JLN Options: Nasdaq UK Derivative Market to Offer German Bund, Euribor

Sep 7, 2012

Lead Stories

Nasdaq UK Derivative Market to Offer German Bund, Euribor
Nandini Sukumar, Bloomberg
Nasdaq OMX Group Inc. (NDAQ) will set up its interest-rate derivatives NLX trading platform in London with six products including the German bund and Euribor, in direct competition with the two biggest exchanges in the region.
The New York-based company will start NLX trading with futures based on short sterling, Charlotte Crosswell, chief executive officer of the new system, said today in an interview in Interlaken, Switzerland.

Fear Fades and VIX Slides With European Stimulus News
Kaitlyn Kiernan, The Wall Street Journal
After weeks of mounting anxiety, fear left the options market Thursday as investors got what they were looking for out of a speech by ECB chief Mario Draghi in which he outlined a new bond-buying program.
The Chicago Board Options Exchange’s Volatility Index (VIX) slid 9.4% Thursday, its biggest one-day decline in more than a month, after Draghi appeased investors with a new sovereign-bond-buying program to aid Europe’s struggling economies. The drop comes after a two-week VIX rise of 32%.

U.S. Stocks Rise Amid Stimulus Bets After Employment Data
Rita Nazareth and Corinne Gretler, Bloomberg
U.S. stocks rose, after the Standard & Poor’s 500 Index rallied to the highest since 2008, amid bets on central bank stimulus as payrolls increased less than projected even as the unemployment rate declined.

S&P 500 Climbs to Four-Year High as ECB Details Bond-Buying Plan
Lu Wang, Bloomberg
The Standard & Poor’s 500 Index climbed to its highest level since 2008 as the European Central Bank announced specifics of its bond-buying plan and data boosted optimism in the American economy.

Forex options traders count the cost of stressed VAR
Mark Pengelly, Risk.net
Stressed value-at-risk has been less controversial than the other capital charges introduced in response to the financial crisis – but some dealers say the new metric is decreasing appetite for risk in foreign exchange options markets and might drive up costs for more exotic structures.

Summer slump for options trading
Helen Bartholomew, International Financing Review
After the market meltdown of August 2011 when investors rushed to hedge their equity position as the eurozone crisis intensified and the US lost its Triple A rating, the latest monthly options figures highlight one of the biggest year-on-year trading declines to-date.
Figures from the Options Industry Council show that almost 311m options contracts changed hands over US exchanges during August 2012, representing a 43.47% decline from a year previously.

J.P. Morgan trading loss in Senate probe: reports
Ronald D. Orol, MarketWatch
J.P. Morgan Chase & Co.’s massive trading loss on credit derivatives is the target of an investigations committee on Capitol Hill headed by Sen. Carl Levin, according to reports on Thursday.


ISE Introduces $0.50 Strike Price Intervals in Weekly Options
Press Release
The International Securities Exchange (ISE) today announced that it has received SEC approval to introduce $0.50 strike price intervals in weekly options. The exchange began listing weekly options in the more granular $0.50 strikes yesterday, offering an expanded range of strike prices and potentially a lower cost of entry to investors who are using weekly options to effect their trading and hedging strategies. This new program extends to weekly options classes that currently trade in one dollar increments, and all other contract terms remain unchanged.
http://t.co/cDV5rPJt (PDF)

Benchmark Shift Drives ICE Brent Option Surge
John Parry, The ICE
It’s not unusual for exchanges to host contracts which are barely used by the market. But it is unusual for a relatively quiet contract to suddenly burst into new life, particularly for a long-established commodity.
Brent crude oil options are a case in point. As recently as 2010, ICE Futures Europe handled just 165,286 Brent options contracts all year. In 2011 volume shot up to 2.2 million contracts and by July 2012 volumes had already doubled to more than 4 million contracts, including a record month in May of over one million contracts.
Between ICE and its main rival, the New York Mercantile Exchange, more than two thousand energy derivatives are available for trading, but Brent options on ICE has suddenly become the hot new contract. What’s behind this surge?
http://jlne.ws/POKmRd (PDF)


Rover the regulator
Simple rules may be best for monitoring banks
The Economist
PITY the financial regulator. The evidence suggests that bank executives, and the independent directors on their boards, fail to understand the complex organisations they control. How is an outside supervisor to manage, particularly when the best and brightest of its staff can be lured away by the higher salaries on offer in the City or on Wall Street?
In practice, as Andrew Haldane of the Bank of England highlighted in a speech at the recent Jackson Hole meeting of central bankers (see Free Exchange), regulators have responded by trying to match the complexity of the firms they supervise.


Long-Haul Providers
In long-distance financial transactions, fiber-optic cable is still king of the road
Just as the London Olympics boosted long-haul air-passenger traffic this summer, so is a globalization of financial markets raising the stakes for electronic trades that are sent great distances, and the enabling infrastructure. Providers of trading technology are investing in long-distance telecommunications, such as fiber-optic cable, satellite, and microwave, enabling near-instantaneous trading across time zones and even oceans. Traders interested in far-flung markets tend to have shorter-term holding periods and comparatively modest order sizes, so the fastest route from Point A to Point B is of paramount importance.

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