Mexico nearing $1 billion oil hedge program; BNP Paribas plans bid for Deutsche Bank’s equity derivatives

Aug 30, 2019

Observations & Insight

Editor’s Note
In light of Labor Day on Monday, we will not be publishing the JLN Options Newsletter. We will be back at it on Tuesday.

Lead Stories

Mexico nearing $1 billion oil hedge program: sources
Devika Krishna Kumar, Stefanie Eschenbacher – Reuters
Mexico is close to executing its annual oil hedging program on Wall Street, three people familiar with the matter said this week, after oil price volatility and a coming change to marine fuel regulations slowed the process.
/reut.rs/2UogPGQ

****SD: As we’ve covered previously, Mexico’s annual “Hacienda Hedge” – always one of the largest derivatives trades in energy markets – was delayed due to a number of factors. This story covers the changes to the hedging formula, which was one cause of the delay. However, it does not mention another big other hurdle: some heavy hitters on Wall Street were leery of getting involved in the transaction as last year a couple of participating firms were whacked pretty hard by the drastic price action in crude.

BNP Paribas plans bid for Deutsche Bank’s equity derivatives
Mark Scuffham – Reuters
French lender BNP Paribas plans to bid for Deutsche Bank’s equity derivatives book and is hopeful it can beat off rival bidders to secure a deal in the next few weeks, according to sources familiar with the matter.
/reut.rs/2UfAKHV

****SD: Recall BNP already acquired Deutsche’s prime broking business.

Cboe Wants Out Of Index Manipulation MDL For Good
Law360 (SUBSCRIPTION)
The Chicago Board Options Exchange urged an Illinois federal judge Wednesday to permanently excuse it from multidistrict litigation over alleged manipulation of its volatility index, saying that after years of litigation investors haven’t managed to shake loose “confidential witnesses, smoking-gun documents or admissions of fault. “Amended claims from investors that Cboe intended to manipulate the market are even weaker than their earlier attempts, the exchange said in a dismissal bid. It argued the investors have based their case on speculation that an unspecified person within Cboe had the motive and opportunity to carry out a “years-long plot” to defraud market participants…
bit.ly/2UeE1He

****SD: What a long, strange trip it’s been. Obligatory YouTube link to “Truckin'”.

Put-Call Skew Dips in Coincidence with Market Rallies
ORATS Blog
Over the last couple of years, the put-call skew has coincided with market rallies. Three times since mid 2017, when the put-call skew dipped precipitously, the market has rallied.
bit.ly/32hlAES

SACCR vs CEM Comparisons
Chris Barnes – Clarus Financial Technology
Welcome to my 250th blog for Clarus! That is quite a milestone – I’ve now inflicted nearly a quarter of a million words on our readers. I hope the vast majority have been useful.
To celebrate, you will have to suffer a bit of true geekiness. Today we’ll take a look at Regulatory Capital, which I fully admit is not everyone’s cup of tea… still, I will give you some easy to remember sound-bites at the end.
bit.ly/32gK7Ki

****SD: The expectation is for SA-CCR to be in effect by January 2020. Hooray!

European Investors Return From Beach to ‘Extremely Edgy’ Market
Justina Lee – Bloomberg (SUBSCRIPTION)
Market is seeking quality and visible growth – fund manager; Brexit, Italian politics, trade war have rocked Europe stocks
For European investors just returning to their offices with a tan and tales of packed beaches and heat waves, there’s plenty to catch up on: Brexit, U.S.-China trade, Italy, Hong Kong and the ECB.
/bloom.bg/2UkW3HV

Exchanges and Clearing

Radio: John Davidson, CEO, OCC discusses how Options Clearing Coporation is creating more liquidity and reducing risk in financial markets.
The CEO Forum Group (AUDIO)
bit.ly/329StTI

BSE to introduce weekly F&O contracts on stocks in equity derivatives on September 19
PTI via Moneycontrol
The exchange in a notice said it will “introduce 7 weekly futures and 7 weekly options contracts on stocks in equity derivatives with effect from Thursday September 19, 2019.
bit.ly/34cJvqJ

SGX named Asia’s Best FX Exchange and Clearing House by FX Week for second consecutive year
SGX
Singapore Exchange (SGX) has retained its “Best FX Exchange in Asia” and “Best FX Clearing House in Asia” accolades at the FX Week Asia Awards 2019, following voting by foreign exchange and money-market professionals.
bit.ly/2zu6Upz

Strategy

How to Bet on a Stock Selloff and a Surge in Volatility; Why $20 VIX Calls are Growing in Popularity
Steven M. Sears – Barron’s (SUBSCRIPTION)
All hail VIX $20 calls. With the near-term outlook for the S&P 500 index clouded by the risk of presidential tweets, potential interest-rate cuts, and other factors that could whipsaw equity prices, it’s no wonder this call option has become increasingly popular with investors.
bit.ly/2UhXJlp

Trillions Are in Motion as Traders Eye Paradigm Shift for Rates
Vildana Hajric and Emily Barrett – Bloomberg (SUBSCRIPTION)
It’s been the busiest August for ETF traders in eight years; Floating-rate notes are out, and TIPS are back in favor
It’s been just four weeks since the first U.S. rate cut in more than a decade, but a mass migration is already underway in financial markets.
The Federal Reserve’s pivot to easier monetary policy has spurred the busiest August for the $4 trillion U.S. market for exchange-traded funds since the government-debt downgrade of August 2011, as everyone from mega-traders to mom-and-pop investors adjusts to a new paradigm.
/bloom.bg/32dBXSL

Miscellaneous

First Trust launches an ETF alternative to structured products
GlobeNewswire via Yahoo Finance
FT Portfolios Canada Co., a privately owned company, announced today that it has launched the hedged units of the First Trust Cboe Vest U.S. Equity Buffer ETF – August. The fund is sub-advised by Cboe Vest Financial LLC using a “target outcome strategy” or pre-determined investment outcome. The fund seeks an outcome that provides investors with returns that match the price return of the SPDR S&P 500 ETF Trust, up to a pre-determined upside cap, while buffering against potential losses. To achieve its objectives, the fund uses FLexible EXchange Options that reference the price return of the underlying ETF. FLEX Options are equity or index option contracts that trade on an exchange, but provide investors with the ability to customize key contract terms like exercise prices, styles and expiration dates. As the fund will invest in FLEX Options which are traded in U.S. dollars, the fund will, in respect of its hedged units, generally seek to hedge substantially all of its U.S. dollar currency exposure back to the Canadian dollar.
/yhoo.it/32jLbgr

Why CEOs are Split on Trumponomics
Mohamed A. El-Erian – Bloomberg (SUBSCRIPTION)
When asked about President Donald Trump’s economic policies, most U.S. business leaders are likely to offer a polite but nuanced response. They welcome measures that have improved the operating environment for their businesses and sustained America’s economic outperformance. But they also wonder whether more could have been accomplished by working across party lines and with international allies. That distinction is increasingly critical now that the U.S. is threatened by a rapidly slowing global economy and rising risks of financial market volatility.
/bloom.bg/2UhsSpa

Ray Dalio Is Losing Money Because Everyone Else Is Too Stupid To Realize That We’re In A Recession, Says Ray Dalio
Thornton McEnery – Dealbreaker
There’s been a lot of chatter recently about whether or not the economy is going into a recession, is already in a recession or is really humming along fine despite all the haters. And if you watch a certain financial news network at lunch, you might even be familiar with the argument that recessions are not real if you don’t want them to be…if you just believe.
bit.ly/2UmYgTh

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