Banks, brokers face post-Brexit mis-selling claims over FX options
Lawrence White and John Geddie – Reuters
Banks and foreign exchange brokers in Britain face legal claims from small companies which allege they were mis-sold complex currency derivatives that soured when the pound fell after Britain’s vote to leave the European Union, according to court filings and sources familiar with the cases.
****SD: Obviously these companies ought to act responsibly in their selling practices, but I can’t help but wonder why people get roped into things that they don’t understand. Are the sales pitches that stellar? I see some parallels to the Goldman Sachs debacle in Libya.
ICE Cool on Options
Rob Daly – MarketsMedia
Speaking at the Credit Suisse Financial Services Forum in Miami Beach, Fla., Jeff Sprecher, founder, CEO, and chairman of Intercontinental Exchange, painted a less than rosy picture of the options market. “That is one of the most confounding businesses that we have,” he said. “The use of options as a tool for risk management is increasing. Yet, the options volume on listed exchanges is decreasing.”
****SD: Has every ICE employee seen Frozen?
I Quit: Dow Dips 35 Points and That’s the Biggest Drop So Far This Month
Ben Levisohn – Barron’s
Stock did almost nothing again today, and I’m wondering if I should just take the next few weeks off.
****SD: Also see this related CNBC article Trump-placency? Stocks see historic calm amid Trump’s first days
Bank, energy stocks lift Wall St indexes to record highs
Yashaswini Swamynathan – Reuters
Wall Street’s three main indexes hit record highs on Thursday, amid gains across sectors, led by financial and energy stocks.
The S&P 500 financial index rose 1.06 percent and was on track to snap a three-day losing streak after President Donald Trump said he would make a tax announcement in a few weeks.
***JB: No worries here.
Wall Street is getting worried about Trump
Chris Isidore and Heather Long – CNN
Powerful voices on Wall Street are expressing concern that President Donald Trump isn’t going to be everything that investors had hoped for.
In recent days, three of the nation’s largest banks have issued reports that highlight the risks that come with a Trump presidency. They are warning investors to be careful.
***JB: Worries here.
CME CEO Duffy isn’t worried about Trump
Lynne Marek – Crain’s Chicago Business
Terry Duffy’s executive suite at CME Group, a few floors above the Chicago River, is lined with shelves of photos picturing him with politicians from both sides of the aisle. In one, the CME chief exec is flanked by former Republican President George W. Bush and his brother Jeb Bush on a Florida golf course last year. Shots of Democrats, President Barack Obama and presidential nominee Hillary Clinton, have perches too. Noticeably absent: newly elected Republican President Donald Trump.
***JB: Worried…not worried…I can’t keep up.
As Trump and Abe Meet, Investors Prepare Currency Bets
Saumya Vaishampayan – WSJ
While pundits assess the state of U.S.-Japan ties when President Donald Trump and Prime Minister Shinzo Abe meet later this week, investors will be watching for clues over another key relationship—that between the dollar and the yen. After Mr. Trump’s election win in November, the greenback surged to a 10-month high against the Japanese currency, as bets on higher U.S. growth and inflation mounted.
Markets Watch Trump Tweets
Terry Flanagan – MarketsMedia
It’s fair to say the 45th president of the United States favors a more direct communication style than did his predecessors. The @realDonaldTrump Twitter handle has become a must-follow news source, as the recently inaugurated Republican shares his world views, jousts with Democrats, and calls out industries and companies, 140 characters at a time.
***JB: I wonder why he doesn’t short a stock and then Tweet about how awful they are? Although he slammed Nordstrom yesterday and their stock went up 5% so maybe that is a bad strategy.
Exchanges and Clearing
US options drives record revenues for Bats
Hayley McDowell – The Trade
Bats Global Markets saw record revenues in the fourth quarter last year, with US options driving the growth with a 33% increase.
****SD: Bats revenues press release here.
Kuwait’s Stock Exchange to Modernize in Bid to Lure Investors
Filipe Pacheco – Bloomberg
Kuwait’s stock exchange is increasing its efforts to attract investors by reforming its trading infrastructure and introducing products such as stock options and futures.
****SD: In other news, Kuwait’s brand new opera house — which cost more than $700 million — had a big fire this week. The article says that there were no “human casualties” which is good, but makes me think that there was a loss of animal life…
CME Requires Guarantees on Traders
Tayloe Draughon – LinkedIn
The CME Group just amended rule 574 stating: “All connections to the Globex system, including direct connections of non-clearing members or customers, must be guaranteed by a clearing member that assumes financial responsibility for all activity through the connection. With respect to transactions given up to other clearing members, such guarantee is effective only until such time that the other clearing member accepts the trade.” This is significant because the exchange is emphasizing the financial responsibility of the Clearing Member or the Executing Member that is giving up to another clearing member. Clearly this is in line with the direction of the Futures Industry Association (FIA) and their best practices.
