US Options Volume Picks Up in September After Slowest Two Months Since 2012; Brexit brings headaches for regulation-weary traders; Options Traders Bet on More Pain for Gold

Oct 11, 2016

Lead Stories

US Options Volume Picks Up in September After Slowest Two Months Since 2012
TABB Forum
US listed options volume picked up in September following the slowest two months of trading since 2012. Trading activity in September totaled 357 million contracts, 10.6% higher than August’s volume and 0.6% higher than September 2015.
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Brexit brings headaches for regulation-weary traders
Philip Stafford – Financial Times
Trading and clearing executives have had to work closely with politicians and policymakers since the financial crisis. They have endured many hours explaining how proposed regulations would affect their complicated world of markets infrastructure. That plumbing — which includes exchanges, clearing houses, over-the-counter markets, derivatives and fixed income trading technology — has already been heavily redesigned. Now, just as the final stages of the sweeping post-crisis reforms come into sight, the prospect of further regulatory problems has suddenly appeared thanks to the UK’s decision to leave the EU.
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Options Traders Bet on More Pain for Gold
Ben Eisen – WSJ
Options traders are betting gold prices have more room to fall.
Last week, as gold suffered its biggest weekly decline in three years, the cost of protecting against a decline in the shiny metal became more expensive than protecting against a rise, according to Macro Risk Advisors.
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The Impact Of Brexit On OTC Derivatives
Jack Rizvi – The Market Mogul
On June 23th, 2016, 17.4 million Britons voted to leave the EU, winning the referendum 51.89% to 48.11%. The effect on global markets was immediate and historic with some of the highest trading volumes in recent history and a crippling blow to the pound and EU indices. While EU indices have risen above pre-Brexit vote levels, the pound remains bleak with no sign of returning to pre-vote levels. A notable recovery is that of the FTSE 100 which has gained over 15% since the referendum.
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Plunge in Bond Market Volatility Is Good News for the Bank of Japan
Mike Bird – WSJ
The Bank of Japan’s latest policy move is a venture into new territory for modern central bankers. But less than a month after sharpening its focus on a key technical measure, at least one data set suggests it’s working precisely as intended.
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Stock Markets Should Brace for Disappointment, Says HSBC’s Laidler
Narae Kim – Bloomberg
Equity markets are exposed to “a dangerous combination” of risk factors that investors aren’t paying enough attention to.
That’s the verdict of Ben Laidler, global equity strategist at HSBC Holdings Plc, who argued in an interview with Bloomberg TV that investors’ relative calm belie a slew of headwinds.
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Ahead of Brexit Talks, Companies Puzzle Over the Pound
Nina Trentmann – WSJ
The British pound’s recent swoon has caught many corporate finance chiefs off guard. The currency fell 6% within minutes on Friday in a “flash crash” that has been attributed to a trading error. Despite a slight recovery, investors are continuing their retreat from the pound in the wake of the U.K.’s vote to leave the European Union.
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****SD: From Lisa Francis, head of corporate foreign-exchange sales Europe at Barclays — “Most corporate clients are cautiously adopting a layered hedging approach, and we’re seeing more interest in options-type strategies.”

As Trump Falters, a Few Hedge Funds Win Big on Mexican Peso
Bloomberg
As the Mexican peso plunged day after day against the dollar last month, a handful of hedge funds took notice. The peso, they decided, was being overly punished by investors concerned that Donald Trump would win the election and go through with his plans to overhaul U.S. relations with its southern neighbor.
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Dubai Financial Market issues draft rules on sharia-compliant hedging
Reuters
Dubai Financial Market (DFM), the Gulf’s only listed stock exchange, has published draft rules covering sharia-compliant hedging, part of broader efforts to develop Islamic business in the emirate. The rules aim to expand guidance on transactions that currently lack standardisation, and would be the third set of rules from the DFM specific to Islamic finance after ones covering equities and Islamic bonds.
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****SD: The growth of Islamic finance is certainly worth keeping an eye on — dealing with its idiosyncratic issues in regards to derivatives offers the potential for innovation in hedging instruments and strategies that would not otherwise be explored.

