JLN Options: When options trading ahead of deals raises eyebrows

Apr 12, 2013

COMMENTARY & INSIGHT

From the John Lothian Newsletter:

One Giant Step for ISE…
Gary Katz
Since John was gracious enough to let me stand on his soapbox this week, I am going to use it for a little shameless self-promotion this morning. As I hope many of you have already seen, ISE announced the brand name of our second options exchange yesterday – ISE Gemini. While we are still pending regulatory approval and expecting to launch in late Q2, this is another major step forward for us. The name itself was chosen through an internal committee which honed in on Project Gemini as NASA’s second human spaceflight program. The innovation, technology and teamwork required to make that initiation a success resonated with us as we look to make ISE Gemini into a complementary platform to ISE’s existing exchange. Although the name evolved from NASA and not from the zodiac symbol Gemini, coincidentally two of the naming committee members – myself included – are parents of twins. I can only hope that these twin exchanges grow as fast and as tall as my twin fourteen year old boys.

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Lead Stories

When options trading ahead of deals raises eyebrows
Angela Moon and Doris Frankel, Reuters
Within 36 hours of Warren Buffett’s announcement of a deal to buy H.J. Heinz, U.S. authorities froze an account linked to possible insider trading.
The speed of the crackdown on a lucrative options bet, combined with successful prosecutions of insider trading rings, suggested that regulators were quickly jumping on any suspicious activity.
http://jlne.ws/Zm7uKL

ISE Targets Launch for New Options Exchange
Dow Jones Newswires
Deutsche Boerse AG’s International Securities Exchange is looking to launch its second U.S. options exchange during the current quarter, pending approval from the Securities and Exchange Commission, the exchange operator said Thursday.
jlne.ws/ZOF8Px

Derivatives-Tax Plan Concerns Industry
John D. McKinnon and Siobhan Hughes, The Wall Street Journal
The Obama administration’s proposal this week to change the way some derivatives are taxed signals common ground with Republicans on a potentially difficult and divisive tax issue that could have far-reaching implications for investors.
http://jlne.ws/17vEtCZ

Radical US tax proposals could snare structured products in mark-to-market net
Yakob Peterseil, Risk.net
A radical tax proposal from Washington would raise rates for holders of structured products and move these instruments to a mark-to-market regime. Yakob Peterseil explores what this might mean for the industry.
http://jlne.ws/YihWD5

IntercontinentalExchange Announces April 29 Launch of 35 New Futures Contracts
Press Release (ICE)
IntercontinentalExchange (NYSE: ICE), a leading operator of global markets and clearing houses, today announced the introduction of 35 new energy, environmental, freight and ferrous metal contracts on April 29, 2013.
The new contracts, which will be cleared at ICE Clear Europe and are subject to completion of relevant regulatory processes, include global crude oil, gasoline, middle distillate, natural gas liquid, natural gas, power, environmental, freight and iron ore futures and options products. With the products announced today, ICE will offer over 800 energy contracts.
http://jlne.ws/Zm9mTV

Infosys Plunge Gives Options Traders 200% Profit on Strangle Bet
Santanu Chakraborty & Michael Patterson, Bloomberg
Options traders who bet Infosys Ltd. (INFO)’s sales outlook would surprise investors tripled their money today as the stock tumbled the most in a decade.
Traders who bought out-of-the money puts and calls on Infosys yesterday, a wager known as a strangle that benefits when volatility increases, earned 217 percent as of 1:28 p.m. in Mumbai, based on the most-traded contracts.
http://jlne.ws/Zm9Qcx

Futures will not beat swaps on margin alone, say buy-side firms
Nick Sawyer, Risk.net
The lower margin regime for swap futures contracts will not by itself kill off the over-the-counter swaps market, leading buy-side firms say, but some industry participants remain convinced US regulators need to even out the treatment of futures and OTC instruments.
http://jlne.ws/14i2GOp

VIX Slips as Dow and S&P 500 Set New Records
Wall Street Sector Selector
New record highs for both the Dow and the S&P 500 brought some damage to the VIX, although less than Wednesday’s wreckage.
http://jlne.ws/XHM0gj

Sales of Structured Notes Tied to S&P 500 Fall With Volatility
Kevin Dugan, Bloomberg
Quarterly sales of U.S. structured notes tied to the Standard & Poor’s 500 Index fell to an almost two-year low as investors look to more volatile benchmarks for more attractive deals.
http://jlne.ws/ZmaKFZ

Exchanges

IntercontinentalExchange Announces Daily Volume Record in Heating Oil
Press Release (ICE)
IntercontinentalExchange (NYSE: ICE), a leading operator of global markets and clearing houses, today announced a daily volume record of 35,733 contracts was reached in ICE Heating Oil futures on April 11, 2013. The previous volume record was 26,850 contracts on March 6, 2013.
http://jlne.ws/XHMsuU

Regulation

High-Speed Trader Said to be Considered for SEC Post
Dave Michaels & Robert Schmidt, Bloomberg
Chris Concannon, an executive at high-frequency trading firm Virtu Financial LLC, is under consideration to oversee trading and markets at the U.S. Securities and Exchange Commission, according to people briefed on the discussions.
http://jlne.ws/ZOF6XQ

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