Observations and Insight

We Like Big Brother! Why Options Exchanges Want OCC’s Eyes
Jim Kharouf – John Lothian News

Is this the holy grail of risk management? Maybe.

The OCC is the sole clearing house for the US options industry, what many would call a shining example of centralized clearing in today’s marketplace – with low clearing fees (even with the recent fee change), a straightforward focus on clearing – and with a new directive to take on a greater risk management role.

An interesting discussion percolated during the Options Industry Conference last week in Austin, Texas, where several exchange leaders promoted the concept of having OCC as THE central risk manager across the 13 US options markets.

Read more >>> http://jlne.ws/1g6fhFa

Lead Stories

Hashtag Panic In Twitter Options As Stock Sinks
Andrew Wilkinson – Forbes
Whether Twitter’s Jack Dorsey and other key employees have said they will not dump their shares in the micro-blogging site now that the insider lock-up period is over, the path of least resistance for investors is down. Shares in Twitter (TWTR) fell after the company’s earnings release last week and have slumped a further 11.6% Tuesday to $34.25.

CBOE chief says fewer ‘dark’ trades would benefit markets
Tom Polansek – Reuters
The quality of U.S. stock markets will improve if regulators limit trading that happens outside of exchanges, the head of CBOE Holdings Inc said on Tuesday after the company reported higher-than-expected quarterly earnings.
The comments from CEO Ed Tilly, who runs the largest U.S. stock-options market, put more attention on the role of so-called dark pools after Terrence Duffy, executive chairman of futures exchange-operator CME Group Inc, last week said that regulators should look into dark markets.

TABB Group Launches Series of Quarterly Reports Detailing US Listed Derivatives Markets Activity Covering Options and Futures
Press Release (via Broadway World)
TABB Group today issued two quarterly research reports detailing trading and market activity in the US listed derivatives markets, the first in a new series of quarterly data analysis reports detailing activity in US options and US futures markets.
The new series is being announced at the research and consulting firm’s second annual derivatives conference, Derivatives 2014: A Market in Transition at the W Chicago Center in downtown Chicago, where the keynote speaker is CFTC Commissioner Scott O’Malia.

Everyone Wants To Make Money Trading the Downside – So Why Don’t They?
Bob Lang – CBOE Options Hub
Remember back in in the 2008/09 financial crisis when everything was falling apart, stock and housing prices were falling off a cliff and you may have felt stuck holding the bag?  I’m sure the thought of ‘just let me catch some of this downside’ crossed your mind just a few times, but you didn’t have the courage to execute.  When the March 2009 low hit you were frustrated because you ‘knew’.  And then the stories came out – this guy made millions, that other guy made millions, all short the market.  Frustrating, wasn’t it?

Is Stock Market Volatility Increasing?
Ronald Delegge – Seeking Alpha
Is stock market volatility rising or falling?
For most of this year, stock market volatility has actually outperformed the stock market itself. But for whatever reason, it’s an unpopular narrative that has been and continues to be ignored by the mainstream media.

Why Russian ETF hedges are at record highs
Bloomberg (via Financial Post)
Investors are paying the most on record to hedge against losses in Russian stocks as the conflict in neighboring Ukraine intensifies.
The cost to protect against declines in the Market Vectors Russia ETF, the biggest U.S. exchange-traded fund that holds Russian shares, rose to an all-time high relative to emerging-market stocks, based on implied-volatility data for options. The ETF has lost 8.4 percent since President Vladimir Putin’s intervention in Crimea started on March 1.

Videocast: Will VIX keep falling?

Why Europe Might Never Reach A Financial Transactions Tax Deal
Tim Worstall – Forbes
There’s much excitement in certain quarters that the European Union (or more accurately, just the eurozone part of it) will reach a deal to impose a financial transactions tax (FTT). This is seen by some as a way of bashing the bankers who did so much to cause the Great Recession those five and six years ago. The idea is to take a small fraction (0.1% on stocks and bonds, 0.01% on derivatives) and this would wipe out some of the speculative froth that causes such damage. Or, closer to what is the real motivation, Hah! Take that bankers!

Research Paper Argues HFT Getting Less Vulnerable to Criticism
MNI News
Despite author Michael Lewis and all the complaints that high frequency trading is not fair, regulators in the U.S. and in the many other markets of the world where automated trading is taking hold will have an increasingly hard time declaring the “Flash Boys” are a market failure, a heavily researched academic study argued Monday.


Ice Said to Seek Mortgage-Swap Rebirth for Dodd-Frank Age
Jody Shenn and Matthew Leising – Bloomberg
IntercontinentalExchange Group Inc. (ICE) is pitching Wall Street on new derivative contracts allowing investors to wager on U.S. homeowner defaults, six years after subprime-mortgage swaps helped fuel the financial crisis, according to five people with knowledge of the matter.
ICE, which owns the biggest clearinghouse of swaps tied to the creditworthiness of companies, is gauging interest among banks and investment firms for a contract linked to a new type of mortgage securities that Fannie Mae and Freddie Mac started selling last year, said the people, who asked not to be named because the discussions are private.

IntercontinentalExchange Earnings Preview: Post-Acquisition Derivatives Trading In Focus
IntercontinentalExchange Group (NYSE:ICE) is scheduled to announce its earnings on May 8. In its earnings report for the March quarter, ICE will report earnings with the NYSE Euronext business fully integrated for the first time. In the previous quarter, the company included NYSE’s transactional revenues generated during only the last seven weeks of the period.

CBOE Holdings, Inc. Reports Record Quarterly Results
Press Release (CBOE)
CBOE Holdings, Inc. (NASDAQ: CBOE) today reported record net income allocated to common stockholders of $48.5 million, or $0.56 per diluted share, for the first quarter of 2014, compared with $41.8 million, or $0.48 per diluted share, in the first quarter of 2013.  On an adjusted basis, net income allocated to common stockholders was $50.0 million, or $0.58 per diluted share, compared with $43.9 million, or $0.50 per diluted share, in the same period last year.  Operating revenue for the quarter was $157.9 million, up 11 percent compared with $142.7 million in the first quarter of 2013.


VeloxPro Brings Order Book Visualization to TT Connected Partner Program
Press Release (Trading Technologies)
Trading Technologies International, Inc. (TT) and VeloxPro, global providers of market-leading connectivity and trading solutions for the financial community, today announced they have partnered to integrate VeloxPro’s BookMap order-book visualization solution with TT’s execution management system (EMS) software.




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