Lead Stories

The Two Problems With the VXX
Adam Warner – Schaeffer’s Investment Research
The iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX) hit new lows yesterday! In other breaking news, it was hot and it was a Thursday and… we really need the MLB All-Star break to end, as this is clearly the worst sports week of the year.

FX could move to financial settlement under clearing pressure – GFXD’s Lam
Joel Clark – Risk Magazine
More foreign exchange derivatives could move towards financial rather than physical settlement in the coming years if the market fails to find a satisfactory and resilient mechanism for clearing deliverable foreign exchange products such as options, a senior industry lobbyist has suggested.

Tradition-Icap ramps up FX options offering with RFQ product
Robert Mackenzie Smith – FX-Week
VolCall, the latest addition to Tradition-Icap’s Volbroker platform for foreign exchange options, is pitched to attract smaller market-makers to provide liquidity in the hope of driving up the level of electronic execution through the platform.

Quant Congress USA: Derivatives have had negative social utility, says Dupire
Joe Rennison – Risk Magazine
Dealers have sold products their clients did not need, says top quant – and industry must refocus on legitimate risk transfer.
**Options are a great place to start. -JB

Stocks end narrowly mixed; Dow, S&P 500 gain for 4th-straight week
JeeYeon Park – CNBC
Stocks finished largely unchanged in lackluster trading Friday, with the S&P 500 squeezing out a small gain to finish at another record high, but a batch of disappointing tech earnings weighed.

Morgan Stanley Leads Wall Street Equities Trading Revival
Michael J. Moore – Bloomberg
Morgan Stanley (MS) and Goldman Sachs Group Inc. led Wall Street banks in posting a collective 42 percent increase in equities-trading revenue in the second quarter, the largest jump in more than three years.

Hedge Funds Just Had Their Worst Month In A Year
Matthew Boesler – Business Insider (via Yahoo Finance)
Hedge funds had negative returns in June for the first time in a year, according to new data from research firm Preqin.

ETF Investors Piled Into Last Week’s Record Rally  
Alexandra Scaggs – The Wall Street Journal
Investors kept sending cash into U.S. stocks in the latest week, and exchange-traded funds brought in more inflows than they have since 2011.

MF Global Trustee to Boost Distributions to Ex-Customers
Tiffany Kary – Bloomberg
MF Global Inc.’s former customers should get “significantly” increased distributions in coming months, and the goal is still 100 percent recoveries, the failed brokerage’s trustee said.
**Get Corzine to start writing some checks. -JB


CME confronts swap future tax fears
Tom Osborn – Risk Magazine
CME Group is seeking guidance from the US Internal Revenue Service (IRS) over the tax treatment for its deliverable swap futures contract, after some users opted not to take delivery of an over-the-counter swap – a choice available at quarterly expiration dates – because of fears it would be taxed as a loan.

CME Agrees to Clear Credit-Swap Futures Being Designed by TrueEX
Matthew Leising – Bloomberg
CME Group Inc. (CME), owner of the world’s largest derivatives market, will provide clearing services for new credit-default swap futures being developed by trueEX Group LLC and Standard & Poor’s.


Industry concerned over CFTC substituted compliance
John Bakie – The Trade
Current Commodities and Futures Trading Commission (CFTC) proposals on substituted compliance for extraterritorial derivatives regulation are lacking in clarity and risk over-complicating the market, experts have said.

U.S. regulators scrutinize risk controls for high-frequency trading
U.S. regulators are taking a deep look at automated trading firms to determine whether adequate risk controls are in place to prevent major technology glitches or at least minimize their impact.
**Picturing them making sure there is a cover over the big red self destruct button on every trading desk. -JB

CFTC in Disarray After Gensler’s Crusade on Swaps Rules
Matthew Philips – Bloomberg
During his six years as a federal regulator, Bart Chilton has become known as much for the amount of time he spends working from his home in Arkansas as for his shock of shoulder-length blond hair. Yet on the night of July 10, and again on July 11, Chilton slept on the couch in his office on the ninth floor of the Commodity Futures Trading Commission’s Washington headquarters as he and CFTC staff rushed to complete new rules governing the world’s $633 trillion swaps market ahead of a July 12 deadline.
**I think “disarray” is a bit too strong in this case. -JB

Options Education

Earnings and Other Influences of Option Prices
Dan Passarelli – The Options Insider
With earnings season in full gear and major players like Apple and Netflix ready to announce soon, it is probably a good time to review how option prices are influenced.

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