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  • Kinetix

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    Cftc: we found yesterday's meeting very informative, and we hope you did as well. We noted the staff's concern about sparse data and its impact on block threshold calculations. We suggest 250 transactions for the calculation to be run at all, which equates to approximately one transaction per day for seasoned products.

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    Cftc: we found yesterday's meeting very informative, and we hope you did as well. We noted the staff's concern about sparse data and its impact on block threshold calculations. We suggest 250 transactions for the calculation to be run at all, which equates to approximately one transaction per day for seasoned products.

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    Attribution Non-Commercial (BY-NC)
    Descărcați ca PDF, TXT sau citiți online pe Scribd
    Indicator pentru conținut neadecvat
    29 vizualizări2 pagini

    Kinetix

    Încărcat de

    MarketsWiki
    Cftc: we found yesterday's meeting very informative, and we hope you did as well. We noted the staff's concern about sparse data and its impact on block threshold calculations. We suggest 250 transactions for the calculation to be run at all, which equates to approximately one transaction per day for seasoned products.

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    Descărcați ca PDF, TXT sau citiți online pe Scribd
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    din 2

    April20,2012 Mr.GeorgePullen CommodityFuturesTradingCommission Washington,D.C. Byemail Reference:RIN#3038AD08 Docket:CFTC20120037 DearMr.Pullen: First,letmethankyouforarrangingyesterdaysmeeting.Wefounditveryinformative,andwehope youdidaswell. Iwantedtofurtheraddressthreeitemsthatcameupduringthemeeting. First,wenotedthestaffsconcernaboutsparsedataanditsimpactonblockthresholdcalculations.We wouldenvisiontwomainreasonsforsparsedata:1)persistentlowtradingvolumelastingayearor more,and2)anewproductwhich,althoughitmaybepopular,hastooshortahistoryforreliable calculations.

    ations.Wewouldsuggestthattheruleestablishaminimumnumberoftransactionsforthe calculationtoberunatall,andwesuggest250astheminimum,whichequatestoapproximatelyone transactionperdayforseasonedproducts.Wesuggestthatanyproductwithfewerthan250 transactionshaveablockthresholdofzero,makingalltradesinthatinstrumentblocktrades. Theseconditemwastheexpressedconcernthatoptionsproductsinparticularcouldpassthrough liquiditycyclesasthepriceoftheunderlyingmovesinrelationtotheoptionstrikeprice.Wenotethat suchasequence,aswheretheoptionmovesfromdeepoutofthemoneytoatthemoneytodeepin themoney,canhavetwoimpacts:ontheoptionsvolatilityandonitsliquidity.Sinceweunderstand thattheblockruleisfocusedonliquidityandnotvolatility,wethinkthattheblockcalculationaswe haveproposeditwillserveitspurposequitewellinthisinstance.Ifdeepoutsordeepinshavelow averagetradesizes,theirblockthresholdswillbeappropriatelylow.Iftheybecomeatthemoneysand theiraveragetradesizerises,theirblockthresholdswillriseappropriately.Thuswethinkthe methodologywillworkasdesiredinthiscase. Thethirdquestionrelatedtothepossibilityoftradersmovingtransactionsbetweenproducttypesin ordertoavailthemselvesoflowerblockthresholds.Theexamplepresentedwasofatraderusingdeep inoptionsasasubstituteforatransactionintheunderlyingbecausetheoptionthresholdislowerthan theunderlyings.Wenotethatthetraderistakingontworisksindoingthat.Thefirstisthattheliquidity oftheoptionispresumablylower,whichiswhytheblockthresholdislower,soanylargeposition establishedwillbemoredifficulttohedgeorunwind.Thesecondisthetheoptionisnotaperfect substitutefortheunderlying,asitsdeltawouldfallifitsintrinsicvaluefell.Wealsonotethatthe

    www.kinetixtt.com 1IndependenceWay,Suite402,Princeton,NJ08540 +1.609.829.5500

    advantagegainedbydoingablocktradeisverytemporary,notpermanent.Thuswedontthinkthis instancewillbeeconomicallyattractivefordealers,and,ifused,wouldnotactuallydamagethe Commissionsoversightfunction. WealsonotedthestaffsconcernabouttheuseofUPIinourcommentletter,sincethat implementationmightbesometimeoff.Webelievethatthesuggestedmethodologycanworkonany classificationschemausedbytheindustryasawhole,andonlyusedtheUPIinourletterbecausewe understandittobethestatedobjectiveoftheindustry. Ifwemissedanyofyourconcerns,pleaseletusknow.Asalways,wewouldbepleasedtodiscussthis letterwiththeCFTCscommissionersorstaffatyourconvenience,andwouldespeciallyliketotalk abouthowthemethodologywouldactuallybeimplementedwhenthetimeisright.Weunderstandthat thisletterwillbecomepartofthepublicrecord. Verytrulyyours, GeorgeBollenbacher Head,RegulatoryReformPractice george.bollenbacher@kinetixtt.com

    www.kinetixtt.com 1IndependenceWay,Suite402,Princeton,NJ08540 +1.609.829.5500

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