Tag Archives: ETF Options


MiFID II Fuels Massive EU Move Towards ETFs, ETF Options, Sec Lending

MiFID II Implementation Triggers Flow of $50b into Europe ETF Market In First Weeks of 2018; ETF Sec Lending and  ETF Options Growth Expected to Drive EU Financial Markets.

“What we’ve seen for the first time in European ETF trading is really a concerted interest in trading ETF options in Europe. A load of clients use ETF options in the States, but in 2018 — and it’s a culmination of MiFID II (and other factors) — I think there is an acceptance that this is now a practical and attractive proposal for people who want to trade volatility, buy protection or raise income by selling options. That’s really unlocking a whole new dimension in the way end-investors can use ETFs,”

Twenty-five years ago, when SPDR, the original Exchange-Traded Fund (ETF) was christened on the American Stock Exchange with the nickname “Spiders”, this MarketsMuse senior curator was one of the first market-makers on the Amex to trade the ‘new-fangled’ product.  Along with a cadre of other professional traders and floor brokers from that time, we’re now viewed as the original cast of The ETF Story.  A quarter of a century later, ETFs represent $3trillion in assets; a number that some expect to double in size in just a few more years.  Across the US financial market ecosystem, the ETF evolution has transformed investment strategy schemes on the part of retail and institutional investors within the context of equity, fixed income, commodities and derivatives market investment styles. And with the January 2018 implementation of  The Markets in Financial Instruments Directive II (MiFID II), few will dispute that Europe is on the cusp of realizing a massive asset allocation transformation to ETF constructs, as the benefits to investors and industry participants cannot be understated.

Slawomir Rzeszotko, Jane Street
Slawomir Rzeszotko, Jane Street

“Best execution and post-trade transparency are two areas where MiFID II seems to have had an impact on ETF trading,” said Slawomir Rzeszotko, head of institutional sales and trading, Europe, at quantitative trading firm, global liquidity provider and market maker Jane Street Group LLC in London. “In both cases, the changes appear to have encouraged institutional investors to execute more trades via (request for quote platforms).”

For those who are still unclear as to the value proposition of utilizing exchange-traded funds, let us the count the ways, starting with the ability to deploy assets based on investment theme (e.g. industry or index of specific types of stocks or bonds) via an instrument that trades just like a stock in terms of transparency, liquidity and low cost commissions. There’s a host of reasons why retail investors are generally better served to use ETFs vs. Mutual Funds. Let’s not overlook Warren Buffett’s view that index investing is a smarter approach for individual investors. For institutional investors, the list of reasons to embrace ETFs has become equally compelling. We won’t provide a tutorial if you haven’t gotten the memo yet, we’ll simply point you to the text book explanation.  It’s taken a long time for institutional investors in the U.S. to ‘get the joke’, now its time for European ETF Issuers to ramp up the education and awareness process aimed at institutional investors. Here’s a few hints as to how MiFID II implementation is going to benefit those charged with overseeing institutional portfolios, pension assets and end retail clients:

  1. Greater Transparency (which delivers Greater Liquidity)
  2. Lower Cost to Execute (vs mutual funds)
  3. Ability to allocate to specific themes
  4. Portfolio Transition Ease
  5. Securities Lending (Sec Lending) Opportunities (more income to funds that hold ETFs)
  6. Introduction of Options on ETFs–to enable hedging and portfolio optimization schemes.

“When volumes and trading hit a certain critical point, the acceptability of any of those things that trade as collateral becomes more feasible.” The look-through liquidity afforded by the MiFID II rules means “we’re at a tipping point where ETFs themselves are being recognized increasingly as something that can be used in the world of lending. It means the borrow market in ETFs in Europe is moving toward where it is in the States.. A good “borrow” or securities lending market also lends itself to a “functional options market..”

We’ll leave the lengthier explanation to P&I’s Sophie Baker–who put forth a superb dissertation in the Feb 19 2018 edition of Pensions & Investments Magazine titled “Europe in line for ETF boom, thanks to MiFID II”.  MarketsMuse ETF curators also extends a big shout out to “Dame Deborah Fuhr”, who is viewed by most across ETF land as the “Queen of ETFs”.  Her Eminence Dame Deborah is an industry icon and founder of research platform and industry think tank ETFGI. When it comes to objectively framing the ETF value proposition within the European theater, nobody does it better–so we think you should follow her on Twitter.

If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor  or email: cmo@marketsmuse.com.



Shanghai Stock Exchange to Launch Options Trading on SSE 50 ETF

MarketsMuse update courtesy of AsiaAsset News

asia asset mgt logoThe Shanghai Stock Exchange (SSE) will unveil its first ETF option next month as a testing ground for the pilot stock option trading program in China.

The China Securities Regulatory Commission (CSRC) said it has authorized the SSE to launch the pilot program with an option based on the SSE 50 Index ETF as the debut product. It will land on the bourse on February 9. The index in question tracks the 50 largest and most representative stocks listed in Shanghai.

