US Options Volume on Pace for Record Year; Canadian Pension Fund Leverage
US Options Volume on Pace for Record Year Despite Drop Off, Lower Volatility in Q2
Russell Rhoads – TABB Forum (Free Subscription w/ Registration)
US options volume remains on track for a record year, despite a volume drop off from the first quarter to Q2 2018. Volatility was lower compared to Q1, but still was elevated relative to the past couple of years. Average bid/ask spreads narrowed from month to month, with June posting the narrowest spreads in 2018. TABB Group’s exclusive US Options Market Review examines market trends in US-listed options markets, including detailed insight into volume trends.
****SD: The huge volume uptick in Q1 is doing a lot to buoy estimates for total volume at year-end.
A look at how Canadian pension funds are using leverage
Martha Porado – Benefits Canada
In February, the Canada Pension Plan Investment Board flipped the script on fixed income by issuing its own bonds rather than purchasing them. The move to issue one billion euros’ worth of 15-year bonds at a 1.5 per cent fixed annual coupon marked the second time it had released euro-denominated bonds. In June 2017, it released two billion euros’ worth of bonds.
****SD: Canadian pensions have come up repeatedly in conversations and at conferences as some of the savviest pension players in options.
Dollar Rally Has Legs as Traders Bid Up Options to a 15-Month High
Todd White – Bloomberg (SUBSCRIPTION)
Tally up one more reason to buy the world’s reserve currency.
As Turkey’s financial markets lurched closer to a meltdown on Friday, brokers charged the biggest premium since April 2017 for three-month call options on the dollar relative to puts, according to a gauge weighting the currency against major peers.
****SD: Early in the week it felt a bit like Turkey’s currency qualms were an idiosyncratic country phenomenon. Now, it’s spilling over. Bloomberg Surveillance has All FX Forecasts Are Out The Window, Kalen Says
Germany’s Merck Boosts Hedges Against Currency Gyrations
Nina Trentmann – WSJ (SUBSCRIPTION)
Drugmaker’s finance chief also says, ‘Deleveraging is our top priority’
German drugmaker Merck KGaA ramped up its currency hedging efforts in recent months as wild swings in exchange rates took a bite out of earnings.
“Currencies have become more volatile, which is why we increased our hedge ratios,” Chief Financial Officer Marcus Kuhnert said in an interview with CFO Journal.
Long wait before trading in commodity index derivatives takes off
Rajesh Bhayani – Business Standard
Market experts don’t expect trading in commodity index derivatives to kick off soon, regardless of recent a statement made two days ago by Ajay Tyagi. The Sebi chairman had indicated two days ago in an annual report, that the market regulator plans to launch more commodity options contracts and is working on guidelines for index products.
VIX shows what’s occurring in the market now, says Slatestone Wealth CIS
Bob Pavlik, Slatestone Wealth chief investment strategist and senior portfolio manager, and David Katz, Matrix Asset Advisors chief investment officer on Market, join the ‘Power Lunch’ team to discuss if the low VIX is an indicator of a new market high.
Exchanges and Clearing
BitMEX: 1 Million BTC Contracts Traded in 24hrs as New Derivatives Launched
“What Market Downturn?,” a statement from the exchange read
****SD: They call the new call and put offering “UPs and DOWNs.”
B3 Announces Results For The Second Quarter Of 2018
Strong quarterly performance: all-time high volumes and revenues in the derivatives and equities segments;
Block trading, flex options introduced on ICE Endex
Louisa Chender – Global Investor Group (SUBSCRIPTION)
The contracts, similar to those previously available on TOM, will be cleared at ICE Clear Netherlands
Central bankers warn again on clearing house contagion
Mark Cobley – Financial News (Soft Paywall)
The financial system is still at risk from a high degree of concentration among clearing houses, the financial plumbers at the centre of the world’s banking network, according to global regulators.
Clearing houses, which are typically affiliated to stock exchanges, act as intermediaries in financial market trades, taking collateral from market participants, typically banks, and using it to guarantee transactions if either party defaults.
Movements in Italian bond yields attract investor interest in BTP derivatives
At the end of July, the new Italian coalition government again tested debt markets. First, indications were given that the Finance Minister would be replaced. This led to a renewed increase in 10 year Italian bond yields, which rose to 2.78 percent from 2.46 in mid-July and then further to 2.96 percent in the first week of August. Implied volatility in BTP options jumped again from 8 to 12 percent within days. Shortly thereafter, the Italian Treasury announced the possibility of repurchasing debt that would support price stability and take pressure off rising yields. This stabilized yields and implied volatility has fallen to 9 percent for at-the-money levels – almost as fast as it had increased.
