Observations and Insight
Craig Donohue, executive chairman, OCC – Clearing Today and Tomorrow
“When we first came into the industry, clearing, I guarantee you, was not sexy at all.”
Craig Donohue, executive chairman of OCC, begins by giving a quick overview of OCC and highlighting its achievements with equity derivatives contracts and margin collateral. He then goes on to discuss challenges in industry, including the 2008 financial crisis and the G20 response to shifting more risk to central counterparties. Donohue also explains what a systemically important financial market utility is, and what challenges OCC and other SIFMUs face in the future.
U.S. Stock Rebound Fades as Energy Shares Drop With Oil
Joseph Ciolli and Callie Bost – Bloomberg
A rebound in U.S. stocks faded late in the session as energy shares slid with the price of oil, snuffing out most of an earlier rally in benchmark indexes led by industrial companies, airlines and banks.
The Standard & Poor’s 500 Index ended the session up less than 0.2 percent at 1,877.70 at 4 p.m. in New York after earlier climbing as much as 1.3 percent. The measure is down 6.6 percent from its record on Sept. 18 and yesterday capped its worst three-day retreat since 2011. The Dow Jones Industrial Average lost 5.88 points, or less than 0.1 percent, to 16,315.19 today, wiping out a 143 point earlier gain.
A Historical Perspective on Recent VIX Price Action
Russell Rhoads – CBOE Options Hub
Since we haven’t had VIX in the mid-20’s for over 2 years it is probably worth getting a little perspective on recent volatility market price action.
The last time VIX was around these levels was early June 2012 when VIX got as high as 26.66. VIX reached this level after the S&P 500 had dropped about 8.5% in a month.
No Stock Salvation Seen in Bank Results as VIX Surges
Callie Bost – Bloomberg
Options traders are skeptical this week’s bank earnings will deliver calming news to a stock market enduring its worst losses in two years.
U.S. stocks have fallen for the past three days on concerns about global growth, the future of interest rates and the spread of Ebola. With companies from JPMorgan Chase & Co. (JPM) to Goldman Sachs Group Inc. and Bank of America Corp. (BAC) scheduled to report this week, demand for bearish options on the largest U.S. financial firms has increased to the highest since May 2013.
VIX Options Avg. Daily Volume Is Up 50% in October
Matt Moran – CBOE Options Hub
Interest in volatility products and management of volatility and tail risk has increased this month. Last week the futures on the CBOE Volatility Index® (VIX®) registered an all-time record high for one-week volume with 1,661,153 contracts. As shown in the chart below, average daily volume for VIX options so far in October is about 50% higher than in September.
Now That the VIX Has Left the Barn, How Do Futures Look?
Adam Warner – Schaeffer’s Investment Research
You know who called this CBOE Volatility Index (VIX) rally perfectly? VIX futures, that’s who! Of course, it’s similar to broken clocks calling time correctly twice a day. VIX futures have permanently anticipated future VIX pops, and since VIX does pop at times, they will catch some moves.
So, now that the VIX has left the barn, how do VIX futures look now?
U.S. options market set for more downside in stocks
Traders in the U.S. equity options market loaded up on downside protection on Monday by the greatest margin in more than six years as a third straight day of steep stock market losses signaled to derivatives players that there is far more volatility to come.
JPMorgan Earnings Snafu Was Human Error at Nasdaq Unit
Madeline McMahon – Bloomberg
JPMorgan Chase & Co. (JPM)’s third-quarter results were published more than three hours ahead of schedule because of a mistake by Shareholder.com, the investor-communications company owned by Nasdaq OMX Group Inc. (NDAQ)
“The root cause was a human error internally at Shareholder.com,” Ryan Wells, a Nasdaq spokesman, said in an e-mailed statement.
CME Group to lay off about 150 employees
Tomi Kilgore – CME Group
CME Group CME said Tuesday it would lay off about 150 employees, or about 5% of its global workforce, as part of a restructuring aimed at cutting costs and reducing management layers.
Regulation and Enforcement
Change in Derivatives Contracts Goes Only So Far
Peter Eavis – NY Times
It’s not every day that Wall Street comes out and celebrates a change that erodes its rights in a lucrative market.
On the surface, the applause for the change, which was agreed upon this past weekend, didn’t make sense. Why would the banks back something that could lessen their longstanding privileges in one of their most profitable businesses — derivatives trading? Could it be that the industry was embracing the notion that sacrifices must be made for a safer financial system? Or was Wall Street cleverly securing some important gains for itself as it cheered on the overhaul?
Top UK, US Regulators To Discuss Preventing Bank Failures
Mark Melin – ValueWalk
Should bankers be held accountable if they are aware the derivatives they design and market could implode the world economy?
As a horde of top US and UK financial officials meet in Washington to discuss methods to resolve the failure of a large, systemically important bank, British authorities have instituted a new law holding bank executives criminally responsible if their banks fail again.
***JB: I vote yes.