EFTA01453913

Buy ly expiry European style digital binary option on EURUSD struck 5% below spot @ 21% of payout (which i think is too cheap) current strike (spot 5%) would be 1.3120 At expiry if EURUSD has fallen by more than 5% from current levels the option payout is EURlms. Upfront premium is EUR210k. The option is liquid and can be unwound at any time. i) Yellen has done a poor job of communicating the Fed's thinking but its increasingly clear the Fed will brake later than usual ii) Betting on higher us interest rates in the rates market isn't cost effective because the forward curve is already pricing in higher rates iii) The Dollar hasn't appreciated yet because short rates in the US haven't risen meaningfully iv) THE KEY POINT - FX volatility is very low in currency pairs like EURUSD where central bank policy on each side is increasingly diverging. The low vol makes this bet inexpensive to put on. v) Because FX vol is so low betting now or soon with a one year time horizon costs very little. id rather be early than late here vi) i prefer ly expiry because this trade could take 6-12mths to play out lY EURUSD VOL: Low - but then again most most vols are What I like about EURUSD is that central bank policy on each side is diverging <2.49F0.gif> This Table shows mid-market premiums (in % of notional) as spot and time change. <4.47E4.gif> 19.5 is mid (offer is 21) 4) Scale into f4mm Nationwide (UK Building Society) 6.875% perpetual which yields 6.4% in GBP and is likely to be called in Syears European Bank AT1 HyBrid Bonds (aka CoCo's) have rallied significantly. We were unable to get the BBVA issue at the right levels. A very similar bond which has rallied 30bp less than the BBVA is the Nationwide (UK Building Society) 6.875% perpetual which currently yields 6.4% and is likely to be called in Syears time. It has a tierl capital trigger of 7% and current tierl capital ratio is 13% which is fair margin. CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0 111768 CONFIDENTIAL SDNY_GM_00257952 EFTA01453913