The Mainland’s securities watchdog said in a statement that stock options comprise of options based on individual equities and ETFs linked to share indices. “Individual stock options and ETF options are important types of options in international capital markets. They have a role to play in risk management which cannot be replaced by other financial vehicles,” the CSRC said. It added that turnover in options has reached a level similar to that in futures in recent years in terms of trade conducted on global exchanges, signaling a large demand for these products. Continue reading

Option Traders Aim For More Declines in Junk Bond ETFs

MarketsMuse update courtesy of extract from ETFtrends.com column by Senior Editor Todd Shriber..

ETFTrends-logoExchange traded funds holding high-yield debt have stumbled this year due in large part to sliding oil prices. Some options traders are betting on further declines for the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG), the largest junk bond ETF.

Options hedging against swings in HYG “cost the most since 2010 versus those on an ETF following Treasuries and were at an almost six-year high relative to contracts on a Standard & Poor’s 500 Index fund,” report Inyoung Hwang and Jonathan Morgan for Bloomberg.

HYG is off 3.1% this year, but the ETF’s declines and those of its rivals have worsened in the back half of the year as oil’s slide has gained speed. HYG is off 5.6% over the past six months as the United States Oil Fund (NYSEArca: USO) has plunged nearly 47% over the same period.

The message from the options market regarding HYG is clear: More declines are on the way.

“About 56,000 bearish and bullish options changed hands daily on average in December, compared with an annual mean of less than 23,000 through the end of November,” according to Bloomberg.

As oil prices have tumbled, high-yield corporate bond investors have become skittish due to the rising influence of the energy sector within the U.S. junk bond market. Energy issuers account for 15% of the U.S. high-yield market, up from less than 10% seven years ago. [Oil Will Drag Junk Bond ETFs Down]

Oil and gas issuers account for 13.5% of HYG’s weight, the ETF’s second-largest sector allocation behind a 14.9% weight to consumer services.

Then there is the matter of increased leverage. At the end of the second quarter, U.S. shale producers had a total of $190.2 billion in debt, up from less than $150 billion at the end of 2011, according to Bloomberg data.

For the entire story from ETFtrends.com, please click here.

Mr. Shriber has been involved with financial markets for over a decade and has been writing about ETFs for over seven years. Prior to joining ETF Trends, Mr. Shriber was the chief ETF analyst at Benzinga. His written work has appeared on MarketWatch, Minyanville and Investopedia, among other web sites and major daily newspapers such as the New York Times and Washington Post.

China To Add ETF Options to Menu of Shanghai Exchange Listed Products

Below extract courtesy of Futures & Options World Aug 11 article by William Mitting  FOW_logo_-_The_Global_Derivatives_Magazine


ETF options could be launched in China as soon as this month as the country gears up for the full launch of options trading, a leading lawyer has said.

China is undergoing a widespread reform of its financial markets as it seeks to build Shanghai as a global financial centre and develop its capital markets.

The launch of options is seen as a key step in that development and the country’s main derivatives exchanges have been running mock trading since 2012.

Natasha Xie, a partner at the JunHe law firm and a key figure in the local derivatives market, said that some Chinese observers believe that ETF options could be launched this month.

In a recent press conference, Dang Ge, the press secretary of the China Securities Regulatory Commission, said that ETF options will be launched on the Shanghai Stock Exchange (SSE) imminently. Continue reading

BOX Exchange Gets SEC OK to Trade Jumbo S&P 500 ETF Options

bloomberg logo bw   Courtesy of Nina Mehta/Bloomberg LP

BOX Options Exchange, the third- smallest of 11 U.S. options venues, will be the first to begin trading larger-size contracts on the most-active U.S. equity derivatives product, according to a company executive.

BOX will list and trade contracts based on 1,000 shares of the SPDR S&P 500 ETF Trust starting May 10, according to Ed Boyle, senior vice president for strategy at the Boston-based exchange. The so-called jumbo options, approved May 3 by the Securities and Exchange Commission, will be 10 times larger than existing contracts on the Standard & Poor’s 500 Index exchange- traded fund, known by the ticker symbol SPY.

The contract is designed to give institutional investors another way to trade the S&P 500 at a time when many asset managers are increasing their use of ETFs as part of their investment strategies. Institutions often use larger-size contracts like S&P 500 options that enable them to buy or sell bigger positions without signaling their intentions and moving the market.

“We see customer demand for the product because it offers flexibility to institutions and traders looking for larger notional size in trades,” Boyle said by phone. “It also provides additional price competition across indexes and ETFs.”

The contracts, which will be a separate product from the regular-size options based on 100 shares of the S&P 500 ETF, also offer an alternative to indexes such as the S&P 500, which trades exclusively on the Chicago Board Options Exchange, Boyle said.    For the full story from Bloomberg LP, click here.