JLN Options: The S&P 500 Just Fell Out of Bed — Fresh Russia Worries?; Don't Get Too Giddy Over That Dead-Cat Bounce; Global H1 derivatives trading volume

Aug 5, 2014

Lead Stories

The S&P 500 Just Fell Out of Bed — Fresh Russia Worries?
Brendan Conway – Barron’s
Well, that’s an ugly chart. Right around 1:35 p.m. this afternoon, the S&P 500 fell out of bed. The index is down by 1.2% as 2:15 p.m. ET approaches. The blue-chip Dow is down by about 190 points.
Traders are passing around headlines about reported Russian troop movements near Ukraine — a subject that, I’d argue, the market has been mostly ignoring of late.
Notably, though, several of the market’s usual worry gauges aren’t reacting.

Don’t Get Too Giddy Over That Dead-Cat Bounce
Stocks had their best day in two weeks on Monday, with seven of the 10 S&P sectors closing in the black. All told, the S&P 500 finished up 0.7% and the Dow Industrials gained 0.5%.
The session opened lower, but at mid-morning the S&P 500 rebounded on light volume and rose on steady demand for the remainder of the day. The worries that accompanied Friday’s session – especially the fear of an interest- rate increase this year – were put on the back burner by soft economic numbers. The CBOE Volatility Index (VIX) fell 12%.

Global H1 derivatives trading volume
Joe Parsons – Futures & Options World
Global futures and options fell by 14% in the first six months of the year against the same period last year.
In total across the 85 largest derivatives markets covered by FOW Data 9.7bn changed hands between January and June 2013 compared with 11.2bn the previous year.
The first half global figure is the lowest since 2009 when 8.2bn contracts were traded.
The downward turn in volumes has been global, with almost every major exchange in every major region outside China and India reporting a fall in trading.

ETFs & Options: Have No Fear
Olly Ludwig – ETF.com
Over the years, the world of options has been a place that many investors wrongly feared as a field of complexity, filled with rogue traders and losses looming at every corner.
But a funny thing has happened in the world of options since the financial crisis in particular: ETFs have moved them into the traditional advisory business. This is challenging investors to stop thinking of options as fear-inspiring weapons of financial mass destruction, but rather as powerful tools that can help limit risk by mitigating losses and generating income. And unlike mutual funds, ETFs are “optionable.”

Today’s Gray Swan – ISM Non-Manufacturing Index
Russell Rhoads – CBOE Options Hub
The Institute for Supply Management (ISM) released the results of their survey of purchasing managers at non-manufacturing firms. The result was a bit higher than expected with the ISM Non-Manufacturing Index coming in at 58.7. According to Bloomberg the consensus expectation was for 56.5 and last month’s reading was 56.0. The new number shows an acceleration in business activity for non-manufacturing industries in the US.  The US economy is more reliant on non-manufacturing than manufacturing oriented industries so this reading applies to the majority of US business activity.

What Small-Cap Volatility Tells Us About VIX (or Not)
Adam Warner – Schaeffer’s Investment Research
When Russell 2000 and tech volatility lifted in a bigger way than big-cap volatility earlier this year, we often asked the question of how it would resolve. Would they just get dragged down by the relatively sluggish CBOE Volatility Index (VIX)?
Well, depending on your time frame, both answers were correct. Early on, it looked like small-cap vol was a blip. “Momentum” stocks looked ugly, but then ultimately recovered without any sort of major hit on the big-cap side.


CME’s Q2 trading drop hits revenues
John Bakie – The Trade News
Falling trading volumes have hit CME Group’s revenues in the second quarter, following a global trend of exchanges seeing their transactions businesses decline in profitability during the period.
Second quarter average daily volume (ADV) was 12.6 million contracts, down 12% from the same period in 2013.

ISE Gemini Celebrates First Anniversary
Press Release (ISE)
ISE Gemini announced today that it successfully completed its first year of operation, having launched on August 5, 2013 as the twelfth options exchange in the U.S. and also as the second options exchange under International Securities Exchange Holdings, Inc. (ISE Holdings). Through ISE Gemini’s first year of trading, over 94.5 million contracts were traded with an average daily volume (ADV) of 375,041. ISE Gemini has steadily grown market share ending the first year on a strong note with 3.1 percent market share in July, excluding dividend trades.

