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OTC Mart Recovers Swiftly From London Bombs

08 Jul 2005

Over-the-counter derivatives markets in Europe recovered quickly after bomb attacks in London on Thursday.

Over-the-counter derivatives markets in Europe recovered quickly after bomb attacks in London on Thursday. There were some liquidity difficulties in the morning, but dealers said normal trading had resumed by the afternoon. The Chicago Board Options Exchange's VIX volatility index, a common measure of perceived risk, registered only a 22 basis point uptick, closing at 12.49% on Thursday.

In the first few hours of Thursday trading, traders reported demand for equity put protection and a rush to the fx options market to buy up exposure to the Swiss franc. There was also interest in selling short-dated equity implied volatility but one trading head said his firm looked to limit the volatility it put onto its books at Thursday morning's levels, remembering that after last year's Madrid terror attack equity volatility recovered quickly. But lack of adequate two-way flow skewed prices. "It was not liquid enough to get sensible prices," noted one broker.

Speaking Friday as DW went to press, however, Larry Chen, equity derivative analyst at UBS in London, said everything is back to normal. "We do not expect this to have any long term effect on the markets," he added.

08 Jul 2005

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