Investors dump JGB options, betting BOJ’s yield control will succeed
Hideyuki Sano – Reuters
Investors in Japan’s debt markets are betting through the options markets that the central bank will succeed in containing government bond yields within its desired ranges. That strategy involves selling options on Japanese government bonds (JGBs), earning income from any buyers who want the right to buy or sell JGBs at a later date. Traders are selling both kinds of options — call options to buy bonds and put options to sell them — on the view that the price, or premium, will collapse as JGB yields get boxed into a tight range.
EU ready to tackle too-big-to-fail clearinghouses
The European Union is tackling the problem of too-big-to-fail clearinghouses by preparing to unveil a legislative proposal in November that would require them to have a plan in place to avoid a taxpayer-funded bailout. Clearinghouses became seen as too big to fail after regulators pushed derivatives trading through them to prevent a market meltdown similar to the one following the fall of Lehman Brothers in 2008.
Companies turn arbitrage traders
Gavin Jackson – Financial Times
It is the “closest thing to a physical law in international finance” says the Bank for International Settlements, the central banker’s central bank. Only, the principle that you should not be able to make a risk-free return by arbitraging currency markets and interest rates has now been broken for some time. Most of the attention has been on the relationship between the Japanese yen and the US dollar, where traders — if they have the ability — can transact in dollars to make a risk-free return. But, in Europe, the effect of banks’ retreat from writing cross-currency basis swaps has instead registered sharply in corporate bonds.
Hurricane Matthew Is a $15 Billion Threat Headed to Florida
Brian K Sullivan – Bloomberg
Hurricane Matthew has thousands fleeing the U.S. Southeast where it’s expected to batter the coastline and threaten electricity supplies to more than 1 million people in Florida. Potential losses are seen as high as $15 billion. Matthew is pounding parts of the central Bahamas with maximum sustained winds at 115 miles (185-kilometers) per hour and is expected to intensify as it approaches Florida, the U.S. National Hurricane Center said in a 2 a.m. New York time advisory. The Category 3 storm closed the Buckeye oil terminal in Freeport, Bahamas, and could disrupt petroleum shipments along the U.S. East Coast.
Fed Chair Yellen’s Plan B: “Intervene Directly” In Stock Market
Stefan Gleason – ValueWalk
October could see a ramping up of volatility across all asset markets. The month is notorious on Wall Street for the 1987 stock market crash. Fall crashes also occurred in 2002 and 2008. Are we due for another one? Perhaps. Some analysts think it will come after the election. Others think the stock market will stay elevated until the Federal Reserve raises rates.
The Fed will be out of the picture this month – at least as far as policy decisions are concerned. The Fed won’t convene another policy meeting until November 1-2. Most Fed watchers expect the central bank to avoid making any rate moves so close to the November 8th election.
New rule may create a $10 trillion ETF juggernaut by 2020
Ryan Vlastelica – MarketWatch
The Labor Department’s “fiduciary rule” was designed to help retirement savers, but one of the biggest beneficiaries might be exchange-traded products, including ETFs and ETNs. The new rules take effect April 10, 2017 and according to one estimate, the market could triple within a few years as a result of its implementation.
****SD: Given that options on ETFs represent such a large amount of options volumes, this is worth a look.
CBOE Volatility Index (VIX) Had Fair Share of Ups and Downs Last Month
The Ticker Tape
Overall levels of market volatility picked up a bit in September, but finished well below the levels seen at the end of the second quarter. Of course, financial markets were reacting to the “Brexit” concerns in late June, and that was the main catalyst for the uptick in volatility a few months ago. Those anxieties receded into July, and market action was relatively quiet through August. Then September proved to be a roller-coaster month for market volatility, and now, as we enter the final few months of 2016, there are a few looming catalysts that could potentially trigger another uptick in volatility before year-end.
Will commodity options enjoy same success as equity options?
Mobis Philipose – LiveMint
Multi Commodity Exchange of India Ltd’s (MCX) shares have risen by around 40% in the past three weeks. Investors are evidently excited about Securities and Exchange Board of India’s (Sebi) decision to permit trading in commodity options, besides drooling over rumours that Chicago Mercantile Exchange is likely to pick up a stake in MCX.
