JLN Options: Options Industry Blasts IRS Proposal

May 17, 2012

LEAD STORIES

Options Industry Blasts IRS Proposal  
Peter Chapman, Traders Magazine
Proposed U.S. tax rules that target offshore hedge funds have come under fire by the options industry. The U.S. Securities Market Coalition, a lobbying organization that represents the options exchanges and the Options Clearing Corporation, the Chicago Board Options Exchange, and the Securities Industry and Financial Markets Association, have all advised the U.S. Treasury to back away from imposing a dividend withholding tax on foreign options traders.
“If adopted as proposed,” Joe Corcoran, the OCC’s head of government relations, said at this year’s Options Industry Conference, “we believe the regulations could have a negative impact on the listed options market by curtailing their use by foreign persons.”
At issue is proposed Section 871(m) of the U.S. Tax Code which seeks to combat tax evasion by foreign investors in U.S. securities. The roots of the proposal go back to 2008 when the U.S. Senate published a report that claimed offshore holders of U.S. stocks were using equity swaps to mimic the benefits of stock ownership, but avoid taxes on dividends. 
http://jlne.ws/JmFvlH

ISE Expands Weekly Options to ISE FX Options 
Euro / U.S. Dollar Option First Currency Pair to List with Weekly Expiration    
NEW YORK, May 17, 2012 – The International Securities Exchange (ISE) today expanded its offering of weekly options to its ISE FX Options® product portfolio. The euro/U.S. dollar option (ticker: EUU) was the first cash-settled FX product to list with a weekly expiration.
Kris Monaco, Head of New Product Development at ISE, said, “We are pleased to expand our weekly options offering to include our FX options product suite. The launch of a weekly option on the euro/U.S. dollar currency pair will provide greater flexibility for investors seeking to hedge short-term currency movements.”     http://jlne.ws/JOMtmh (PDF)

International Securities Exchange and AlphaClone Announce Partnership to License and Promote Innovative Hedge Fund Position Replication Index  
ETF DAILY NEWS
The International Securities Exchange (ISE), a leading US options exchange, and AlphaClone LLC, the leader in hedge fund position replication, today announced their partnership to promote AlphaClone’s innovative hedge fund position replication index, the AlphaClone Hedge Fund Long/Short Index.
http://jlne.ws/JTi6LO

STREET MOVES: Nagy To Depart TD Ameritrade For New Venture
Fox Business
Christopher Nagy, head of order routing for TD Ameritrade Holding Corp. (AMTD), plans to depart the retail brokerage firm at the end of this month to set up a new consulting venture, he said Wednesday.
Nagy said he plans to launch KOR Trading, a new firm geared to help brokerages navigate a shifting landscape of electronic trading at a time when new stock and options exchanges continue to come online, ramping up competition for trades at a time when more investors have moved to the sidelines.
http://jlne.ws/JTgNwm

EXCHANGES

NYSE ARCA UPDATE: Facebook IPONYSE ARCA has determined that in the interest of a fair and orderly market and consistent with NYSE Arca Rule 7.35(g) , NYSE ARCA will not run an auction in the Facebook (NASDAQ: FB) IPO, scheduled for Friday, May 18, 2012. Accordingly, NYSE ARCA will not accept any orders in FB until the first FB print on NASDAQ.  Any orders in FB routed to Arca prior to the first FB print on NASDAQ will be rejected.*
*Please note, the reject message prior to the first print will read, “Symbol Closed.”

China Financial Futures Exchange: To Discuss Cross-Listing Products With Exchanges Overseas
WSJ.com SHANGHAI (Dow Jones)–The China Financial Futures Exchange said Thursday it is planning to hold discussions with overseas exchange operators about the feasibility of cross-listing products. China’s only national financial derivatives marketplace said in a statement it is also in touch with the World Federation of Exchanges and plans to apply to join the international organization this year.
The futures exchange said Thursday it is working on launching new financial derivatives, including government-bond futures and stock index options, outside the stock index futures launched in 2010.
http://jlne.ws/Kpb1kI

REGULATION

Facebook Poses Biggest Test of Rule Curbing Market Orders
 By Nina Mehta and Joseph Ciolli, Bloomberg
Facebook Inc. (FB)’s initial public offering will be the biggest test of a rule introduced in 2011 to protect investors and curb volatility on the first day a company trades.
The Financial Industry Regulatory Authority reminded more than 4,400 member firms on May 15 that they shouldn’t accept buy requests known as market orders until trading begins. Such transactions are authorizations to purchase at the best available price, as opposed to limit orders that require investors to specify a minimum or maximum.
http://jlne.ws/J15f7I

TECHNOLOGY

WhenTech Partners With CQG for Trade Execution
Press Release
WhenTech LLC, the premier provider of option pricing, analytics and risk management software solutions to the futures and commodities options industry, announced that its core product, WhenTech Markets®, is now available with option trade execution capability through an integration with CQG, Inc.’s CQG Trader platform. http://jlne.ws/JjjV7c

STRATEGY

MKM’s Favorite Hedges For A Rocky Market 
 Focus on Funds – Barrons.com By Brendan Conway
If trading gets more white-knuckled from here, you can expect major stock indexes to move in tighter lockstep and babies to get thrown out with bathwater. And yet, there are plenty of ETFs, including in “risk on” smallcaps and emerging markets, that don’t show a lot of investor worry. This sets up what MKM Partners derivatives strategist Jim Strugger says is an opportunity to buy attractive hedges at historically low cost.
The smallcap iShares Russell 2000 Index Fund’s (IWM) three-month implied volatility reading is quite low — at the 19th percentile versus levels seen over the past year, by MKM’s figures. Recall that implied volatility is the measure of the price of portfolio insurance in the options market. That’s the same concept behind the “fear gauge” — the CBOE Volatility Index. The reason why it’s cheap isn’t immediately clear. But it means that protective put options can be had for relatively little right now.
http://jlne.ws/JmNkrr

Fears About Europe Spur Buying of Put Options on U.S. Financial Stocks  
By STEVEN M. SEARS | MORE ARTICLES BY AUTHOR
Put buying of banks is reminiscent of 2008 increases as Europe’s woes worsen.
Options trading in the financial sector has taken on hues eerily similar to 2008.
Investors are aggressively buying bearish puts on major U.S. banks in anticipation Europe’s debt crisis slams Goldman Sachs (ticker: GS), JPMorgan Chase (JPM) and Morga
n Stanley (MS).
Trading is reminiscent of the dark days of the credit crisis when bearish put options were aggressively bought to profit from the anticipated declines of major banks embroiled in the maelstrom.
“Huge demand for the downside. All of sudden everyone woke up and decided its 2008 again,” one of Wall Street’s major financial traders says.
http://jlne.ws/crFOL6

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