Derivs - People and Markets

Investors have been buying short-dated options on the euro and US dollar against the Canadian dollar, as the Canadian unit has continued to strengthen over recent days following the announcement that Burger King will buy Canadian fast food chain Tim Hortons.

Eris exchange has seen increased popularity in its seven-year standard swap futures contract, as firms look for ways to avoid the swap execution facility mandate for packaged trades under Dodd-Frank.

Hedge funds are holding back from signing up to the International Swaps and Derivatives Association protocol, which will automatically upgrade existing derivatives transactions between two signing counterparties to the new 2014 credit definitions. The funds want to wait and see how liquidity compares after the new contracts are released on Sept. 22.

Insurance firms have been entering six-to-18 month hybrid out-the money S&P 500 equity 90-to-95% put options over the last month that execute should rates rise.

UBS listed Tuesday on the Frankfurt and Stuttgart stock exchanges a new tracker certificate that uses a Solactive hedge fund index as the underlying.

The US Commodity Futures Trading Commission has issued an order filing and settling charges against broker-dealer Merrill Lynch for allegedly failing to diligently supervise its officers', employees', and agents' processing of futures exchange and clearing fees charged to its customers. The Commission’s order requires the firm pays a $1.2mn civil monetary penalty.

Buyside firms are taking responsibility for reporting of collateral and valuations in-house, voicing fears that delegating reporting of such data creates liability concerns.

Investors have increasingly been buying options on the euro against both the dollar and sterling, as market participants expect further volatility to occur in the single currency following comments from European Central Bank president Mario Draghi at last week’s annual symposium in Jackson Hole.

Volatility arbitrage hedge funds were seen last week buying far out-the-money November 2014 and March 2015 calls on realized S&P 500 forward variance swaps.

Société Générale is seeing interest among macro hedge funds for outperformance options that pit a newly created Japan buyback index against the Topix Total Return Index.

Overall credit default swap notional that was reported to swap data repositories last week decreased by 27% from the previous week, according to data from the International Swaps and Derivatives Association. This follows a decrease of 30% from the week prior. Overall interest rates derivatives trading that was reported, also declined by 13%.

Fund managers are taking long positions on peripheral banks cautiously, expecting an imminent European balance sheet review to reveal further inconsistencies similar to those at Banco Espirito Santo, which resulted in the Portuguese government splitting the bank.