Observations & Insight

New Energy: Nasdaq Prepping For Launch Of Nasdaq Futures
JohnLothianNews.com

Nasdaq Futures was announced in March with a goal of shaking up the energy futures markets. Since then, Nasdaq’s team has been busy building infrastructure and signing up new members. The question is, will they challenge the likes of CME Group’s Nymex or the Intercontinental Exchange?

Hans-Ole Jochumsen said that Nasdaq Futures, or NFX, has the model to compete with established markets.
Watch the video »

Lead Stories

Choose Your Own Fear Adventure
Tracy Alloway – Bloomberg
The Chicago Board Options Exchange Volatility Index — better known as the Vix — early yesterday yawned, awakened from its long-term slumber and spiked 35 percent to make its biggest jump in two years.
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VIX Hits Four-Month High on Greece, but Still Nowhere Near ‘Panic’
MoneyBeat – WSJ
The market’s fear gauge has jumped to its highest level in more than four months.
The CBOE Volatility Index, which is based on prices of S&P 500 options, is up 23% to 17.29 on Monday as Greece’s debt situation jolts markets across the globe. A close at this level would be its highest since Feb. 9, when the VIX ended at 18.55.
Investors often rush to protective S&P 500 options when they’re concerned about a pullback, bidding up those prices and the level of the VIX. In recent action, the S&P 500 fell 1.2% to 2076.
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***DA: Who among us remembers staring into the abyss back in 2008? That was a panic. This is not. Yet.

Banks, bond insurers shares drop on Puerto Rico worries, options see more falls
Noel Randewich – Reuters
Shares of banks and bond insurers exposed to Puerto Rico plummeted on Monday due to growing fears the U.S. Commonwealth would default on its debts, and options activity on many of those shares hinted at further declines to come.
Bond insurers were hit the hardest. Assured Guaranty shares fell 15.8 percent while MBIA Inc fell 21 percent. Ambac Financial Group dropped 11 percent. All three have sold insurance against potential defaults of Puerto Rican debt.
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***DA: Ambac and MBIA – now where have I heard those names before? Oh, yeah. During the last debt crisis, when they oversold default insurance.

Ignore the Noise Coming From Greece and All Else
Bob Lang – CBOE Options Hub
I often talk about the need to focus on markets and the price action, ignoring the noise from the crowd. Doing will often help you sidestep dangerous advice designed to twist your mind. We can consider all the excuses or reasons for selling – there are a million of ’em – but at the end of the day it is the market action, the effect and not the cause that will be our guide. The first step is understanding the technical condition, sentiment and indicators. These will always point the way.
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Markets on tenterhooks as Greek deadline looms
Reuters
Stocks on Wall Street edged up on Tuesday to keep a global equities gauge higher despite declines in Europe, while the euro remained under pressure as Greece grappled with a looming deadline on a debt repayment to the IMF.
Greece submitted a new two-year aid proposal to its creditors, calling for debt restructuring in what seemed like a last-ditch effort by Athens to resolve its impasse with lenders. Talks between Greece and its creditors broke down over the weekend and forced Greece to close its banks and impose capital controls.
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Five Volatility Indexes Rose More Than 30% [Yesterday], As Worldwide Stocks and Oil Prices Fell on News Out of Greece
Matt Moran – CBOE Options Hub
In the past couple of days, news out of Greece regarding capital capital controls and bank closings had a worldwide negative impact on stock and oil prices, while five of CBOE’s volatility indexes rose more than 30%, and volume in VIX futures soared to an estimated 415,000 contracts. After news about the closures of Greek banks broke over the weekend, VIX futures volume in the 5 pm (Sunday) to 2 am CT session was a record 32,617 (estimated) contracts, an all-time record for that time period.
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Everyone’s at the Table of Sacrifices
Matt Levine – Bloomberg
Well it seems that Greece is going to miss a payment to the International Monetary Fund today, and the European Central Bank will decide whether to extend its Emergency Liquidity Assistance to Greece tomorrow. So after years of can-kicking, tomorrow seems to be the first day on which Greece could actually be kicked out of the euro. The odds of a Grexit tomorrow are low — presumably Greece will get at least the weekend to vote to kick itself out — but, still, that’s a bit of a change. Greek Prime Minister Alexis Tsipras: “They will not kick us out of the euro zone. Let me explain why, because the cost is immense.” Umm!
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Drama in S&P Charts as the Index Closes In on the 200-Day Moving Average
Bloomberg
U.S. stock traders looking for a bottom are staring at a pair of chart indicators that coincided with past rebounds.
The Standard & Poor’s 500 Index closed Monday at 2,057.64, falling within 0.2 percent of its average price over the last 200 days, or 2,053.51. The gauge’s relative strength index, which measures the speed of swings, slipped below 35.5, the lowest reading since December. Technical analysts consider 30 a point where rallies are likely to materialize.
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***DA: Drama? Is it tragedy or comedy? I have my vote.

