Morgan Stanley Soared in Currency Derivatives Before Lira Mess; Time to Get Tactical on European Rates as Returns May Fall

Dec 6, 2019

Observations & Insight

*****MR: The Minneapolis Grain Exchange (MGEX) suspended new trades for SPIKES Futures about a week ago. Today, they published a press release saying this was due to jurisdictional conflicts between the CFTC and the SEC. The release says SPIKES Options will not be affected. Check out the release in our “Exchanges” section.

Lead Stories

Morgan Stanley Soared in Currency Derivatives Before Lira Mess
Donal Griffin and Stefania Spezzati – Bloomberg
Morgan Stanley’s drive into a lucrative niche in the foreign-exchange market has hit a major road block. The firm has more than doubled its activity since 2016 to overtake rivals such as Goldman Sachs Group Inc. in the bazaar for currency-linked derivatives known as FX options. Now, Morgan Stanley is probing whether traders improperly valued the esoteric securities, concealing as much as $140 million in losses, Bloomberg reported last week, citing people familiar with the matter.

Time to Get Tactical on European Rates as Returns May Fall
Tanvir Sandhu – Bloomberg
Investors may have to get more tactical in 2020 given the impressive returns from European government bonds this year could become much harder to achieve. Ten-year German yields may well remain in a broad range. Euro-area cyclical indicators have risen off recent lows and if the U.S. and China reach an initial trade deal then yields will likely reprice higher ahead of economic data improving. However, a strong recovery and higher inflation remains elusive, narrowing the room for yields to increase above 0%.

The Big Bet Now Is On Britain’s Unreliable Polls: Trading Brexit
Sam Potter, Vassilis Karamanis, and Sam Unsted – Bloomberg
A week from now investors will know three things: the name of the U.K. prime minister, the likely path of Brexit and whether their gamble on Britain’s infamous election polling has paid off. The prospect of a Jeremy Corbyn-led Labour government is quickly being priced out of the market. The pound has climbed against the dollar five days straight through Thursday, up 9% since August when it closed at a more than three-decade low. In stocks, utility companies which would be nationalized under Corbyn’s socialist agenda are rising.

Tom Wipf – Bloomberg Opinion
The end of Libor as a benchmark for interest rates on everything from mortgages to credit cards is just two years away, leaving the market in search of a viable substitute. More than $370 trillion of existing financial contracts are pegged to Libor worldwide; of those, roughly $200 trillion are denominated in U.S. dollars and need to be addressed immediately — a monumental task in such a short period.

Exchanges and Clearing

SPIKES Futures Update: December 6, 2019
Effective Friday, November 29, the Minneapolis Grain Exchange (MGEX) suspended all new trading in SPIKES Futures pending final resolution of the product’s classification by the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).

CME Group Announces 2020 Annual Meeting Date
CME Group
CME Group Inc. (NASDAQ: CME), the world’s leading and most diverse derivatives marketplace, today announced that its 2020 annual meeting of shareholders will be held at 10:00 a.m. Central Time on Wednesday, May 6, 2020, in the Auditorium at CME Group, located at 20 South Wacker Drive, Chicago, Illinois.


Don’t Use a Market Order for Options Trading
Karim Rahemtulla – InvestmentU
Many investors are sabotaging their retirements unnecessarily – and for the life of me, I can’t figure out why. One thing I will never understand about the market is why there should even be an option to place market orders on everyday trades. These orders get investors into more trouble than any other strategy when buying or selling stocks.


Options Education Webinar Series
December 2019 Webinar Schedule We enter the last month of the year with one of the best years for the S&P, up about 26%. This type of performance and euphoria is typical of late stage bull cycles, however it does not signify a pending reversal in itself. During the month of December we want to focus our education on planning. Money management and planning for a recession are topics that provide reminders when markets are overheated and euphoria permeates the markets. We also have a very special guest on Dec 12th, Tom Sosnoff, from TastyWorks joining us for a discussion of the current market environment and a Q&A session with Tom!


Count on the Fed to Take Control of the Yield Curve
Tim Duy – Bloomberg
Given the proximity to the effective lower bound for interest rates, the Federal Reserve is looking to bolster its policy arsenal ahead of the next recession. Watch for the “bond traders’ nightmare” of adding yield curve control to the Fed’s toolkit to rise to the top of the list as the policy review draws closer to an end.

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