Observation and Insights
Riders on the Storm: Orc Group’s Troels Philip Jensen Looks at Consolidation in the Vendor Space
The financial sector has been feeling the squeeze over the past few years. Lower trading volume, sustained low volatility and added expense from new regulations have combined to create a precarious situation for independent service vendors serving the listed derivatives space, and has led to a wave of consolidation among its players. Orc Group’s Troels Philip Jensen says the trend will eventually subside, but only the most strategic-thinking firms will survive and thrive.
The Scottish play – equity investors hedge against UK split
Sudip Kar-Gupta – Reuters
As Scottish opinion polls run neck and neck, investors are scrambling to hedge their trading bets on UK equities to protect against market mayhem if Scotland votes next week to break away from the United Kingdom.
The referendum scheduled for Sept. 18, which will decide whether Scotland leaves the 307-year-old union, is too close to call, according to one polling firm. That has rattled investors who had dismissed any need to alter trading strategy while the pro-union camp sat on a comfortable lead for months.
Apple Options Recap – Record volume into iPhone 6 launch
Henry Schwartz – CBOE Options Hub
Apple options have dominated the US single stocks landscape for several years now, with current average daily volume near a million contracts and AAPL option trades making up nearly 12% of the total US single-stock volume. While options are listed on 3670 other stocks, most professionals will tell you that AAPL options are by-far the most liquid contracts available, with narrow bid-offer spreads and large size creating a near frictionless market for traders.
FX vol is back, say relieved FX analysts
David Keohane – Financial Times
FX vol is edging back and we have the notes to prove it.
The question is whether they are reflecting an overreaction to a small jump, after a period of slumped volumes and returns, or a real shift with further to go?
One rather good example from JPM’s John Normand on Tuesday suspects the latter:
Videocast: Spike in short-term VIX
Bears become bulls as strategists lift S&P 500 targets
William Watts – MarketWatch
Some of Wall Street’s biggest bears have turned into bulls, but top strategists still see room for only a modest rise by the S&P 500 index through the end of the year.
On Tuesday, Wells Fargo’s Gina Martin Adams threw in the towel. Previously among the most bearish strategists on the Street with a 1,850 year-end target for the S&P SPX, +0.36% Adams, the bank’s senior equity strategist, dropped her year-end forecast and replaced it with a 12-month target of 2,100.
Intercontinental Exchange to Acquire Majority Stake in Holland Clearing House
Press Release (Intercontinental Exchange)
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, today announced that it has agreed to make a strategic investment in the Holland Clearing House, a continental European clearing house, to support its comprehensive clearing strategy for financial products. ABN Amro Clearing will retain a minority interest in the venture.
Holland Clearing House (HCH) is a continental European derivatives clearing house based in Amsterdam and is the primary clearing house for the TOM multi-lateral trading facility. HCH is regulated and supervised in the Netherlands by the Authority Financial Markets (AFM) and the Dutch Central Bank (DNB). The amount of consideration for the investment is not material to ICE and terms were not disclosed. The transaction is subject to regulatory approval and other ordinary closing conditions and is expected to close during the fourth quarter of 2014.
CME Group monitors bidding war over GFI Group -incoming CFO
CME Group Inc is evaluating its next move in a bidding war for derivatives broker GFI Group Inc, the exchange operator’s incoming chief financial officer said on Wednesday.
London Stock Exchange Shareholders Approve Deal for Russell Investments
Chad Bray – NY Times
The London Stock Exchange said on Wednesday that its shareholders had voted overwhelmingly in favor of its acquisition of Russell Investments, the owner of the Russell 2000 stock market index.
In June, the exchange agreed to acquire Russell for $2.7 billion in cash after confirming a month earlier that it was in discussions with Northwestern Mutual, Russell’s majority owner, about a possible sale.
S&P, Markit finalists for $1 billion-plus Barclays index unit
Mike Stone and Jessica Toonkel – Reuters
Index provider Standard & Poor’s and financial information services provider Markit Ltd (MRKT.O) have emerged as final bidders for Barclays Plc’s (BARC.L) index business, which could fetch more than $1 billion, according to people familiar with the matter.
The British bank has narrowed the list of bidders to McGraw Hill Financial Inc’s (MHFI.N) S&P Dow Jones Indices and Markit after an auction that also drew interest from several parties including MSCI Inc (MSCI.N) and Bloomberg LP, the people said on Tuesday.
Regulation and Enforcement
Global Regulators Seeking Significant Changes to Derivatives Contracts
Katy Burne – WSJ
Global regulators are pushing for significant changes to derivatives contracts in a bid for more time to resolve potential failures by financial institutions and avert a repeat of the 2008 crisis, a Wall Street trade group said.
The Financial Stability Board, a Basel, Switzerland, coordinator of national financial-sector overseers, wants traders to temporarily waive rights close out swaps trades when a firm runs into trouble and to certain swaps payments they may be owed, giving regulators a few extra business days to sort through that firm’s obligations and stave off a wider calamity, the International Swaps and Derivatives Association said Tuesday at a conference in New York.
U.S. regulator would welcome delay of EU clearing rules
Douwe Miedema – Reuters
A top U.S. regulator said on Wednesday he would welcome a delay by the European Union that gave more time to resolve a conflict with Washington over making derivatives markets safer.
Reuters reported last week that the EU is discussing whether to move a deadline by which U.S. clearing houses, which act as go-betweens for buyers and sellers, must meet EU rules when doing business there.
U.S. CFTC to vote Sept 17 on proposed margin rules for uncleared swaps
The top U.S. derivatives regulator said on Tuesday his agency will convene a public meeting on Sept. 17 to consider proposed rules that will determine how much money, or margin, buyers and sellers must set aside when trading riskier, uncleared swaps.
Bank on BofA With a Bullish Options Trade
Steven M. Sears – Barron’s
In time, Bank of America may be seen as one of the great investments that rose from the ashes of the 2008 financial crisis.
Though the bank (ticker: BAC ) was nearly destroyed by its own greed and ill-timed acquisitions, ultimately driving the stock price down to about $2, the postcrisis recovery has created significant wealth for patient investors with an appetite for risk.
Cash In on Alibaba IPO With Yahoo Options
Steven M. Sears – Barron’s
For the average investor, getting a piece of Alibaba’s initial public offering is as likely as winning the lottery.
The underwriters of the Chinese e-commerce giant’s (ticker: BABA ) IPO will allocate shares to institutional customers who generate significant fees. Those customers are apt to sell for a quick profit in the aftermarket where less well-heeled investors, seduced by Wall Street’s get-rich-quick marketing machine, will buy Alibaba’s stock at price-earnings multiples that might give angina to disciplined investors like Warren Buffett.
How Far could British Pound Go on Scotland Vote – Pricing Risk
David Rodriguez – DailyFX
Traders are aggressively selling the GBP on negative headlines related to the Scottish vote, but what do key market signs tell us on the probabilities for further British Pound depreciation?