FOREX-Euro down on month-end flows, Greek headlines inject volatility
Reuters
The euro fell on Tuesday on month-end flows and as investors braced for the near certainty that Greece will default on a repayment to the International Monetary Fund later in the day, putting the country at risk of an exit from the euro zone.
The euro shed 0.4 percent to $1.1190 as hedge funds stepped up sales. The currency had hit a four-week low of $1.0955 on Monday in reaction to concerns on the future of Greece and the euro zone. It fell more than 1 percent against the yen, before recovering to trade at 136.86 yen, though still down 0.6 percent on the day.
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Citigroup Overtakes JPMorgan as Top U.S. Derivatives Dealer
Dakin Campbell – Bloomberg
Citigroup Inc. overtook JPMorgan Chase & Co. to become the largest derivatives dealer in the U.S.
The firm’s derivative contracts as measured on a notional basis were $56.6 trillion at the end of the first quarter, according to data compiled by the Office of the Comptroller of the Currency and released Monday. JPMorgan ranked second with $56.2 trillion and Goldman Sachs Group Inc. third with $52 trillion.
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Exchanges

ICE, CME Carve Up the Trading Business: A Tale of Two Exchanges
John Lippert – Bloomberg
How the exchange giants ICE and CME acquired their way to dominance, a drawn-out drama.
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***JB: Comics as a means of reporting? Not sure I am sold.

Regulation & Enforcement

US derivatives regulator proposes new margin rule for cross-border swaps
Reuters
U.S. derivatives regulators proposed a new rule on Monday that spells out exactly when large swap-dealing banks engaged in cross-border trades will be required to post margin for riskier, uncleared products.
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Goldman Sachs Neither Admits Nor Denies, to Pay $7 Million to Settle SEC Charge
Corporate Crime Reporter
Goldman, Sachs & Co. will pay $7 million to settle charges of violating the market access rule in connection with a trading incident that resulted in erroneous executions of options contracts.
Goldman Sachs neither admitted nor denied the charges.
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Group to fix the markets can’t even agree on the questions
Francine McKenna – MarketWatch
Equity markets are “broken,” a “complete mess,” or maybe even “rigged.” Luis Aguilar, a commissioner on the Securities and Exchange Commission, was quoting others when he used those words in remarks to the inaugural meeting of the SEC Equity Markets Structure Advisory Committee on May 13. But his warnings were no less emphatic. Almost five years to the day since the so-called flash crash, the SEC and key market players were finally gathered to discuss, and inevitably debate, the causes and responses to a significant decrease in investor and regulator confidence in the markets. It’s been a long road getting to this point.
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Compliance can yield advantage – Object Trading
Luke Jeffs – Futures & Options World
Banks, brokers, market-makers and prop firms should change how they think about regulatory spending and look to turn regulatory compliance into a competitive advantage, according to the chief executive of a leading trading tech firm.
Steve Woodyatt, chief executive of Object Trading, which cut on Tuesday a deal with another tech firm, said some of the things that firms are required to do can have real business benefits.
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CFTC boss Timothy Massad one year in
Luke Jeffs – Futures & Options World
Timothy George Massad became one year ago the most powerful derivatives regulator on the planet and was pitched headlong into a regulatory maelstrom that had been building since the financial crisis of 2008.
The new chairman of the Commodity Futures Trading Commission entered the fray at a crucial time in the regulatory reform of the US derivatives market.
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Strategy

Russell Investments Strategists’ Outlook – Q3 2015 Update
Press Release – Russell Investments
Russell Investments’ global team of investment strategists today released the 2015 Global Outlook – Q3 Update, offering a summary of economic insights and market forecasts that help to guide the firm’s multi-asset portfolios and services. The perspectives focus in large part on anticipation around two key looming events: timing of the initial interest rate increase by the U.S. Federal Reserve (the Fed) and negotiations around the Greek bailout. The strategists expect the first rate hike in September—a long-held view—and for Greece ultimately to stay in the Eurozone, but acknowledge that uncertainty around these events could lead to market volatility, which they see as an opportunity to add selected risk exposure to portfolios.
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Here’s What To Expect After Yesterday’s 34% VIX Spike
Bill Luby – Investing.com
One of my top posts from 2013 was All-Time VIX Spike #11 (and a treasure trove of VIX spike data), in which I sliced and diced the twenty largest one-day VIX spikes in the history of the VIX volatility Index. Nineteen of those spikes were in excess of 30%. With all-time #5 arriving later in 2013 and all-time #15 and #16 following in 2014, I was compelled to comment that despite the seemingly low VIX and concerns about complacency, 2014 Had Third Highest Number of 20% VIX Spikes.
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