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Reuters - The options market suffered a setback as U.S. exchange-listed volume last month fell 21.2 percent to 224.9 million contracts down from 310.8 million contracts for the same period last year, the Option Industry Council (OIC) said on Monday.
The drop in November volume comes as annual overall option volume stood at record levels of 3.4 billion contracts, up 28 percent from the 11 month period in 2007.
Trading fell for several reasons. Last month had fewer trading days. This year, November had two trading days less than November 2007.
Reuters - Former American International Group Inc executive Joseph Cassano is under investigation by U.S. prosecutors for possibly misleading auditors and investors about subprime mortgage-related losses, according to a Bloomberg report citing people familiar with the probe.
The report said investigators are asking auditors at PricewaterhouseCoopers about memos they wrote last fall on how Cassano and other AIG executives valued contracts protecting $62 billion in mortgage-backed securities.
Guardian.co.uk - Hedge funds and banks are expected to bear the brunt of derivative losses estimated at $15bn (£9.4bn) linked to the collapse of Iceland’s three major banks - Landsbanki, Glitnir and Kaupthing - which failed in rapid succession last month.
The complex unwinding of trades linked to debt issued by the banks began yesterday with a settlement auction to determine the payout price on credit default swap (CDS) contracts - insurance taken out against the risk of debts going bad - for Landsbanki.
Payouts on all three banks are expected to be some of the largest ever seen in the $54.6tn CDS market - greater than those relating to Lehman Brothers, whose collapse triggered the meltdown of the global financial system.
The high settlement prices for Icelandic bank CDSs will be a blow to hedge funds, banks and other derivative traders who insured the debt.
Bloomberg - Credit-default swap dealers reduced the volume of outstanding contracts for the first time amid efforts to reduce risks in a market used to hedge against bond losses and speculate on corporate creditworthiness.
The volume of outstanding trades fell to $54.6 trillion from $62 trillion in the first half, the International Swaps and Derivatives Association said in a statement yesterday. It was the first decline since ISDA started surveying traders in 2001.
“This decrease primarily reflects the industry’s efforts to reduce risk by tearing up economically offsetting transactions and demonstrates the industry’s ongoing commitment to reduce risk and enhance operational efficiency,” ISDA Chief Executive Officer Robert Pickel said in the statement. “We expect to see more effects of this over time.”
Financial Times - Brian Hunter, the trader who was blamed for the collapse of $9bn hedge fund Amaranth Advisors two years ago, has taken advantage of last month’s plunge in commodity prices to help propel the year-to-date return at the fund he now advises to 230 per cent.
The Peak Ridge Capital Commodities Volatility fund, which Mr Hunter advises, returned 24 per cent in July as commodities prices fell 10 per cent for the month.
The prices were down 19 per cent from their peak on July 3rd – the biggest monthly decline since March 1980, measured by the Reuters-Jefferies CRB Index.
Slumping demand and steadily rising inventories sent the prices for contracts ranging from oil to soyabeans plunging in July, suggesting that the six-year-old commodity bubble may have burst.
Reuters UK - U.S. airlines are cheering a steep decline in the price of jet fuel since mid-July, when crude oil began a nearly $27-per-barrel descent, but that good news may come with a slight sting for carriers that locked in fuel prices when oil was at its peak.
The risk is that oil may drift below the current price airlines guaranteed with hedging contracts, which are usually options. If that happens, the hedges carriers purchased could be a waste of money.
Worse yet, it is possible some airlines could be committed to paying more for their fuel than market prices.
"Given some of the hedging mechanisms they are using, they are going to be subject to significant losses on those portfolios. We’ve never seen such volatility on oil prices," said Brian Nelson, equity analyst at Morningstar.
Independent- The UK’s financial watchdog has targeted hedge funds for the second time this month, demanding more disclosure for those trying to build anonymous stakes in companies using a complex derivative, in a bid to combat market failure.
The move to force disclosure of contracts for difference (CfDs), which comes just weeks after the regulator brought in disclosure rules for short positions in certain circumstances, will leave some hedge funds "fuming", according to one market expert. CfDs and shorting are tactics predominantly used by hedge fund investors.
The Financial Services Authority outlined plans yesterday for investors to disclose their positions if they have built up more than 3 per cent in a company through CfDs. Under the new rules, investors must disclose a position, whether held through shares or CfDs or a combination. Previously there had been no requirement to disclose any CfDs positions other than when the target was in a takeover process.
The move to force disclosure of contracts for difference (CfDs), which comes just weeks after the regulator brought in disclosure rules for short positions in certain circumstances, will leave some hedge funds "fuming", according to one market expert. CfDs and shorting are tactics predominantly used by hedge fund investors.
The Financial Services Authority outlined plans yesterday for investors to disclose their positions if they have built up more than 3 per cent in a company through CfDs. Under the new rules, investors must disclose a position, whether held through shares or CfDs or a combination. Previously there had been no requirement to disclose any CfDs positions other than when the target was in a takeover process.
Forbes- Shares of railroad operator CSX Corp. may trade actively Thursday after a federal judge’s ruling opened the doors to a proxy battle later this month.
On Wednesday afternoon, the judge ruled that dissident shareholders broke the law in their effort to change CSX’s corporate structure, but did not block them from voting for their nominees to the company’s board.
Jacksonville, Fla.-based CSX had sued the two hedge funds in March, accusing them of using share swap contracts to evade federal securities filing requirements.
Bloomberg- Hedge-fund managers and speculators reduced bets on higher oil prices by 80 percent since July as crude futures rose to records and U.S. regulators started investigating trading, government data show.
So-called speculative net long positions fell to 25,867 contracts on the New York Mercantile Exchange in the week ended May 27 from a record 127,491 on July 31, according to a U.S. Commodity Futures Trading Commission report on May 30.
The decline may complicate the CFTC’s probe as regulators try to determine how much of the rise in oil to more than $135 a barrel last month was caused by speculators who may have manipulated the market instead of consumer demand.