JLN Options: Bats Gets SEC Request on Exchange Order Types, Strategies

Feb 24, 2012

Lead Stories

Bats Gets SEC Request on Exchange Order Types, Strategies
By Nina Mehta, Businessweek
February 24, 2012
(Updates with Chi-X Europe deal value and expansion plans in seventh and ninth paragraphs.)
Feb. 24 (Bloomberg) — Bats Global Markets Inc., the exchange operator preparing for an initial public offering, got a request from the U.S. Securities and Exchange Commission for information on the types of orders customers use on its venues. The request from the SEC’s enforcement division, disclosed in a regulatory filing yesterday on the IPO, sought information about how order types have evolved at the third-largest owner of U.S. equity exchanges by volume. Bats said regulators asked for documents “related to the development, modification and use of order types, and our communications with certain market participants,” including some of Bats’ owners.

BATS Global Markets Profit Up 18.7% In 2011 On Trading Fees
BATS Global Markets Inc. reported an 18.7% rise in profit last year, though the exchange company’s acquisition of a larger European stock market was seen weighing on BATS’s overall profitability. The electronic market operator captured $23.5 million worth of income for the full year of 2011, or $1.26 a share, up from $19.8 million, or $1.08 a share, for 2010, according to full-year financials filed with regulators late Thursday. BATS is prepping for an initial public offering seen as early as late March after delaying the float last year to close its acquisition of Chi-X Europe, giving BATS the biggest pan-European share-trading platform by value of stocks traded. In the U.S. the firm is the third-largest U.S. stock market operator.

BATS Plans $100M Special Dividend For Owners Following IPO
BATS Global Markets will pay a $100 million cash dividend to its stakeholders upon completing its initial public offering, according to a regulatory filing. BATS’ board of directors on Wednesday approved the planned payout, which will allow the trading firms and banks that have backed the seven-year-old company to cash in on their investment. The cash dividend was detailed in a filing submitted to the Securities and Exchange Commission Thursday by BATS in advance of a public float anticipated in late March or early April, according to people familiar with the matter.

NYSE’s Amex Market Hit With Thousands Of Erroneous Trades Friday – WSJ.com
NYSE Euronext’s (NYX) Amex options market was flooded with more than 30,000 erroneous trades on Friday in what traders said was likely an automated strategy running off course. The cascade of orders hit the options market just after it opened Friday, offering to trade call and put options contracts in small numbers at prices wildly off the going market rate, according to traders. NYSE Euronext told customers in a notice this afternoon that the exchange was in the process of reviewing and adjusting some of the prices at which the trades were done, in keeping with exchange policies governing so-called “clearly erroneous” trades.
“NYSE Amex Options appreciates your continued patience as we work through this issue that has impacted in excess of 30,000 one-lot executions,” exchange officials wrote in a notice.
Traders said the episode appeared driven by a market-maker’s trading systems, rather than any issue with the Amex exchange operations.

Option Traders Bet on Financial Stocks Taking a Fall
By Kaitlyn Kiernan, MarketBeat – WSJ
If options traders are to be believed, the U.S.’s biggest banks still have a tough road ahead. A spike in bearish options activity on Goldman Sachs and the Financial Select Sector SPDR, an exchange-traded fund that includes shares of Wells Fargo, J.P. Morgan , Berkshire Hathaway, and Citigroup suggests the banks’ shares may have a tough spring ahead after a spectacular start to the year.

Subdued VIX Not Showing Complete Risk Story
By Chris Dieterich, MarketBeat – WSJ
On its face, the market’s fear gauge hardly looks fearsome, but other volatility metrics show expectations for choppier trading that could jolt this year’s run-up in stocks. The Chicago Board Options Exchange Volatility Index has plummeted as the broader stock market staged its best yearly start in two decades. The VIX, as the index is known, has fallen more than 22% so far in 2012, trading below 18 today. The S&P 500, meanwhile, has climbed 8% so far this year.

VIX ETN Demand Surges (VXX, XIV, TVIX)
Wall Street Sector Selector
VIX Fades On Global Good Feelings (VXX, TVIX, XIV)
Demand for VIX ETNs surges as traders and investors price fear into the marketplace.
VIX is the Chicago Board Options Exchange Market Volatility Index and measures the implied volatility of S&P 500 Index Options. It’s commonly known as the “fear index” and tends to rise as stock and ETF prices fall. It measures the option market’s expectations of volatility over the next 30 days. Demand for VIX ETNs has been so intense in recent days that on Tuesday, after the market close, Credit Suisse, the issuer of VelocityShares Daily 2X VIX Short Term ETN, (NYSEARCA:TVIX) stopped creating shares in the highly popular exchange traded notes. Credit Suisse is the second biggest bank in Switzerland and the sponsor of TVIX which has exploded in volume and assets to more than $690 million, growing by four times in size so far this year.
Options Turn Bullish as Silver Rallies – TheStreet
By Pete Najarian, co-founder of OptionMonster
NEW YORK — Silver moved up again Thursday, and the options turned extremely bullish.
Earlier in the week, investors were buying short-term calls in the iShares Silver (SLV) exchange-traded fund in hopes of a quick rally. Now they’re looking out to the spring, buying big blocks of the June 35 calls and June 36 calls for $2.20 and $1.9, respectively. The trades occurred less than an hour after the open, and both appreciated about 10% as the fund pushed higher.

U.S. Stock Options With Biggest Changes in Implied Volatility
By Bloomberg News – Feb 24, 2012
The following are the U.S. stock options that had the biggest percentage changes in implied volatility from the previous trading day as of 11:30 a.m. in New York.


Follow The ‘Apple VIX’ For Option Opportunities
Seeking Alpha
by: Richard Bloch February 24, 2012
The CBOE has a series of specific “Equity VIX” indexes, one of which tracks Apple’s (AAPL) implied volatility. It basically uses the same methodology as the “regular” VIX, essentially a weighted index of implied volatility for at-the-money options expiring in about a month. You can calculate this data for any stock using option prices, but that’s only practical on a close-to-close basis.

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