Observations and Insights

It’s Easier This Way: Justin Llewellyn-Jones of Fidessa Maps A Compliance Path for Firms

Today, firms are dealing with three major issues: regulation, compliance and global economics. None of the three are friendly to firms and that’s where Justin Llewellyn-Jones, chief operating officer of Fidessa , believes there is opportunity.

Llewellyn-Jones spoke with JLN editor-in-chief Jim Kharouf last month at the IDX conference in London, about how Fidessa is developing new technology that will assist firms in making the trading, risk and account management, and compliance task easier.

Watch the video »

Lead Stories

Calm in Stocks Ending as Earnings Season Brings Volatility
Callie Bost and Joseph Ciolli – Bloomberg
The selloff in technology stocks and small-caps is a warning sign that months of calm in the equity market are coming to an end.
“You’re getting investors who were once euphoric preparing for more volatility on the basis that the economy and market may not be as strong as they believed,” Matt McCormick, who helps oversee $11 billion as a fund manager at Cincinnati-based Bahl & Gaynor Inc., said in a phone interview. “It’s natural that people would want to be more cautious in an environment where there are more questions than answers.”

Listen to the Pundits or the Markets?
Bob Lang – CBOE Options Hub
Not a bad first half of 2014 with the SPX 500 being the big winner, up a solid 6%, steady every month and with the old adage of a down January working against it, seemed to defy all the naysayers (remember hearing that old saw, ‘as January goes so goes the rest of the year’?).  With half a year to go there is certainly time to see markets make their next move.  But even the ‘lowly’ Russell 2K, up in the first half, seemed to be the punching bag of market performance this year after robust 2013.  The small cap index was higher by 3% or so after getting hammered 10% in a Spring sell off.

Trading systems provider Horizon Software successfully enters China’s mainland
By Andrew Saks-McLeod, LeapRate
Western company Horizon Software yesterday became the first vendor to offer an options trading system in China’s mainland.
The longstanding conundrum which often perplexes FX firms across the globe is how to enter mainland China and sustain business.
Many FX companies are well aware of the potential business that can be attained from within China, and with the assistance of clever payment processing systems, have managed to attract Chinese clients to Western companies, in turn generating significant volume.

Is rising volatility here to stay?
Futures Magazine
Is rising volatility here to stay? Not so, according to a chunky play using Vix options on Tuesday morning.
As the CBOE Vix index surges for a third day (+9.44% to 12.40)–and it fell to an astoundingly low 10.30 following Thursday’s employment report–an investor bought puts expiring at the end of the week suggesting the current bout of selling will quickly abate.

Rupee Volatility Climbs Before India Budget as Spot Rate Steady
By Kartik Goyal, Bloomberg
Expectations for swings in India’s rupee climbed to the highest this month before Prime Minister Narendra Modi’s government presents its first budget tomorrow.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 12 basis points, or 0.12 percentage point, to 7.48 percent in Mumbai, according to data compiled by Bloomberg. That’s the highest since June 27. The gauge climbed 16 basis points yesterday.

India Bulls Unshaken by Selloff as Modi Budget Beckons
By Santanu Chakraborty, Bloomberg
India’s biggest stock selloff in 10 months has done nothing to shake the resolve of bulls in the options market, who say shares will rally as Prime Minister Narendra Modi outlines plans to strengthen the economy.

Is Volatility Too High?
Chief Investment Officer
An S&P Dow Jones Indices director has argued that the Vix index is far higher than “realised” volatility—but the ride will get rougher in the next few months.
The VIX index, which measures market volatility, is actually much higher than the current levels being demonstrated in the S&P 500 index, according to S&P Dow Jones Indices.
Tim Edwards, director of index investment strategy at the company, said the VIX’s current measure of roughly 11.5 was nearly double the 6% annualised volatility actually registered by the S&P 500.

Videocast: Split trading on VIX

The End of the Rally is Upon Us … Or Is It?
Why the CBOE Volatility Index (VIX) bounce isn’t necessarily reason to panic
Adam Warner, Schaeffer’s Trading Floor Blog
Is this the beginning of the End of The Rally?
Short answer is … c’mon, who can possibly make a judgment on that without the benefit of hindsight?
Longer answer is … you really shouldn’t aspire to catch THE top. I’d rather either sell gradually into rallies over time, or sell after we’ve started to pull back. Let pundits on TV make the dramatic calls. The reality is, if I’m picking one spot and selling into strength, there’s about a 0% chance I picked the right spot.


ICE CEO calls for market-wide purge of order types
Sarah N. Lynch – Reuters
In a perfect world, stock exchanges would collectively agree to ban order types that critics allege create complexity and may give certain traders unfair advantages, Intercontinental Exchange Group chief executive Jeffrey Sprecher told lawmakers on Tuesday.
“I am uncomfortable with having all of these order types. I don’t know why we have them. And I have started to unilaterally eliminate them,” said Sprecher, whose company owns and operates the New York Stock Exchange.

