^VIX) which measures expectations for a 30-day volatility.
Kearney explained the Short Term Volatility Index is based on the weekly S&P 500 options and offers a “real-tight snapshot” of what volatility is today.
http://jlne.ws/1hKmHi2

Small-Cap Volatility Hits Fever Pitch … Then Retreats
The RVX/VIX ratio retreats from its record peak
Adam Warner – Schaeffer’s Investment Research
Bloomberg had some interesting timing yesterday on the Russell 2000 Index (RUT), and demand for small-cap options:
–  Traders are loading up on options as the Russell 2000 Index (RTY) hovers near the first 10 percent decline since 2012.
Demand for protection against further losses has pushed the Chicago Board Options Exchange Russell 2000 Volatility Index up 11 percent this year to 19.53. That’s the highest level since 2007 versus the VIX gauge of Standard & Poor’s 500 Index contracts. In the past three days, more than 1 million options traded on an exchange-traded fund tracking small-cap shares.
http://jlne.ws/1hKngbH

Videocast: Buying cheap VIX calls
optionMONSTER
http://jlne.ws/1hKmOKs

Nifty option traders hold on to positions despite trebling of option’s price, in hope of hitting ‘jackpot’
Ram Sahgal – The Economic Times
MUMBAI: Man’s greed knows no bounds. This may be said of rich domestic punters, many of whom have not booked profits despite having made a near three-fold return in just four trading sessions by buying Nifty options on the bet that the index would pierce the psychological 7000-barrier, which happened on Monday. The rise in the markets has coincided with an increase in the Nifty 7000 call option’s implied volatility (IV) — estimated magnitude and rate of price change — which, in turn, has increased its price by almost three times to Rs 294 on Monday from Rs 108 on Wednesday last week. IV of the Nifty 7000 call rose from around 32% last week to 44.5% on Monday.
http://jlne.ws/1qAEkuc

[India] Implied volatility of options falls sharply on exit polls
Biswajit Baruah – Economic Times
MUMBAI: Traders’ perception of risk or implied volatility (IV) of options declined sharply on Tuesday after exit poll results suggested the BJP-led NDA will form the next government. But derivatives analysts say options traders or punters could still place bullish bets on volatility rising ahead of the actual counting of votes on May 16 for low to moderate profitability.
http://jlne.ws/1hKm0oS

Exchanges

‘Financial markets are not rigged’: CME Group president
Robert Schroeder – MarketWatch
The president of the world’s biggest futures exchange kicked off his Senate testimony Tuesday with a blunt pronouncement: “the financial markets are not rigged.”
“Let me say I strongly agree with regulators – in both the futures and the equities markets – that the financial markets are not rigged,” Terrence Duffy, executive chairman and president of the CME Group, told the Senate Agriculture Committee on Tuesday.
http://jlne.ws/1qACv08

CME Softens High-Speed Traders’ Edge
Scott Patterson – The Wall Street Journal
CME Group Inc. Chairman Terrence Duffy said in congressional testimony Tuesday that the futures exchange operator has taken steps to reduce delays in the time between when clients, including high-speed traders, receive market data and when other firms get the same information.
Mr. Duffy, testifying before the Senate Agriculture Committee, said CME has addressed such delays “across all contracts” traded on the exchange.
http://jlne.ws/1nFSuIm

PHLX Announces Margin Levels for the NASDAQ OMX FX Options
Press Release (NASDAQ)
Effective immediately, margin level for the Euro FX option will change. Margin levels will remain unchanged for all other NASDAQ OMX FX Options. The percentages are listed in the table below.
http://jlne.ws/1hKlmrv

BX Options Market Sets Maximum Iterations of Acceptable Trade Range
Press Release (NASDAQ)
Effective Friday, May 30, 2014, the Exchange will set a limit on the number of Acceptable Trade Range (ATR) iterations which can occur for a given order or quote. Currently, aggressively priced orders or quotes will only execute within a defined range. Once the limit of a range has been reached, the order or quote pauses briefly to allow for additional liquidity to be entered into the market.
http://jlne.ws/1hKlxmF

Regulation and Enforcement

CFTC Weighs High-Speed Trader Registration for Oversight
Silla Brush – Bloomberg
The main U.S. derivatives regulator is debating whether requiring a new registration for high-speed traders would give overseers better access to information collected by exchanges including the CME Group (CME) Inc.
The Commodity Futures Trading Commission, which regulates futures and swaps markets, is considering whether the additional reporting and record-keeping requirements would improve the agency’s direct surveillance of trades, Vincent McGonagle, director of the CFTC’s market oversight division, told senators today.
http://jlne.ws/1qACIAH

Technology

Trading Technologies to Support Launch of TAIEX Derivatives at Eurex Exchange
Press Release (Trading Technologies)
Trading Technologies International, Inc. (TT), a global provider of high-performance professional trading software, today announced that it will introduce support for derivatives based on TAIEX, the Taiwan Stock Exchange’s main stock index. TAIEX derivatives will be available through TT’s existing Eurex Gateway when Eurex and the Taiwan Futures Exchange (TAIFEX) launch the Eurex/TAIFEX Link on May 15.
http://jlne.ws/1hKlOpF

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