Will This Be The 5th Straight Quarter Of An S&P 500 Earnings Decline?
Benzinga
As the third-quarter earnings season unofficially kicks off with results from aluminum powerhouse Alcoa Inc. on the docket before the session begins Tuesday, many analysts are projecting that this may be the fifth straight quarter of declining earnings—and maybe the last.
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Investors face the most challenging period in living memory
Paul Gambles – CNBC
“What assets should we invest in for the next five years and what returns should we expect?” was the straightforward question posed by the moderator during an entertaining panel discussion at an event I participated in this month.
Some of the answers given were anything but straightforward reflecting that the investment outlook today is perhaps the most challenging in living memory.
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Exchanges

Morgan Stanley Ups Bats Price Target On CBOE Acquisition – Focus on Funds
Teresa Rivas – Barron’s
CBOE Holdings (CBOE) said it would acquire Bats Global (BATS), and Morgan Stanley today upped the latter’s price target on the deal.
Analyst Betsy Graseck and her team reiterated their Equal Weight rating on the stock, but raised their price target from $26 to $32.50, citing the deal, expected to close in the first half of next year.
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China, Hong Kong set for second trading link
Luke Jeffs – Futures & Options World
Exchanges said the Shenzhen trading link is part of the plan to open up China
China has taken another step to opening up its vast domestic market to international investors by formally agreeing to launch the next Hong Kong-mainland Chinese trading link, possibly next month, and pledging again to extend the model beyond equities. The stock exchange and clearing house of Hong Kong Exchanges and Clearing (HKEx) signed on Tuesday an agreement with the Shenzhen Stock Exchange and its clearer ChinaClear to launch Shenzhen-Hong Kong Stock Connect.
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Morgan Stanley Ups Bats Price Target On CBOE Acquisition
Teresa Rivas – Barron’s
CBOE Holdings (CBOE) said it would acquire Bats Global (BATS), and Morgan Stanley today upped the latter’s price target on the deal.
jlne.ws/2e38IhF

ISE Holdings Reports Business Activity for May 2016
Press Release – International Securities Exchange, LLC
ISE’s options exchanges combined to represent 15.2% of equity options market share, excluding dividend trades.
ISE’s options exchanges reported a combined ADV of 2.2 million contracts.
Dividend trades made up 0.4% of industry volume in June 2016.
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Moscow Exchange Plans To Change The Mechanism Of Encoding Options Since November 2016
Press Release
In November 2016, Moscow Exchange will introduce (as recommended by the IT Committee and the Derivatives Market Committee in September 2016) a new approach to compile the long code of options.
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Regulation & Enforcement

Judgment Day inches closer for Israeli binary options firms
Simona Weinglass and Raoul Wootliff – The Times of Israel
For Israelis who work in binary options, there may be a lot to ponder this Yom Kippur as arrests begin and the Israel Securities Authority declares that a crackdown on fraudulent firms is a “national priority.” Israel’s Tax Authority announced on Monday that two men, Haim Toledano and Saar Pilosof, have been arrested on suspicion of hiding millions of shekels from tax authorities through the use of offshore shell companies.
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****SD: Dun dun duuuun!! I’ve tried to include most of The Times of Israel’s crusade against binary options since it represents a microcosm of the industry’s issues.

Strategy

As Trump Falters, a Few Hedge Funds Win Big on Mexican Peso
Katia Porzecanski and Simone Foxman – Bloomberg
Peso posted worst loss among peers last month as Trump gained; Currency is world’s best in October as Clinton advances
As the Mexican peso plunged day after day against the dollar last month, a handful of hedge funds took notice. The peso, they decided, was being overly punished by investors concerned that Donald Trump would win the election and go through with his plans to overhaul U.S. relations with its southern neighbor.
jlne.ws/2e34WF5

Education

Fundamentals of Futures & Options / Series 3 Exam Course
Oct 18-19 – IFM
Our course has been an industry mainstay for more than 25 years and provides a solid foundation in futures and options market theory and practice. The course blends instructor-led teaching with real-world case studies to provide practical application to key principles and concepts.
This is the “must do” course for industry newcomers including administrative, compliance, sales and IT staffs, as well as prospective market users, interns and regulators. It is also well suited for U.S. NFA Series 3 Exam candidates.
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