CME Group Increases Dividend by 10 Percent
CME Group Inc., the world’s leading and most diverse derivatives marketplace, today declared a first-quarter dividend of $0.66 per share, a 10 percent increase from the prior rate of $0.60 per share. The dividend is payable March 27, 2017, to shareholders of record as of March 10, 2017.
Deutsche Bank to close US OTC clearing business
Joe Parsons – The Trade
Deutsche Bank will shut its US swaps clearing business with immediate effect, The TRADE understands, as the German bank continues to shrink its investment banking division.
It will continue clearing listed derivatives in the US and remains committed to its prime brokerage business.
Quantile goes live for swap margin reductions
Helen Bartholomew – Reuters
Quantile Technologies, which recently partnered with the AcadiaSoft margin hub, has completed its first large-scale counterparty risk reduction exercises with swaps dealers, achieving material reductions in initial margin requirements for participants.
Portfolio Protection, Tail Risk and 15 Histograms
Matt Moran – CBOE Options Hub
With U.S. stock market indexes recently hitting all-time highs, there is quite a bit investor uncertainty about the markets and there is high demand for protection from large market declines. One metric providing evidence of this high demand is the CBOE SKEW Index (SKEW). In the 27 years from 1990 through 2016, the average daily level for the SKEW Index was 118.4, and the average level of SKEW never topped 130 in any of those 27 years. In the year 2017 (through February 7) the average daily level of the SKEW Index was a relatively high 131.7, which could indicate increased relative demand for use of out-of-the-money SPX put options for portfolio protection.
Short Volatility, Long Confusion
Some folks think it might be time to go long volatility as markets begin to seriously consider how to price geopolitical land mines like the French election. Is it finally time for the VIX to, like Rip Van Winkle, awake from a long slumber? Or have changes in market structure rendered headline VIX meaningless? Herein find a bewildering trip through the increasingly convoluted volatility trade.
****SD: I have been long confusion since birth.
Greek Graphs Tell the Story of Call Strategies
Ryan Campbell – The Ticker Tape
Call options are complicated because there are a lot of moving parts. If you’re new to options, you may not realize that there’s more to them than just anticipating how much price will move. You also have to forecast when price will move and how market makers and other option traders will react to changes in the underlying’s price. Of course, these changes affect a call seller differently than a call buyer. The options greeks help option traders estimate how an option will change value based on changes that take place over the life of the option.
Don’t cash in your final salary pension
John Ralfe – Financial Times
We all know the three biggest cons in the world: “The cheque’s in the post,” “I’m here from head office to help you,” and “My wife doesn’t understand me.” But there is another con to add to the list, which is especially important for private investors: “The longer you hold shares, the less risky they become.”
Regulation & Enforcement
Everyone Needs Their Own Fiduciary Rule
Nir Kaissar – Bloomberg
The Department of Labor’s fiduciary rule is formally on the chopping block, which means investors need to be even more diligent about looking after their financial interests.
Europe wary of Brexit impact on Mifid II
Julie Aelbrecht – Futures & Options World
Chairman Maijoor said Esma and national regulators must “remain vigilant”
European Securities and Markets Authority chair Steven Maijoor has warned national regulators of the impact of the UK’s withdrawal from the European Union on the implementation of incoming regulation Mifid II. In Esma’s supervisory convergence work programme for 2017, the regulator said that work will focus this year on the implementation of Mifid II, as well as data quality and risk analysis of central counterparties.
Mandatory Central Counterparty Clearing of OTC Derivatives in Canada – Update
McCarthy Tetrault LLP – Lexology
In 2015, the Canadian Securities Administrators (CSA) proposed mandatory central counterparty clearing of certain standardized over-the-counter (“OTC”) derivatives transactions consistent with its goal to improve transparency in the OTC derivatives market and enhance the overall mitigation of systemic risk: National Instrument 94-101 Mandatory Central Counterparty Clearing of Derivatives and its related Companion Policy 94-101CP (NI 94-101) and National Instrument 94-102 Derivatives: Customer Clearing and Protection of Customer Collateral and Positions and its related Companion Policy 94-102CP (NI 94-102).
Final call for the research analyst?
Robin Wigglesworth – Financial Times
David Ader was standing in the middle of the North Platte river in Wyoming, trying to land a rainbow trout that had gobbled his hook, when his phone rang with a message that he had just been voted America’s top government bond analyst for the 11th year in a row. Unfortunately he was unemployed at the time.
****SD: Going once, going twice, going three times… gone.
Fire Rooster: The Outlook for Capital Markets in 2017
Steve Grob, Fidessa – TABB Forum
On the Chinese calendar, 2017 is the year of the Fire Rooster, which is predicted to bring new and exciting challenges. How will the capital markets fare in 2017, given that they face a few Fire Roosters of their own?
****SD: Apparently there are five different types of roosters, with the fire rooster being known for its responsibility. Maybe we’ll see fewer fines leveled this year?