Derivs - People and Markets

A concerted rally of US and European credit and equity in the run-up to next week's European Central Bank meeting has all but eclipsed the blowout that occurred during last month’s turmoil. But traders warn that the market is still highly technical in its behaviour and further heavy volatility may not be far way.

Intercontinental Exchange’s assertion this week that it is mulling an offer for the London Stock Exchange Group, along with rumours of rival interest from CME, has ushered in a ‘phoney war’ with main suitor Deutsche Börse, say market participants — but the ensuing battle makes the future of LSE’s clearing business far from certain.

European bond yields have fallen to new recent lows as the market takes an increasingly dim view of growth prospects, which has in turn put insurance bonds under increased pressure.

The CME Group will launch trading of a new dollar index futures contract in April, in collaboration with Bloomberg, with the new index including the offshore RMB (CNH) as one of its currencies.

Tradeweb Markets, a fixed income and derivatives marketplace operator, has bought CodeStreet, a firm that specialises in developing data-driven trade identification and workflow management software.

Intercontinental Exchange (ICE), the exchange, clearing house and data services operator that is circling an approach for the London Stock Exchange, has agreed to buy Standard & Poor’s Securities Evaluations and Credit Market Analysis.

The Singapore Exchange (SGX) has put in a non-binding bid to acquire London-based Baltic Exchange, the global hub for trading and settlement of physical and derivative shipping contracts.

A merger between London Stock Exchange Group and Deutsche Börse could bring huge cost savings and margin benefits — but would concentrate clearing house risk, running directly against the regulatory desire to end "too big to fail".

Mounting clamour around the prospect of the UK voting this summer to leave the European Union raised the risk stakes for currency and options traders this week, but some volatility traders preferred to pin their hopes on the European Central Bank producing another ‘big bazooka’ next month.

The industry-wide unsupported exposure of the derivatives market to collateral settlement failure is $27bn for sellside firms alone, the Depository Trust & Clearing Corporation said this week.

Two new derivative products that were launched this week suggest an increased focus on alternative sources of beta and exposure to risk premiums.

Last summer investors turned to shorting bond exchange traded funds as the bond market kicked back into life amid the Greek crisis. Volatility has continued in earnest in 2016 as the Markit iTraxx Europe index, which tracks CDS spreads across investment grade issuers, hit a three year high of 121bp earlier this month.