SGX Reports Market Statistics For September 2016
Total Securities market turnover value remained almost the same month-on-month but fell 8% year-on-year to S$20.7 billion, during 21 trading days compared with 22 in August 2016 and 20 in September 2015.
ASX Monthly Activity Report
The value of ASX-listed stocks, as measured by the All Ordinaries Index, fell 0.1% in September 2016. This performance was in contrast to some major markets, including the UK up 1.7%, Singapore up 1.7% and Hong Kong up 1.4%. Declines were also observed in Japan down 2.6%, Germany down 0.8% and the US down 0.1%.
Regulation & Enforcement
CFTC likely to pull back on Reg AT – expert
Julie Aelbrecht – Futures & Options World
CFTC’s consultation on the regulation prompted over 80 comment letters
US futures watchdog the Commodity Futures Trading Commission may be about to water down its controversial plan to clamp down on electronic trading, a senior US trading expert has claimed. The CFTC proposed in November a new set of reforms under the banner of Regulation Automated Trading to tackle the risks created by electronic trading but prop firms and market-makers have become increasingly wary of a specific proposal that they must submit their algo trading source code to the regulator.
The Meaning of Insider Trading Gets a Big Rethink
Patricia Hurtado – Bloomberg
What exactly is insider trading? Don’t ask Congress, which has never passed a law setting out what traders can and can’t do. Instead, judges have spelled out the rules. And those rules are once again shifting.
Banks must face U.S. gold rigging lawsuit; UBS is dismissed
Jonathan Stempel – Reuters
A U.S. judge said gold investors may pursue much of their lawsuit accusing four major banks of conspiring for a decade to fix prices and exploit distortions at the expense of investors in global markets for the precious metal.
SEC charges Wailea man with investment fraud
The Maui News
The Securities and Exchange Commission has charged a former investment adviser and current Wailea resident and flying school owner/instructor with cherry-picking profitable trades and misleading clients and others about his fees. Laurence I. Balter and his Kihei-based Oracle Investment Research company purchased equities and options in an omnibus account and waited to allocate the trades until they were executed and Balter knew whether they were profitable, the SEC Enforcement Division alleged Tuesday.
Blockchain – Just One Piece of the Puzzle
Terry Roche – TABB Forum
When it comes to blockchain, the hype cycle is over. The technology now needs to deliver real-world benefits. While blockchain’s promises remain bright, however, there are numerous foundational challenges that the financial services industry needs to overcome.
REDI Launches Next-Generation Spread Trader
REDI Global Technologies today announced the launch of its advanced new Spread Trader. It is available immediately to all REDI clients globally.
Top Forecaster Sees Dollar Gain With Either Trump or Clinton
Susanne Barton and Anooja Debnath – Bloomberg
Julius Baer, Rand Merchant Bank top Bloomberg accuracy list; Number three, ABN Amro sees weaker greenback on Trump victory
For the world’s top currency forecaster, the dollar is a buy whatever the outcome of the U.S. presidential election.
Timely Twitter Trade From Yesterday
CBOE Options Hub
My youth was spent watching way too many Warner Brothers cartoons. If you are like me then you know Sylvester the cat always struggled but never caught Tweety Bird. A few firms were playing the role of Sylvester this past week and hoping to catch Twitter. Apparently all the Sylvesters have gone away and no one is willing to catch Twitter, at least not in the mid-20’s.
Basic Materials, Energy Sectors Looking to Rally In Upcoming Earnings
The Ticker Tape
Depressed commodity prices and uncertainty around global economic growth weighed on Materials and Energy companies for much of 2016, but the sectors have started to recover as commodity prices rebounded from January lows. According to FactSet, a financial research firm, the Materials sector is expected to report the third highest earnings growth in Q3 out of the eleven sectors of the S&P 500. The 3.9% projected earnings growth is almost entirely due to the estimated 262% earnings growth in the metals & mining industry.
FIA Japan Newsletter
This directs to the full PDF of the newsletter.
Nobel laureate Stiglitz sees Italy, others leaving euro zone in coming years
Nobel Prize-winning economist Joseph Stiglitz predicted in a interview out on Wednesday that Italy and other countries would leave the euro zone in coming years, and he blamed the euro and German austerity policies for Europe’s economic problems.