Observations and Insights
Emerging Opportunity: Silvercrest’s Mike Dubin on Matching Small Funds with Large Investors
The managed futures space continued to struggle to post enticing returns in 2013, but Silvercrest Asset Management’s managing director Mike Dubin says that has not kept his firm from looking for emerging manager talent in the space. Dubin, who spoke at the Emerging Manager Forum in Miami in December, says the research shows that smaller emerging managers have continued to outpace larger funds by 2 percent to 4 percent per annum. There have been a number of studies that conclude that smaller funds that produce nice returns tend to perform poorly going forward when they have large pools of capital to manage and invest. Here’s how Silvercrest is matching small funds with large investors.
A Weekly Gamble for Options Traders
Kaitlyn Kiernan – The Wall Street Journal
This month, Sam Anto, a consultant from the Nashville, Tenn., area who has been trading options for four years, decided to make a bet on Apple Inc. stock. He wasn’t trying to predict whether Apple shares would rise or fall on its earnings, just that prices would swing much more than usual.
To do so, he bought weekly options, contracts that have become popular as a way to play expected events, particularly earnings.
Foreign-Exchange Futures May Double on New Rules, Greenwich Says
Joseph Ciolli – BloombergBusinessweek
Foreign-exchange futures trading has the potential to more than double as regulatory measures push investors out of options and non-deliverable forwards, according to Greenwich Associates.
New Fund Seeks Low Volatility and Income
Roger Nusbaum – The Street
Exchange-traded fund provider First Trust launched three new funds last week, including the First Trust Low Beta Income ETF (FTLB).
Investors closely following the ETF industry will note that FTLB picks up on two popular trends of the last couple of years: low volatility and income.
Videocast: VIX futures holding firm
What’s Behind the Perceived ‘VIX Divergence’
Adam Warner – Schaeffer’s Investment Research
Some scary technical analysis on the CBOE Volatility Index, via Zero Hedge:
**To be fair Zero Hedge is sort of the Chicken Little of financial reporting. -JB
Shell-shocked bears find contrarian comforts
Jamie Chisholm – Financial Times
If the global market wobble at the start of the week was nothing more than a brief stumble in the bull run, then all well and good. Optimists will see it as a pause that refreshes.
But bears – those shell-shocked beasts, long cowering in the corner – may feebly point to factors that could signal some better times soon for the pessimists.
Risk awards 2014: HSBC wins top house
HSBC is Risk’s derivatives house of the year in recognition of the breadth and ambition of its over-the-counter capabilities in 2013 – from the big options trades that reveal growing traction with hedge funds, to its key role in the complex restructuring of underwater hedges at UK telecoms company Arqiva.
CBOE reviews hardware, software to prevent trading glitches
Tom Polansek – Reuters
CBOE Holdings Inc is examining hardware and software systems as it tries to prevent any repeat of the shutdowns and glitches that plagued U.S. financial exchanges last year, executives said on Tuesday.
**The CBOE had their annual press lunch in Chicago yesterday and will do the same in New York today. They had a good story to tell about the growth of their business, particularly VIX and SPX. Oh, and the stock did not do too badly either. This was Ed Tilly’s first annual press lunch as CBOE CEO, with President & COO Ed Provost also attending. There was a startling lack of acrimony at the lunch, except for some uncomfortable questions from one tall and shiny-headed journalist in attendance. There was nothing about being a takeover target, or lawsuits from other exchanges or members or even much mention of the former CEO Bill Brodsky. There was a happy story of growth, innovation (new short term VIX to be launched soon) and industry engagement and leadership in addressing the technology and procedural issues confronting the equities and equity derivatives markets. -JL
Nasdaq won’t operate price-quote technology
Dina ElBoghdady – The Washington Post
Nasdaq will no longer operate the technology that distributes price quotes of all Nasdaq-listed stocks to the public, after failing to gain support for a revamp of the glitchy software, which has disrupted markets and attracted scrutiny from regulators.
NYSE says it would take over Nasdaq stock quote system
John McCrank – Reuters
NYSE Euronext offered on Wednesday to take over the data processor at the center of the massive Nasdaq trading outage last August after Nasdaq OMX Group Inc (NDAQ.O) indicated it would stop running it.
NYSE Euronext and Invesco PowerShares Announce Launch of NYSE Century ETF
Press Release (NYSE)
NYSE Euronext and Invesco PowerShares Capital Management LLC, a leading global provider of exchange-traded funds (ETFs), today announced the launch of the PowerShares NYSE Century Portfolio (NYCC) on NYSE Arca. NYCC is based on the NYSE Century Index, which includes U.S. companies that have been incorporated for at least 100 years, are listed on a U.S. exchange and have a market capitalization of at least $1 billion.
Regulation and Enforcement
Europe Reaches Agreement on Trading of Derivatives
Danny Hakim – The New York Times
The three branches of the European Union government reached an agreement on Tuesday night to more tightly regulate the trading of derivatives and other complex instruments, striking a compromise after a flurry of lobbying by oil and commodity interests.
Wall Street regulators face budget crunch under new spending deal
Sarah N. Lynch – The Wall Street Journal
Two of Wall Street’s top regulators are due to receive much smaller increases in their budgets than they requested, potentially hobbling their ability to police the markets for wrongdoing.
**The financial sector accounts for well over a trillion dollars of total GDP in the US and apparently asking for more than ~0.08% of that to police the markets is asking too much (back of a napkin calculation). -JB
Deutsche Bank Suspends Traders Amid Foreign Exchange Investigations
Chad Bray – The New York Times
Deutsche Bank has suspended several traders amid a series of investigations into potential manipulation of the $5-trillion-a-day foreign exchange market, according to a person briefed on the matter.
HSBC, RBS and SG to offer delegated reporting
Royal Bank of Scotland (RBS), HSBC and Société Générale are the latest dealers to confirm that they will offer delegated trade reporting services to their clients in time for the start of mandatory reporting in Europe on February 12…
In addition, the International Swaps and Derivatives Association and the Futures and Options Association earlier this week published a standard Emir reporting delegation agreement, which limits banks’ liability to gross negligence, fraud and wilful default.
Buy VIX Calls for Cheap Protection
Daniel Putnam – InvestorPlace
Those in the market for trades with a favorable risk-return profile need look no further than options on the CBOE Volatility Index (VIX). With the VIX currently at the bottom end of its range of the past year — and far below its historical average — it’s time to protect your stock-market profits with some cheap insurance via VIX calls.
Seeing It All Before It Happens
Sam Seiden – The Options Insider
Wouldn’t it be nice if there was a crystal ball that told you where the next market turn and market move would be? Imagine looking into the crystal ball one day and it told you the S&P was about to turn lower in the 1803.50 – 1805 range and likely fall 40 points quickly. If I told you that you had access to the same crystal ball that gave us this information the other day, you would not believe.