Eurex Enters FX Trading Business, Could Force CME To Reduce Prices
In its recent monthly volumes breakdown, CME Group (NASDAQ:CME) reported a decline in trading volumes in the last several months over the year-ago period across almost all derivative classes, other than interest rate derivatives, after a solid start to 2014. [1] Competing exchange operator NASDAQ OMX (NASDAQ:NDAQ) also witnessed a similar decline in trading volumes of derivatives during the current quarter. Among the various derivatives traded on CME’s platform, trading activity for foreign exchange (FX) traded products have been very low over the last year or so.

Dubai gold exchange relists Indian rupee option
By Paul Ploumis, Resource Investor
The Dubai Gold and Commodities Exchange (DGCX) announced today that it will relist the Indian rupee option contracts effective July 18. The contracts had been temporarily suspended in 2013 to facilitate migration into a new trading infrastructure.

Morningstar to provide financial data for NYSE’s redesigned website
Banking Business Review
Intercontinental Exchange (ICE) has selected Morningstar, Inc., a leading provider of independent investment research, to provide comprehensive financial data and web solutions for the New York Stock Exchange’s redesigned website, www.nyse.com.

3 Reasons to Love CBOE Holdings Inc.
By Matthew Frankel, The Motley Fool
CBOE Holdings (NASDAQ: CBOE  ) operates some of the largest options and futures exchanges in the world, including its namesake Chicago Board Options Exchange.
The company has grown tremendously over the past several years as the popularity of options and futures as investment vehicles has soared. Since 2009, the company has grown at an average annual rate of 9.2%, and operating margins have expanded from 38.7% to 50.8%. What is driving the growth, and how does the company plan to continue its excellent growth going forward?

Regulation and Enforcement

Levine on Wall Street: Dirty Consultants and Fat-Finger Traders
Matt Levine – Traders Magazine
Rengan Rajaratnam is free.
Raj Rajaratnam is a former hedge fund manager who did quite a lot of insider trading, so it stands to reason that, if you hung out with him a lot, you might have done some insider trading too. Based perhaps on that plausible logic, federal prosecutors in New York brought insider trading charges against Rajaratnam’s younger brother Rengan, who hung out with Raj a bunch, including in particular in wiretapped conversations, which is pretty much the worst place to hang out with him.


Bloomberg set for key futures and options role
Luke Jeffs, FOW (subscription required)
Data vendor has bought RTS in a deal that complements its existing products
Bloomberg has bought RTS Realtime Sytems in a deal that significantly expands the data vendor’s footprint in the exchange-traded derivatives markets.
Bloomberg, which built its electronic trading business in the fixed income markets, acquired the tech company that links banks, prop firms and hedge funds with exchanges…

Thinking Outside of the Box: Esposito Launches Options Desk Taking Risk In Order to Facilitate Client Orders
Press Release
Esposito Securities, LLC is a fast-paced, technology-driven company whose mission is to be the leading global services provider of innovative financial solutions by outperforming our competitors and providing exemplary products and services to our clients.


Three Gray Swans – Week of July 14 – 18
Russell Rhoads – CBOE Options Hub
As part of our effort to keep traders on top of the markets I have started a new blog series using the title, “Three Gray Swans”. The idea is that a Gray Swan is a market moving event that we know is coming, we just don’t know what the market impact is going to be. I take a look at economic and earnings calendars for the following week and highlight what looks like potential market or individual stock moving events that are on the horizon.  This week there are two earnings events (one involves two stocks) and an economic number that have caught my eye.

Volatility strategy targets Popular
Chris McKhann, optionmonster.com
A large volatility strategy is looking for a big move higher or lower by Puerto Rico-based bank Popular by early next year.
optionMONSTER’s Depth Charge system shows that a trader bought 7,500 January 32 puts for the ask price of $1.80 on a wide bid/ask spread. This is a new position as there was no previous open interest in the strike, and the volume was more than 10 times the name’s total daily average.

How to Profit as Archer Daniels Shares Break Out
Rather than buy the stock, consider using options to leverage gains in the coming months.
Scott H. Fullman, Barron’s
Investors consider it a good sign when the share price of an acquiring company rises after announcing a takeover. So was the case for Archer Daniels Midland (ticker: ADM ) on Monday. Following the announcement that it was purchasing Switzerland-based Wild Flavors for $3 billion, shares of Archer Daniels jumped 1.6% to $46, even as the broader market fell. Furthermore, the rise was a breakout to a new six-year high, and a breakout from a nine-month technical basing formation.
The best way to profit from Archer Daniels’ bright prospects may be through an options trade, explained below, rather than buying the shares.

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