Observations & Insight
FinTech Chicago Gets Democratic
Today’s financial technology dialog is often about a word you don’t usually associate with it – democracy – bringing software, data, reporting, testing and trading to the masses. And it’s not just one size for everyone – its customizable too. At the FinTech Exchange 2015 Chicago event, 13 firm executives spoke during its lightning round. So John Lothian News took the best of two hours of presentations and condensed into 3 minutes. Here’s how some of those firms are democratizing and customizing technology for all of us.
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Bond Dealers Enfeebled as Liquidity Woes Boost Derivatives
Susanne Walker Barton and Anchalee Worrachate – Bloomberg
As Wall Street retreats from its traditional role as the bond market’s middle man, investors frustrated by sudden gyrations and a lack of liquidity are turning to derivatives — in a big way.
In the world’s biggest debt markets, including the U.S., Europe and Japan, the number of futures contracts on government debt reached a post-crisis high in May after doubling since 2009. Trading of German bund options and Italian futures also hit records.
***DA: Using derivatives for prudent risk management. That’s the story we like to print.
China may launch first stock index options in September – state media
The China Financial Futures Exchange (CFFEX) may launch the country’s first-ever stock index option as early as September, state media reported on Saturday, giving investors more hedging tools as the government steps up financial market reforms.
***DA: Will it be like the early days in the U.S., where they only allow the listing of calls, and no puts?
High valuations test US equity bulls
Nicole Bullock – Financial Times
US equity bulls these days better be economy bulls, too.
The US share market stands at a crossroads, with valuations at elevated levels, thanks to the bull run that emerged in 2009, while facing lacklustre earnings growth. For now, low interest rates are helping support equity prices, but ultimately sustained gains in the market require stronger underlying growth feeding through to the top and bottom lines of companies.
***DA: Yes and no. For nearly a generation now, lacklustre growth has been met with fiscal and monetary stimulus.
What’s the Link Between Yield Spreads and Stocks?
Bernie Schaeffer – Schaeffer’s Investment Research
Equity benchmarks around the world experienced a patch of bumpy price action in mid-May, as a sell-off in German bunds spilled over into U.S. Treasuries. Yields on both instruments jumped as prices fell, and rattled investors dumped stocks in a hurry.
On May 12 — a day that saw the S&P 500 Index (SPX) down 0.9% at its session lows, resulting in the Greek chorus of headlines above — the CBOE 10-Year Treasury Note Yield Index (TNX) topped out at 23.35, its highest level in nearly six months.
VXUP: Distribution Dates, De Facto Dividends, and More
Adam Warner – Schaeffer’s Investment Research
Happy Monday! If you were waiting all weekend for a good Twitter discussion about whether AccuShares Spot CBOE VIX Fund Up Shares (VXUP) will morph from tracking CBOE Volatility Index (VIX) futures early in the “cycle” to tracking closer to VIX itself later in the cycle, well … you’re in luck!
The Week in Russell 2000 Trading – 5/26 – 5/29
Russell Rhoads – CBOE Options Hub
Stocks were lower last week, but the small cap sector seemed to hold up a little better than large caps. The Russell 2000 (RUT) was down 0.45% while the Russell 1000 (RUI) was under a bit more pressure dropping 0.88%. RUT had lost the 2015 performance lead to the large cap focused RUI a few weeks ago, but took the lead back in late May. This performance margin widened last week and RUT is now up 3.47% for the year with the RUI up 2.82%. It is a lead, but definitely a slim margin which can change pretty quickly.
How Goldman Gary Cohn got to Wall Street
Julia La Roche – Business Insider
Wall Street titan Gary Cohn, the president and chief operating officer of Goldman Sachs, last week celebrated his 25th anniversary at the bank.
Cohn, 54, actually has an incredibly inspirational backstory, which is detailed in Malcolm Gladwell’s best-seller “David And Goliath.” And because the summer interns have just arrived, we thought we’d share it again…
It turned out the man Cohn was sharing the cab with was also running the options business for one of the big brokerage firms. Cohn didn’t know what an option was, but he pretended as if he did.
***DA: I did the same thing. The key was to go back home after overplaying my hand, and quickly learn the rules of the game I was playing.
Euronext to launch volatility contracts
Alice Attwood – Futures & Options World
European exchange Euronext has said that it will later this month launch new volatility contracts, as it expands its indices business with three new country offerings.
