Observations & Insight

Big Picture: Sandor Says Look Beyond US For Air And Water Markets
JohnLothianNews.com

Richard Sandor is one of the pioneers in financial derivatives and the environmental markets world as founder of the Chicago Climate Exchange. Now with his second book, Sustainable Investing And Environmental Markets, Sandor says this asset class has come a long way over the past 12 years but has a long way to go from here.

“I think we’ve made enormous progress,” he says. “You wouldn’t necessarily believe it was true because of the lack of federal action in the the United States. But I think that would be naive. In fact, you have proposals pending by the EPA that suggest there may be cap-and-trade.”
Watch the video »

***DA: We published this video last week, sandwiched in between our coverage of OIC and the WFE conferences. It is a great interview with Doc Sandor, so we want to make sure it gets its day in the sun.

Lead Stories

Mooted clearing of options on credit indices raises concern
Joe Rennison – Financial Times
Intercontinental Exchange is aiming to expand its role in safeguarding derivative products, a key objective of post-crisis regulation.
ICE, a major credit clearing house, is looking to be the first clearer to bring options on credit default swap indices into its remit with this move.
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***DA: One small step for ICE, one giant leap toward systemic safety?

Market Tells Are More Useful Than Predictions or Comments
Bob Lang – CBOE Options Hub
There was a slew of talk and predictions over the last few days that were to serve warning over equity market players, but what transpired as another up week with another very strong day on a Friday, the second consecutive big gain to end a week. On Thursday we heard some ‘off the cuff’ comments from Fed Chair Janet Yellen, her thought that equity valuations were ‘quite high’, yet we know that condition is rather arbitrary. Maybe she commented with a ‘wink’ to the markets. The valuation question is a valid one but it is quite difficult to time this and predict when money will be fleeing.
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***DA: Whatever. The Dow was at 7000 when Greenspan gave his “irrational exuberance” speech. It was fairly valued at 12,000 a couple years later due to the “productivity miracle.”

Draghi QE Turns Stocks Into Bond Appendage as Correlation Jumps
Namitha Jagadeesh and Inyoung Hwang – Bloomberg
Mario Draghi’s quantitative-easing program is tying together the fate of Europe’s stock and bond markets to a degree not seen in almost two years.
Since the European Central Bank president began buying government debt, the correlation between moves in the Euro Stoxx 50 Index and a gauge tracking the region’s bonds has climbed to its highest level since September 2013. While that served bulls when fixed-income markets gained to start the year, lately it’s been all downside with equities following bonds to a loss of 6.7 percent.
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***DA: A grabber of a headline. At first glance I thought it said appendage bondage.

How Hedge Funds Are Playing The VIX
Adam Warner – Schaeffer’s Investment Research
Should you follow suit with hedge funds when it comes to VIX — or fade the big-money players?
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***DA: You got to know when to hold ’em and know when to fold ’em.

Put sellers lose big as market crashes again [India]
Ram Sahgal and Jaikishan Yadav – Economic Times
MUMBAI: Rich investors who sold put options to foreign institutional investors (FIIs) believing that the recent bounce in the markets was here to stay have been left licking their wounds. The stock market fall on Tuesday has resulted in the prices of these options more than doubling, forcing the sellers to square off at a loss as the Nifty once again settled below its 200-day moving average (DMA) of 8,289.
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***DA: Put selling is free money until it isn’t.

Exchanges

HKEx profits surge on stock connect as ‘core market’ status beckons
Reuters
Bumper trading volumes boosted Hong Kong’s exchange operator’s first-quarter profits by a third, in a sign the exchange is moving to a ‘new normal’ level of activity that could cement its place among the world’s top stock markets. Hong Kong Exchanges & Clearing Ltd (HKEx) has seen its shares soar 65 percent so far this year, as a landmark trading link with Shanghai recovered from a sluggish start to send trading volumes and revenues through the roof.
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This Woman Helped Build A New Indian Stock Exchange. Now She Runs It
Bhuma Shrivastava and Santanu Chakraborty – Bloomberg
It’s rare that a woman runs a stock exchange — there are just three in the world. Even rarer to find one who was chosen 23 years ago for the crack team that created it and then climbed the ranks to become its chief executive officer in traditionally patriarchal India.
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Regulation & Enforcement

Leverage ratio begins to bite for FX derivatives
FX Week
The capital-intensive rule for banks, which has already affected the rates and credit world, is starting to hit FX – with clients expected to bear the brunt of higher costs. The price of trading foreign exchange derivatives via a prime broker (PB) could increase to as much as $85 per million for clients when banks start charging for the higher cost of servicing the supplementary leverage ratio (SLR) requirements, according to PBs.
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CFTC releases final interpretation on forward contracts with embedded volumetric optionality
By Andrew Saks-McLeod, LeapRate
In providing its interpretation, the CFTC was guided by and sought to reconcile agency precedent regarding forward contracts containing embedded options with the statutory definition of “swap” which provides that commodity options are swaps, even if physically settled
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FINRA Fines Morgan Stanley $2 Million for Short Interest Reporting and Short Sale Rule Violations
Press Release via MarketWatch
The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Morgan Stanley & Co. LLC $2 million for short interest reporting and short sale rule violations that spanned a period of more than six years, and for failing to implement a supervisory system reasonably designed to detect and prevent such violations.
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Brokers eye tough regulatory capital reforms
Luke Jeffs – Futures & Options World
Some of the world’s top futures clearing firms have underlined the risks posed by regulatory change and outlined the possible role that industry utilities could play in lowering the barriers to entry.
Speaking at the FOW Post-Trade event in London, clearing brokers said regulatory changes are starting to impact their businesses.
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Technology

Intel’s eASIC Deal: Really Serious About Custom Servers, Says Nomura
Tiernan Ray – Barron’s
Analysts Romit Shah and Sanjay Chaurasia today weigh in on the announcement yesterday by chip giant Intel (INTC) that it is partnering with startup eASIC to integrate the latter’s technology into Intel’s “Xeon” line of server chips.
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Strategy

Cover Call Strategy Is a Smart Bet for Income-Hungry Investors in 2015
Mathew Schwartz – The Street
With bonds producing weak returns, stocks riding high after a six-year bull run and the Federal Reserve edging the market toward interest rate hikes, investors looking for safe, income-producing options may feel as if they haven’t got many choices.
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Education

The Essence of VIX: What You Really Need to Know
ETF Trends
What is the essence of VIX? This may seem like an abstract, philosophical question, but I can assure you it is not. It is a practical one, and if you can understand what makes VIX unique, you will understand why this index matters so much.
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