Intercontinental Exchange Reports ICE and NYSE Volume for July; Record Monthly Volume in Benchmark Brent Crude Futures
Press Release (ICE)
Intercontinental Exchange, Inc. (NYSE: ICE), the leading global network of exchanges and clearing houses, today reported exchange traded volumes for July 2014.
ICE’s July average daily volume (ADV) for futures and options was 4.3 million contracts, a decrease of 23% compared to July 2013.
– July commodity ADV declined 4% year to year, with natural gas ADV down 22% partially offset by a 26% increase in Brent ADV.
– Financial ADV decreased 40% over the prior July due to the continued low European interest rate environment.
In July, NYSE’s U.S. cash equities ADV declined 4% while U.S. options ADV increased 1% year to year.

Options Exchange Marketshare – July 2014
Options Clearing Corporation (via email)

July 2014 Total Options Marketshare:
AMEX-                 12.36%
BATS-                     4.09%
BOX-                       2.78%
CBOE-                   27.48%                                                            
C2-                          1.94%
GEM-                      2.78%
ISE-                        10.46%
MIAX-                     3.49%
NOBO-                    0.75%
NSDQ-                    9.07%
NYSE Arca-           10.22%
OMX PHLX-         14.57%

July 2013 Total Options Marketshare:
AMEX-                  13.21%
BATS-                      4.31%
BOX-                        2.14%
CBOE-                    27.56%
C2-                            1.76%
ISE-                          14.99%
MIAX-                      1.25%
NOBO-                     0.94%
NSDQ-                      8.20%
NYSE Arca-             11.08%
OMX PHLX-           14.57%

July 2014 Equity Options Marketshare:
AMEX-                  13.36%
BATS-                      4.51%    
BOX-                        3.07%
CBOE-                    20.51%
C2-                            2.12%
GEM-                        3.07%
ISE-                         11.51%
MIAX-                       3.85%
NOBO-                     0.83%
NSDQ-                      9.98%
NYSE Arca-           11.15%
OMX PHLX-          16.03%

July 2013 Equity Options Marketshare:
AMEX-                  14.48%
BATS-                      4.74%
BOX-                       2.35%
CBOE-                   20.54%
C2-                            1.94%
ISE-                        16.45%
MIAX-                     1.37%
NOBO-                    1.04%
NSDQ-                    9.01%
NYSE Arca-          12.08%
OMX PHLX-         16.01%

Regulation and Enforcement

One trade a day is not a liquid market, Isda argues
Tom Osborn – Risk.net
Debate over Mifid II definition of liquidity starts, with Isda arguing in favour of approaches that would catch less than half of interest rate swap trades.
The first shots were fired yesterday in what promises to be a tense battle over the definition of liquidity in Europe’s over-the-counter derivatives market. Only swaps that trade multiple times a day should be considered liquid, according to the International Swaps and Derivatives Association – regulators have implied even instruments that trade only once every other day might count.

Barclays can keep billions from Lehman brokerage -US appeals court
Jonathan Stempel – Reuters
Barclays Plc (BARC.L) is entitled to about $6 billion of disputed assets as part of its hurried purchase of much of Lehman Brothers Holdings Inc’s brokerage unit at the height of the 2008 financial crisis, a federal appeals court ruled.
Tuesday’s decision by the 2nd U.S. Circuit Court of Appeals in New York is a setback for the brokerage’s creditors, including Lehman affiliates and hedge funds, for whom the trustee James Giddens has been seeking to recoup money.


TMX Nears Completion of Canada-U.S. Microwave Network Link
Ben Dummett – WSJ
Canada’s flagship exchange operator has largely completed construction of a new cross-border microwave network linking the Toronto Stock Exchange with major U.S. stock markets to attract high-speed traders and the revenue their activity generates, according people familiar with the matter.

EDI Readies Derivatives Corporate Actions Tool
Max Bowie – WatersTechnology
Pricing and reference data provider Exchange Data International has announced plans for Exchanged Traded Derivatives, a new service that will offer more than 30 types of corporate actions from derivatives instruments
Exchange Data International, a London-based provider of pricing and reference data, is building a new pricing and reference data product covering exchange-traded derivatives, to help investment firms accurately apply corporate actions on underlying securities to related derivatives contracts.


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