OCC 2017 Total Contract Volume 3rd Highest Ever; Markets must prep for more volatility

Jan 2, 2018

Lead Stories

OCC 2017 Total Cleared Contract Volume Up Four Percent, Third Highest Volume Year Ever
OCC, the world’s largest equity derivatives clearing organization, today announced 2017 volume reached the third highest total cleared contract volume ever with 4,327,576,930 contracts, a four percent increase from the 4,167,747,777 cleared contracts in 2016. December cleared volume was 346,006,092 contracts, up three percent from December 2016. OCC also reported record-breaking 2017 volume for cleared futures with 138,029,762 cleared contracts; a 32 percent increase from 2016.

Markets must prepare for more volatility; Never before have central bank balance sheets been so large and interest rates so low
Axel Weber – Financial Times (Subscription)
How to explain the paradox of low market volatility, record highs on the world’s stock markets and reduced levels of investor anxiety despite rising political risk?
Today, most of the world’s stock markets are at or close to all-time peaks, while investor fear ó as captured by the volatility measure Vix ó remains at its lowest level since the index was launched in 1990. Small wonder then that equity investors are saying times have never been better and risks have never been lower. But how long can this last?

****SD: When there’s nothin’, all that’s left is to prep for somethin’.

Markets Benefited From What Didn’t Happen in 2017; Nine expected events didn’t materialize, leading to a banner year.
Mohamed A. El-Erian – Bloomberg
Many of the assessments of the 2017 financial markets understandably focused on the impressively favorable outcomes delivered by stocks and other risk assets. Yet it is also worth considering what didn’t happen ó in particular, nine events, which, by not taking place, contributed to make the last 12 months exceptional for many investors, big and small.

****SD: From Bloomberg’s Luke Kawa – Peculiar Year for Markets Defied Expectations

How high-frequency trading hit a speed bump; Smaller volumes and a fall in market volatility have dented business – so much so that some are quitting
Gregory Meyer, Nicole Bullock and Joe Rennison – Financial Times (Subscription)
The 19th century newspaper editor Horace Greeley urged young Americans to “Go West” to the unsettled frontier. When he went himself, the trip from Chicago to the Pacific took two-and-a-half months by steamboat and ox-drawn wagon. He later advocated a transcontinental railroad to speed up commerce and shorten the mail service to 10 days.

****SD: A portion is an update on the Go West project for speedy market data. And not at all surprised by the presence of this quote: “‘It’s not like it’s all bleak and there’s nothing to do,’ says Don Wilson, DRW’s founder and chief executive. ‘We see lots of interesting things to do.'”

From Soybeans to Corn, La Niña Could Shake Up Agricultural Markets in 2018; Grains, soybeans and other agricultural commodities are likely in for a wild ride if the La Niña weather pattern takes hold
David Hodari – WSJ
A weather phenomenon that has wreaked havoc on commodity prices in the past could return in 2018. Indicators currently suggest a 75% probability of a La Nina in the coming months, according to Stefan Vogel, head of Rabobank’s agricultural commodity markets research team. The weather pattern could inject volatility into markets like grains, soybeans and palm oil next year.

****SD: The key is what variety of La NiÒa this is going to be. The NiÒa’s rarely manifest in the same way.

OPEC Wins Over Hedge Funds to Make 2017 Oil’s Most Bullish Year
Carlos Caminada and Catherine Traywick – Bloomberg
Net-long position on WTI and Brent crude hits record level; Shale drilling growth slows, while futures surpass $60

Weekend Review of VIX Futures and Options – 12/26/2017 – 12/29/2017
Russell Rhoads – Cboe Blog
VIX rallied in the last few minutes of 2018, but didn’t take the all the futures contracts with it. The near dated futures moved up slightly, but for the week the longer dated futures were slightly lower.

****SD: Also see Review of Volatility Indexes and ETPs and Review of Russell 2000 Options and Volatility

Exchanges and Clearing

New Deutsche Boerse CEO sees good year after turbulent 2017
The new chief executive of Deutsche Boerse (DB1Gn.DE) forecast 2018 would be a good year for the German stock exchange operator after a turbulent 2017 marred by an insider trading scandal, a failed merger and a profit warning.

The Spanish Stock Exchange Traded EUR651.4 Billion In 2017
The volume traded in 2017 in the Derivatives market of BME was 44.6 million contracts, representing an annual decrease of 1.7%. However, the open interest increased by 5.3% in the last year, reaching 8.1 million contracts.

***SD: BME’s 20.3 options contracts traded equates to more than 10 percent decline in options volume.

Regulation & Enforcement

Factbox: EU markets braced for MiFID II revamp
The European Union’s second wave of reforms for stock, bond, commodity and derivatives markets comes into force on January 3.

****SD: Bloomberg has a “winners and losers” due to MiFID piece.

Europe’s MiFID II Challenge to U.S. Finance; The new rules are proving tough to implement, but they’ll give Europe an edge in the end.
The Editors – Bloomberg
Europe’s regulators and financial institutions are under the gun: With a Jan. 3 deadline approaching, they’ve been scrambling to comply with new rules designed to make the region’s capital markets more investor-friendly.

Bankers to burn midnight oil ahead of ‘MiFID’ dawn
Huw Jones – Reuters
Bankers will work through the night to iron out last minute hitches before Wednesday’s launch of a major reform of European Union financial markets that aims to apply lessons from the financial crisis nearly a decade ago.

European finance sector scrambles over Mifid II rules; Introduction of the reforms midweek have increased the risks of glitches
Hannah Murphy – FT
Europe’s financial services industry is scrambling to stave off any potential last-minute trading glitches as the major regulatory shake-up of EU financial markets comes into force on Wednesday.

****SD: For the brighter side of MiFID see Liquidnet’s MiFID II D-Day – Reasons to Stay Cheerful via Tabb Forum

Redbridge Officially Registers with FINRA as a Broker Dealer Member Firm
Recently, Redbridge Securities LLC (“Redbridge”), became registered with the Financial Industry Regulatory Authority (“FINRA”) as a broker dealer and member firm.


The best stock market trade of 2017 was one that experts hate
Joe Ciolli – Business Insider Premium
The best stock market trade of 2017 doesn’t involve a specific stock or sector. It instead relates to price fluctuations in equities ó or in this case, the lack thereof. Two exchange-traded products betting against US stock volatility skyrocketed almost 200% in 2017 through Christmas, dwarfing returns for the hottest mega-cap tech stocks. Sure, companies like Amazon and Apple have smashed index benchmarks, but the short-volatility trade has put everything else to shame.

Six Market Charts to Watch for Hints on Next Year’s Big Moves
Will the stock market’s record-breaking rally stumble? Is the dollar doomed again? How flat can the Treasury curve get? The list of market trends investors have to digest as the New Year dawns is long, and assessing them will depend on how this year’s themes — from Federal Reserve rate hikes to stretched market valuations to major U.S. tax reform — will play out in 2018.


FX Options Market Update: Jan 2, 2018

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