Practical analysis for investment professionals
25 January 2012

Derivatives Roundup

Posted In: Derivatives

As you are aware, the derivatives markets never sleep. There is always something going on. Following a year of turmoil concerning regulation and the use/misuse of derivatives, many stories from this rapidly growing segment of the investment industry warrant your attention.

Here is what I have been watching:

  • Global exchange traded derivatives volume increased during 2011, rising 8.9%. The growth came mainly from stock index (up 14.5%) and ETF options (up 32.9%), continuing a trend from 2010. From a regional perspective, securitized derivatives listing and turnover increased 23% in the EMEA region, while falling 21% in the Americas. 
  • Controversy regarding derivatives regulation abounded as delays in Dodd-Frank were simultaneously criticized and praised by various industry groups. The proposed Volcker Rule proves size does matter as MF Global would have fallen below the regulatory threshold. This prompted regulators to consider expanding the scope of this and other provisions.
  • The growing relevance of short-term options was highlighted in a report by the Tabb Group. According to the report, 8% of U.S.-listed options trading was related to these products. Due to short-term nature of the instruments, minimizing latency is critical to success, author Andy Nybo wrote.
  • The volatility complex at the CBOE was recently expanded as the exchange added a volatility index on emerging markets, VXEEM, to its stable of indexes that measure levels of implied volatility (the VIX, VXN, and others). Volatility options and futures are fascinating products due to the unique hedging opportunities that result from volatility’s negative correlation to stock prices. With the addition of futures and options on the VXEEM, investors can develop volatility-based strategies on an emerging market index as well as on the S&P 500 (VIX) and NASDAQ 100 (VXN).
  • Sub-pennies from heaven may be falling soon if NYSE Euronext has its way. Proponents and opponents are vocal on allowing quoting of equity prices in sub-penny increments. (Will derivatives soon follow?) I have strong opinions of my own. See what they are in a future blog.

For more news and trends, visit the Derivatives Community of Practice.

About the Author(s)
Bud Haslett, CFA

Bud Haslett, CFA, is executive director of the Research Foundation of CFA Institute and head of risk management and derivatives. Previously, he served as director of option analytics at Miller Tabak + Co., LLC, and as CEO of Miller Tabak Capital Management. Haslett also spent two decades on the options trading floor, where he managed portfolios of stocks and options. He also served as a board member of CFA Society New York, chair of the board of regents for the Financial Analysts Seminar, and president of the CFA Society Philadelphia. Haslett was an active volunteer for CFA Institute, having served in a variety of capacities, including as a CFA exam grader and member of the Council of Examiners. He has also taught coursework on options at New York University, Johns Hopkins University, and Rutgers. Haslett is the founding chairman of the derivatives committee for CFA Society New York and is a member of the Institutional Investor Advisory Committee for the Chicago Board Options Exchange. He has conducted option presentations and workshops at more than 50 CFA Institute societies. Haslett holds master’s degrees from the University of Pennsylvania and Drexel University, and he has earned the Financial Risk Manager designation. Topical Expertise: Derivatives · Risk Management

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