Michael Hodgson, head of information services at Euronext, told FOW the Paris-based exchange will in late June launch new volatility products; the VAEX and VCAC contracts on the CAC and AEX Volatility indices.
MIAX Options Exchange Announces May 2015 Market Share Record and Volume Statistics
Press Release – MIAX
MIAX Options Exchange (MIAX) announced today that in May 2015 it established a new MIAX monthly market share record with 7.56% of the overall equity options market share for the month. This new record surpasses the 7.29% mark established in April 2015. For the month of May 2015, MIAX executed over 20,800,000 million contracts. This equated to an average daily volume of over 1,040,000 contracts, or 2.7 times May 2014 volume.
JPX derivatives volumes slump in May
Alice Attwood – Futures & Options World
Exchange set to launch cross-margining service for interest rate swaps in September
The Japan Exchange Group (JPX) has said that derivatives trading volume slumped in May, thought the trading value of the contracts rose by more than a third year-on-year.
Regulation & Enforcement
Watchdog suggests EU take less rigid view of foreign derivatives rules
By Huw Jones, Reuters
May 29 The European Union may need to be less rigid in its approach to dealing with financial rules from outside the bloc to avoid disputes with other countries, the EU’s top markets regulator said on Friday.
The EU’s executive European Commission and U.S. Commodity Futures Trading Commission (CFTC) have been at loggerheads for months over whether to recognise each others’ rules for making markets for financial derivatives safer in the wake of the 2007-2009 financial crisis.
Banking brain drain: Why finance risks losing its best talent to the FinTech sector
Katherine Kaplan – City AM
Britain’s FinTech sector is a particularly bright spot in the UK’s recovering economy. Investment in London FinTech grew by 136 per cent last year, with the capital receiving 42 per cent of all European FinTech investment in 2014. But one less-discussed aspect of this is the potential impact on talent within the wider financial services sector.
Using Cheap Options to Ease Fears of a Stock-Market Plunge
Deutsche Bank lists 25 stocks that look attractive. One way to play them is through inexpensive calls.
Steven M. Sears – Barron’s
Fundamentals are forever. But momentum is fleeting.
This is worth pondering, since some investors increasingly worry about earnings growth as the Standard & Poor’s 500 trades at relatively lofty levels and valuations.
Inverse Bond ETFs to Hedge Growing Risk in Fixed-Income Market
Tom Lydon – ETF Trends
After years of piling into the fixed-income market, investors are now faced with significant risks of a rising rate environment. Consequently, bond traders can utilize short or inverse exchange traded funds to hedge their exposure.
“Today, six and a half years after the collapse of Lehman, there is a Bigger Short cooking. That Bigger Short is long-term claims on paper money, i.e., bonds,” Billionaire investor Paul Singer said in a note, CNBC reports.
Will Volatility Players Throw a Wrench in the Bulls’ Plan?
Todd Salamone – Schaeffer’s Investment Research
Despite low expectations among retail investors that have more often than not preceded positive returns during the holiday-shortened Memorial Day trading week, the equity market experienced losses last week. It was Tuesday’s action that accounted for the week’s losses, as equities actually moved higher from Tuesday’s close into Friday’s close. Memorial Day week trading has proven hazardous for bulls in recent years, with five of the past six Memorial Day weeks producing negative returns. Bonds managed to rally, and the CBOE Volatility Index (VIX – 13.84) popped on Tuesday, but June VIX futures were barely higher, as volatility expectations remain relatively muted.
Top U.S-Regulated Option Brokers
Shobhit Seth – Investopedia
Getting started in options trading in the United States requires depositing significant upfront capital into an option broker’s account. Before entrusting your money to a brokerage, protect yourself by making sure the broker is fully regulated under U.S. law.
In the United States, the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) under it regulate the market of all option contracts which have a stock or index as an underlying security. The Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) under it regulate the market of all options contracts which have forex, commodities, or futures as the underlying security. (See related How does FINRA differ from the SEC?)
How To Buy Options On the Dow Jones (DIA)
Elvis Picardo – Investopedia
The easiest and most cost-effective avenue to trade the Dow Jones Industrial Average (DJIA) is through an exchange traded fund (ETF) (See: Strategies to trade the Dow Jones Industrial Average). One of the oldest ETFs is the SPDR Dow Jones Industrial Average ETF Trust (DIA), which tracks the DJIA and seeks to provide investment results that correspond to the price and yield performance of the index.