Derivs - FX

The likelihood of Taiwan’s Bank SinoPac being forced to unwind its US dollar, offshore China yuan target redemption forward positions rose yesterday as the country’s financial regulator banned the firm from issuing further notes.

There have been sizeable flows in sterling against the US dollar as investors tap one-to-three-month calls on the currency pair, while others look to sell slightly longer-dated puts as cable continues to move higher.

Bank of America Merrill Lynch has dedicated significant time and resources over the past 12 months to developing the firm's infrastructure and technology, which has resulted in better pricing and increased liquidity in both vanilla and exotic options. This is one area that was praised by buyside firms and resulted in BAML being crowned FX Derivatives House of the Year at this year's GlobalCapital Americas Derivatives Awards.

BM&FBOVESPA, Brazil’s sole bourse, has been at the forefront of developing liquidity in the listed derivatives market in Latin America. It has seen growth in many of its commodity futures contracts, such as coffee futures, while also continuing to innovate across other asset classes, with one example being the deployment of non-deliverable forwards last July. That helped the exchange win this year’s GlobalCapital Americas Derivatives Latin America Exchange of the Year.

S&P Dow Jones Indices’ recent push to become a fully-fledged player in the fixed income marketplace, in addition to its strong presence across other asset classes, was lauded by market participants. That drive the firm’s achievement in winning the 2014 Global Capital Americas Index Provider Of The Year award.

Corporate investor that have successfully restructured US dollar, China yuan target redemption forwards over the last month could be in for more losses if the yuan continues to weaken against the dollar past 6.25.

Investors have been entering one-month-to-one-year down-and-out-puts and “appearing” put spread strategies with strike prices of 90% and 80% of spot on the S&P 500, in a bid to monetize the elevated skew levels on the index.

A change to the Financial Industry Regulatory Authority’s communication rules relating to the filing and content requirements for retail communications are a positive development for the structured products market, according to lawyers.

One institutional investor was seen picking up short-dated 10-delta calls on the Australian dollar against the US dollar this week. The calls had a tenor of one week and strikes at $0.9480, according to fx traders.

Investors should look at buying a January 2015 variance swap on the SPDR S&P Metals and Mining exchange-traded fund for 29.7 points, while selling a Jan. 2015 variance swap on the S&P 500 for 17.2 points, in a bid to play possible impending turbulence in China and other emerging markets.

The combination of extremely low volatilities in fx and strong risk sentiment from investors has generated a revival in the use of carry trades, according to fx traders and strategists.

Investors should sell one-month US dollar, Malaysian ringgit non deliverable forwards at 3.253 and buy USD, Korean won one-month NDFs at 1043.5 in a bid to play MYR’s recovery against KRW.