A synopsis of the headlines in the derivatives industry from the last week
US
A move back to OTC
OTC trades have come back into the fold with activity across listed US futures, options and securities lending transactions dropping over last year’s levels.
According to the Chicago Board Options Exchange (CBOE), average daily volumes for options and futures declined by 7% in January, 22% in February and 12% in March versus 2014 levels for each month – largely driven by drops in the exchange’s VIX futures and options contracts.
The fall represents a departure from the trend of increasing volumes started in 2009 when concerns around counterparty credit pushed market participants to transact through central intermediaries for safety. It is also swimming against the tide of regulation which is trying to push as many contracts as possible on regulated exchanges and through central clearing.
Market participants attribute the fall not only to the CBOE’s high exchange fees but also to concern among traders over activity by high-frequency trading firms in cash markets involved in delta-hedging sizable options positions, Dealers delta-hedge sold options positions by buying shares in the relevant underlying immediately after the options sale.
Source: http://www.reuters.com/article/2015/04/13/markets-derivatives-otc-idUSL2N0X71ER20150413
Bats to launch options market
Bats Global Markets, one of the three main stock-exchange operators in the US, is launching an options market called EDGX Options, in November of this year. It will directly compete with options exchanges run by Nasdaq OMX Group and International Securities Exchange.
This is not its first foray into a different asset class. Earlier this year, BATS acquired currency-trading venue Hotspot for $36m from KCG Holdings. It wanted to get a foothold into a market it believes will increase as regulation forces more currencies to trade on exchanges. According to the latest Bank for International Settlements, the global foreign-exchange market saw an average daily trading of $5.3 trillion in 2013.
Source: http://www.efinancialnews.com/tradingandtechnology/derivatives?mod=secondnav
Only the safest US debt to qualify for repo deals
Market participants believe that US Treasuries and government-related bonds are likely to be the only collateral covered when financial institutions begin offering centralised trade clearing in the short-term market for borrowing and lending debt.
The securities account for about 85% of the almost $1.7 trn financed daily in the repurchase-agreement market, where banks typically borrow cash for a short time from investors, such as money-market mutual funds, using securities as collateral.
Banks and clearinghouses are close to unveiling their centralised systems. LCH.Clearnet Group’s parent company clears repo transactions in Europe while the CME Group and the Depository Trust & Clearing Corp. through its Fixed Income Clearing Corp. subsidiary, are among the companies also working to develop U.S. repo clearing structures.
Europe
Clearinghouse protests Esma plans for greater choice
A group of seven European derivatives exchanges operators have joined forces to protest the European Securities and Market Authority’s plans to give investors greater choice to trading futures and options.
The seven include Deutsche Börse, Intercontinental Exchange (ICE), Euronext, the London Metal Exchange, Bolsas y Mercados Españoles, the Athens Exchange and the ICE-owned Holland Clearing House. They warn that advanced European plans to require derivatives clearing houses to link to each other — intended to stimulate competition and lower trading costs — pose a threat to market stability and customer protections due to the different risk management models and capital buffers.
Their views were also in response to the London Stock Exchange Group, Nasdaq, interdealer broker ICAP and LSE-controlled LCH.Clearnet, who have called on regulators to open up markets and inject more competition.
Source: http://www.ft.com/cms/s/0/87102302-e72f-11e4-8e3f-00144feab7de.html
The decoupling of Greece?
Unlike three years ago, when the possibility of Greece exiting the eurozone sent markets into a tailspin, investors seem fairly sanguine. Greek bond yields continue to jump but the yields on the other periphery countries are showing very little stress while major indexes in the US and Europe are trading near their record highs.
This is in contrast to 2012, when talk of contagion sent Italian and Spanish government debt yields soaring, briefly stretching above 7% for 10-year bonds—a level seen as unsustainable. Panic ensued and equity markets tumbled.
The European Central Bank’s first round of quantitative easing provided a backstop and the latest injection has also calmed the waters. Analysts also believe that the periphery countries particularly Spain are on the road to recovery although they warn institutions from becoming too complacent. The IMF recently warned that a Greek exit would not only impact the country but also present a major challenge to the eurozone, even though Europe is now in a stronger position than a few years ago.
Boat seeks APA approval
Boat Services, an independent OTC trade reporting service provider, is applying for approved publication arrangement (APA) authorisation under MiFID II. The aim is to offer publication services for all MiFID II instrument classes, including bonds, structured finance products, derivatives and emission allowances.
Under MiFID, the new regulated entity, the APA, will harmonise standards across Europe, replacing the UK’s Trade Data Monitor construct.
Source: http://www.finextra.com/news/announcement.aspx?pressreleaseid=59372