Instinet CEO Jonathan Kellner will step down later this year
Frank Chaparro – Business Insider Prime (SUBSCRIPTION)
Jonathan Kellner, the CEO of Instinet, is expected to step down from the broker later this year, according to people familiar with the matter.
Former Goldman Sachs trading executive Ralston Roberts is cited as a potential replacement, the people said.
Regulation & Enforcement
Banks’ post-Brexit ‘fragmentation’ plans hold risks and costs
Sinead Cruise, Pamela Barbaglia – Reuters
Banks that move some of their business and staff out of London to cities scattered across Europe after Brexit could be taking on extra risks and costs without being sure of boosting revenues.
****SD: Bloomberg has Both Sides of Brexit Can Finally Agree: It’s a Joke
Banks Aren’t as Safe as They Think
Satyajit Das – Bloomberg (SUBSCRIPTION)
In the decade since the collapse of Lehman Brothers, regulators around the world have taken steps which, they argue, have greatly strengthened the resilience of the financial system. Buoyant asset prices and rising bank shares suggest that investors largely believe them. Unfortunately, the effectiveness of these measures remains uncertain. That will only become clear in a real downturn, rather than a simulated stress test.
Barclays Is Pitting Blockchains Against Each Other (For a Cause)
Ian Allison – Coindesk
U.K. banking giant Barclays is challenging up-and-coming blockchain coders to help revamp the global derivatives market at a hackathon next month.
Revealed exclusively to CoinDesk, DerivHack will take place simultaneously in London and New York on September 20-21 at Barclays’ Rise accelerator spaces. The International Swaps and Derivatives Association (ISDA), Deloitte and Thomson Reuters are co-sponsoring the event.
Templeton Favors Options to Ride Asia’s Best Stock Market Swings
Santanu Chakraborty – Bloomberg (SUBSCRIPTION)
Buy options to profit from higher volatility: CIO Naganath; Trade spat, currency woes will heighten stock-price volatility
Buying options to profit from Indian stock-price swings could prove rewarding for investors as the ongoing trade spat between China and the U.S. leads to a surge in volatility, according to Franklin Templeton
VIX Options Extreme is a Red Flag for Bulls
Andrea Kramer – Schaeffer’s Research
The Cboe Volatility Index (VIX – 10.72) — considered the stock market’s “fear gauge” — has dropped roughly 16% already in August, and today is eyeing a sixth straight loss and its lowest close since January. However, recent VIX options activity suggests traders are speculating on (or hedging against) a surge for the index.
Traders expecting a big stock market move soon
Bob Pisani – CNBC
Will there be a summer swoon, or a rocket rally? Markets are wound tight, despite a typical seasonal slowdown.
It’s the second week of August. There’s not a lot of news, half the trading community is out, volumes are low, and stocks are moving in a narrow range.
And yet, the markets can easily move very quickly.
Industry Update on the Consolidated Audit Trail
On Thursday, August 9, 2018, at 4:15PM EST, the CAT NMS, LLC Operating Committee will be hosting a Consolidated Audit Trail webcast to discuss current progress on the CAT. The webcast will be recorded and playback will be available on the CAT NMS website. Please see the below details for joining the webcast:
Exclusive: FTSE Russell may give mainland China stocks more weighting than MSCI
Jennifer Hughes – Reuters
Index provider FTSE Russell could give a greater weighting to mainland Chinese stocks than rival MSCI if it decides to include them in its flagship indices next month, its chief executive told Reuters.
FINRA Publishes First Annual Industry Snapshot
FINRA today published the FINRA Industry Snapshot 2018, its first annual statistical report on the brokerage firms, registered individuals and market activity that FINRA regulates.
Elon Musk Is No Longer Scaring the Shorts With Tesla Tweet Saga
Elena Popina, Lu Wang and Joshua Fineman – Bloomberg
If the goal was burying the short sellers, it hasn’t quite worked out.
As fast as Tesla shares surged after Elon Musk tweeted about going private, they’ve come back down. Mounting skepticism and an inquiry by the Securities and Exchange Commission have erased most of an 11 percent gain.
****SD: TSLA is already pretty much back to where it was at the beginning of the week.
Eurex’s Asia head says ‘most prop trading firms are already trading digital currencies’
Tom Watkins – The Trade
The regional head of Asia for one of the world’s largest futures exchanges has said most of its proprietary trading firm clients are already trading digital currencies, or are at least observing.