Lead Stories Options Show Dollar May Defy History, Denying QE3 Debasement
Liz Capo McCormick and Allison Bennett, Bloomberg (via SFGate)
Options traders are lining up behind the most-accurate foreign-exchange strategists and betting the dollar will break with history, emerging unscathed from the Federal Reserve’s latest cash-printing stimulus efforts.
Investors are paying a premium for options that profit if the dollar gains versus major U.S. trading partners, the reverse of what happened during the first two rounds of the Fed’s quantitative easing, or QE.
http://jlne.ws/R0W2Uk Going Nuclear: Too Big to Fail, Redux?
Derivative levels are higher than they were at the height of the financial crisis, and they are concentrated among four big banks: JPMorgan Chase, Citigroup, Bank of America and Goldman Sachs.
Robin Glodwyn Blumenthal, Barron’s
In case anyone cares whether Dodd-Frank or the Volcker Rule defused those financial weapons of mass destruction known as derivatives, they can start worrying. Not only have the rules failed to curtail the risky FWMD, but they are larger than at the height of the financial crisis. And they are concentrated in four banks: JPMorgan Chase (ticker: JPM), Citigroup’s Citibank (C), Bank of America (BAC), and Goldman Sachs (GS).
http://jlne.ws/Rxf5Ge New lows in FX volatility prompt funds to retreat from options
Miriam Siers, FX-Week
Volatility in the FX market is plunging to record lows in the fourth quarter, leading to changes in the composition of the options market
A steady fall in volatility in the foreign exchange market this year as a result of widespread central bank intervention and ongoing eurozone uncertainty has led to a sharp decline in hedge fund and corporate demand for FX options, according to senior traders.
http://jlne.ws/R0Z7Uh Knowing the truth about derivatives
Chris McKhann, optionMONSTER
Derivatives are not “weapons of mass destruction” as Warren Buffett famously declared, but they can do more harm than good if you’re not careful.
The word refers to any product that derives its value from something else. The S&P 500 is a derivative, based on the prices of its 500 member companies.  Options are derivatives, fluctuating wildly on movements in their underlying stocks.
http://jlne.ws/TmHn2I U.K. Commission Set to Review Derivatives Sold by Consumer Banks
Howard Mustoe, Bloomberg
U.K. Chancellor of the Exchequer George Osborne has asked a parliamentary commission to investigate whether consumer banks subject to firebreaks should be able to offer simple derivatives to clients.
“Recent events involving the mis-selling of derivative products have demonstrated the need for robust conduct, as well as resolvability, safeguards, an area that the Parliamentary Commission on Banking Standards will be investigating,” the Treasury said today in proposed legislation on banking.
http://jlne.ws/OBCzcS Why hedge-fund operator Citadel is becoming a stockbroker
Lynne Marek, Crain’s Chicago Business
Citadel LLC is best-known in Chicago for operating the city’s biggest hedge fund. But it has quietly become a behemoth broker that handled more share volume on the Nasdaq Stock Market in September than any other firm.
Citadel, led by billionaire Ken Griffin, says it fills about one in eight U.S. stock trades and one in five stock option trades, mainly for everyday retail traders.
http://jlne.ws/V1y1dT Chicago companies poised to join airfare options market
Gregory Karp, Chicago Tribune
Fliers today can find it difficult to keep their options open while trying to get good seats and locking in a good price, especially with airfares changing often and planes more crowded. Nobody wants to buy a $600 nonrefundable ticket, have their plans fall through and not be able to use it — or be forced to pay exorbitant fees to change flights.
That’s precisely the problem several companies aim to fix.
Perhaps it’s fitting that Chicago — home of the world’s largest exchange for financial options, the Chicago Board Options Exchange — also is home to companies that are selling, or plan to sell, “options” on airline tickets.
http://jlne.ws/R0Y6eN

Exchanges

CME Group Submits Application for European Exchange
Jacob Bunge, Dow Jones Newswires (via NASDAQ)
CME Group Inc. (CME) filed a formal application with U.K. regulators to launch a European derivatives exchange that would initially list 30 foreign-exchange contracts.
http://jlne.ws/QnGc4u

Regulation

CFTC grants last-minute relief on CME commodity swaps
Jonathan Leff, Sarah N. Lynch, Emily Stephenson, Aruna Viswanatha and Ann Saphir, Reuters
U.S. regulators granted a last-minute reprieve to CME Group Inc and big energy traders on Friday, giving them until the end of the year to convert billions of dollars in commodity swaps to futures contracts.
By saying that a swathe of widely traded energy, metals and agricultural swaps would not be counted toward a threshold triggering costly new regulations until December 31, the Commodity Futures Trading Commission brought relief to big traders like BP and Cargill Inc, which have argued that new rules covering “swap dealers” were meant for banks, not merchants.
http://jlne.ws/RtW18O The Speculators Win a Round
The foes of Dodd-Frank financial reform scored a victory recently when a federal court overturned a new rule to limit speculative trading in derivatives.
If allowed to stand, the ruling will leave the economy exposed to continued distortions because derivatives are easily deployed as tools for vast speculation.
http://jlne.ws/V1y49z Dodd-Frank? Not Such a Drag After All
Nick Summers, BloombergBusinessweek
From the perspective of hedge fund managers, the Dodd-Frank Act is, in so many ways, a huge drag. The law requires them to register with the Securities and Exchange Commission. To supply reams of sensitive data on trading positions. To screen potential investors more carefully. To hire compliance officer after compliance officer. How could all of this not eat into profits and hamstring competitiveness?
http://jlne.ws/V1gb0d Investors voice concern over “regulatory crush”
Richard Henderson, The Trade
Institutional investment firms are becoming increasingly worried about adapting their businesses to impending regulation, according to new research.
The findings are part of a survey of 24 global investment companies from buy-side advisory firm Investit, which gauged the level of concern regarding a host of new regulation.
http://jlne.ws/R0WdPw

Technology

High-Speed Trading No Longer Hurtling Forward
Nathaniel Popper, The New York Times
The hottest new thing on Wall Street is cooling down.
High-frequency trading firms — the lightning-quick, computerized companies that have risen in the last decade to dominate the nation’s stock market — are now struggling to hold onto their gains.
http://jlne.ws/QnG0lS

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