Observations & Insight

EDITOR’S NOTE: JLN Options is happy to have Henry Schwartz, President of Trade Alert, as a guest editor this week.

Henry Schwartz

The year in options: A tribute to David Letterman
Henry Schwartz – Trade Alert

I’ve really enjoyed sharing some insights and data from the US options industry with the readers of JLN Options this week. Next year will mark my 30th in this business, which I’ve watched evolve from a surprisingly effective frenzy of hand signals and paper tickets on the floors to a highly efficient hybrid marketplace where some nearly $6B of premium changes hands daily. While a number of challenges face many of us, I’m very proud of how well the industry has developed in terms of fairness, efficiency, accessibility and capacity, and I look forward to more good things in 2017. Happy New Year!

To finish the week I’ve come up with a few Top 10 lists for 2016. Enjoy them and please don’t hesitate to reach out if you are looking for anything in the realm of real-time options market intelligence!

(Click the below image for a larger display.)

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Lead Stories

Miami International Holdings and Ledger Holdings Announce Investment in LedgerX Holding Company; MIH Secures Exclusive Worldwide Product Licensing Rights for Digital Currency Derivatives and Signs Technology Agreement for MIAX Technologies
Miami International Holdings, Inc. (MIH), the parent holding company of the MIAX Options Exchange (MIAX Options), and Ledger Holdings Inc. (Ledger Holdings), the parent holding company of LedgerX LLC (LedgerX), today jointly announced that MIH has completed an investment in Ledger Holdings. MIH was also instrumental in assembling a consortium of other investors who have co-invested with MIH in Ledger Holdings.

***HS: Bitcoin!

FX options a tempting solution – but problems persist
Paul Golden – Euromoney Magazine
For companies looking to take advantage of favourable currency moves or seeking a hedging alternative to forwards when exposures are uncertain or risk is asymmetrical, FX options are a handy solution. The problem is they have traditionally come at a price that has prohibited their use on a more regular basis. The options market has evolved in recent years, but this development has not delivered the lower costs that aspiring market participants might have hoped for.

VIX ETFs Have Seen $8.7B In Bullish Bets This Year, Even With VIX Down 30%
Teresa Rivas – Barron’s
With the market up double digits in 2016, it’s not surprising that the CBOE Volatility Index (VIX), or so-called ‘fear gauge,’ is off some 30% for the year.
Investors short the VIX to generate returns in a rising market and long if they want to hedge their long exposure, as S3 Partners’ Ihor Dusaniwsky writes, but the fact that both long and short holders of the various VIX-tracking ETFs are bullish for the whole, that means “either a lot of hedging going on using the VIX, or quite a few wrong-way VIX volatility bets.”

MIAX Complex Top Of Market Data Product (“cToM”)
MIAX Options Exchange
The Exchange has filed for immediate effectiveness to establish complex order market data products, including a new market data product known as MIAX Complex Top of Market (“cToM”). The Exchange is implementing a feature of cToM that provides subscribers with the number of Priority Customer contracts that are included in the size associated with the Complex MBBO (“cMBBO”).

***HS: More transparency is great, but fragmentation and cost of data is a growing problem for vendors and their clients.

China regulator gives go ahead for sugar, soymeal options
China’s securities regulator said on Friday it had approved the launch of options contracts for white sugar and soymeal, which will be the first agricultural derivatives products in the world’s biggest commodity market.

The euro’s return to parity with the dollar
Patrick Graham and Jemima Kelly | LONDON – Reuters
The dollar’s worldwide surge on higher U.S. interest rates has dragged the euro below $1.04 EUR, removing the last big chart-based hurdle to a return to parity for the first time since the single currency was launched in physical form in 2002.

Exchanges and Clearing

Chinese Investors’ Deal for Chicago Stock Exchange Clears U.S. Security Hurdle
A group of Chinese investors have obtained the U.S. government’s approval to acquire the Chicago Stock Exchange. The investors, led by Chongqing Casin Enterprise Group, learned this week that the Committee on Foreign Investment in the U.S. approved the sale, according to Drew Mauck, a spokesman for the exchange. The powerful committee reviews acquisitions of U.S. companies for national-security concerns and could have recommended that President Barack Obama block the deal.

Nasdaq Futures moves ahead with plan to challenge energy rivals
Luke Jeffs – Futures & Options World
Nasdaq believes energy fees were “stuck in the days of open outcry when people would pay a premium to access liquidity”
In July 2015, Nasdaq launched Nasdaq Futures (NFX), a U.S.-based futures exchange, to combat the duopoly, opaque rules, and over-charging that it says energy traders faced with the incumbent exchanges. NFX has been one of the most successful futures exchange launches in the past decade posting monthly trading volumes of over 2 million in recent months and fast growing open interest.

EU endorses overseas clearinghouses
Julia-Ambra Verlaine – Financial News
The European Union is sending a message that it is open for business despite Brexit and the imminent loss of its financial services hub, the City of London. The European Commission endorsed overseas clearinghouses, also known as central counterparties, in six overseas jurisdictions, on December 16 in a bid to ensure EU banks may continue to do business abroad and cement relationships with global financial partners outside the bloc as the UK prepares to exit.

Euronext closes acquisition of a 20% stake in EuroCCP
Euronext today announced it has completed the acquisition of a 20% equity stake in EuroCCP, for an amount of 13.4m EUR, after having received regulatory approvals. This follows the announcement of August 17th on the signing of a definitive agreement with the existing shareholders of EuroCCP.

LME to benefit from volatility surge in ‘structural shift’
Kathleen Retourne – FastMarkets
The huge surges in volatility on the London Metal Exchange in November this year will feed through into 2017 as the economic environment shifts, market participants predict.
The jump in volatility will be welcomed by the exchange. Much of 2016 has been characterised by prices bumping along the bottom in quiet, low-volume trading.

ICE Benchmark Administration selected for ISDA Credit Determinations Committees Secretary Role
Press Release – Intercontinental Exchange
Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today announced that the International Swaps and Derivatives Association, Inc. (ISDA) has chosen ICE Benchmark Administration (IBA) to be the Secretary to the ISDA Credit Derivatives Determinations Committees (DCs).
Following a transition period of approximately six months, as DC secretary IBA will become responsible for maintaining and operating all infrastructure required to administer the DC process and ensuring that the process is robust, transparent and meets regulatory and governance standards.

Regulation & Enforcement

ICE calls for review of European regulation
Julie Aelbrecht – Futures & Options World
ICE CEO Sprecher has expressed hope that Brexit will trigger Mifid II review
Derivatives giant the Intercontinental Exchange (ICE) has criticised existing European regulation in a working paper outlining its views on a post-Brexit agreement for financial services. In the paper, ICE argues for treatment based on international standards rather than a special access to the EU markets. It further argues that Brexit should be used to review existing and incoming regulation, including Mifid II.

US audit trail flawed for omitting futures – expert
Luke Jeffs – Futures & Options World
US regulatory plans to create a complete audit trail for the US equities markets are flawed because they do not cover the futures market, a trading expert has warned.


As bulls run toward Dow 20,000, these two things could get in the way
Patti Domm – CNBC
With a triple-witching expiration, traders are watching to see if the Dow can crack 20,000.
But they’re also watching the aftermath of the Fed’s meeting this week, which resulted in a surging dollar and rising Treasury yields. Stock futures were higher Friday, after the market recovered Thursday from Wednesday’s rout. The Dow finished Thursday up 59 points at 19,852, off its high but within shouting distance of the 20,000 marker.

***HS: Fun fact – I had the domain DOW15K a few years ago and sold a bunch of hats and T-shirts! Missed my shot at DOW20K however.


Singapore Dollar Likely to Slide to Levels Seen After 2008 Crisis, Says Policy Sage
Netty Idayu Ismail – Bloomberg
Central bank set to lower center of band, NatWest’s Singh says; Options traders have grown more bearish on Singapore’s dollar
The Singapore dollar is likely to slide to levels seen in the aftermath of the global financial crisis as the Monetary Authority of Singapore resumes easing policy in April. So says an analyst who’s correctly predicted the last three central bank decisions.

European energy companies enter market; Leading weather risk specialists see hedging demand growing from energy companies in Europe and the agriculture sector in the US
Joe Walsh – Environmental Finance
A warmer than usual winter encouraged European energy companies to hedge their weather risk in a major way over 2016, market specialists say. “It was a very warm winter in Europe last year so the majority of clients who purchased weather protection last year got paid almost up to the limit of what they bought,” says Martin Malinow, president of Endurance Global Weather. The potential for more of the same this winter has led to repeat business as “clients who bought last year have largely bought this year,” he adds.

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