Citadel Builds Swaps Unit to Repeat Market-Making Triumph
Miles Weiss – BloombergBusinessweek
Ken Griffin, the billionaire hedge-fund manager who’s captured almost 20 percent of trading in equity options through his market-making business, is taking aim at the global swaps industry.
Citadel LLC, the parent of Griffin’s money-management and brokerage firms, is setting up a dealer to make markets in contracts used to hedge or speculate on everything from currencies to corporate creditworthiness, according to a regulatory filing and a person briefed on the matter, who asked not to be identified because the plans are private. The move positions Citadel to compete with JPMorgan Chase & Co. and other banks that reaped tens of billions of dollars in annual revenue from over-the-counter derivatives.
ETF To Profit As Shorts Squeeze – Focus on Funds
Brendan Conway – Barron’s
Betting that a stock price will decline is often a short-lived opportunity.
And when the tide turns from negative to positive, big moves result when short sellers reverse course and “cover” their positions. To capture this turnaround, there’s a new exchange-traded fund in the works. ETFtrends.com gets credit for flagging the SEC filing on the proposed actively-managed Short Squeeze Fund (SQZZ).
The take of investor Doug Kass of Seabreeze Partners, summed in his email subject line: “sign of a top?”
Father of the VIX Issues Warning on Volatility ETFs
Max Chen – ETF Trends
As the broader market reaches new highs, the CBOE Volatility Index, or “VIX,” is dipping toward a seven-year low. While investors can utilize VIX-related exchange traded funds to hedge market swings, the so-called father of the VIX warns that traders need to understand how they work.
Seven-year itch for the VIX?
Andrew Wilkinson – Futures Magazine
As trading winds down for the week, U.S. equity indexes are at another record high while bond yields remain stable. In late trading the CBOE Volatility Index (VIX) has fallen below 11.00 for the first time since February 2007. Volatility has apparently decided to move on after seven years, having outgrown its stale partnership with fear that so well framed the financial crisis and the Eurozone debt crisis it spawned.
Hedge Funds Betting on Calm as Volatility Shorts Increase
Callie Bost and Lu Wang – Bloomberg
Hedge funds are betting the stock-market tranquility that’s stifling trading and hurting bank profits will be around for a while.
Large speculators have added bets on lower volatility and were net short almost 82,000 contracts on VIX futures last month, the most since October, according to data from the Commodity Futures Trading Commission. The strategy will be profitable should the Chicago Board Options Exchange Volatility Index (VIX) continue its 15 percent retreat this year.
The risks of VIX-tied investing—Commentary
Robert Whaley – CNBC
The Syrian civil war. Economic uncertainty. The China-Vietnam standoff in the South China Sea. High-frequency trading. Any or all of these factors, and many others, can roil markets and cause an upsurge in volatility, which in turn can wreak havoc on an equities portfolio. The fund industry has responded by launching a range of tools that purport to hedge the risk of uncertainty. One of the more popular methods to emerge in recent years is exchange-traded products (ETPs), such as ETFs and ETNs, tied to the VIX, which is the CBOE Market Volatility Index.
Videocast: VIX tumbles near 11
India VIX loses steam, volumes sink to less than Rs 1 crore
Palak Shah – The Economic Times
After the pre-election frenzy, derivatives trading in India Volatility Index (VIX), better known as the ‘fear index’, is on the wane. The index, launched in India in February by the NSE, allows investors to hedge near-term volatility risk. India VIX indicates investors’ perception of near-term volatility.
A high VIX suggests that the market is expecting a higher volatility and viceverse. India VIX and Nifty have a negative correlation. The Index clocked Rs 325 crore worth of trading volumes on the first day of its launch but lost steam in the past fortnight with trading volumes falling to less than Rs 1 crore.
Deal of the Year: BP
Moving quickly, BP managed to salvage Iona Energy’s North Sea acquisition with an innovative crude oil options transaction.
In early February 2013, Iona Energy found itself in trouble. The Scotland-based, Canada-listed oil and gas producer was less than three weeks away from finalising a major deal: the acquisition of a 15% working interest in the Huntington oil field in the North Sea from Houston-based Carrizo Oil & Gas. To complete the deal, Iona needed to raise between $200 million and $250 million, and it had been working with its banks to put together a reserve-based loan (RBL) for the necessary funds.
Cube offers platform options and bespoke volatility analysis
Vita Millers – Risk Magazine
Cube Investing has launched two structured products in the UK that are structured on the basis of its own volatility analysis. Both feature the FTSE 100 and Euro Stoxx 50 as underlyings, while the supertracker version also includes the S&P 500.
Cube Investing has released two products into the UK market via platforms and brokers that will be sold as listed structured notes rather than plans, in what company founder David Stuff says is “bringing European or American-style investing to the UK”.
Deutsche Boerse would use ISE sale proceeds for Asia -sources
Deutsche Boerse would like to use the proceeds from an eventual sale of its International Securities Exchange (ISE) unit to fund expansion in Asia, two sources familiar with the thinking of the German exchange operator said on Friday.
The exchange group has been mulling the sale of its U.S. options exchange, but sees likely offer prices as not attractive enough for any move near-term and has mandated no banks to study the issue, the sources said.
“There is no time pressure,” one of the sources said.
Regulation and Enforcement
SEC Reforms Could Change Business Models
Mark Melin – ValueWalk
Alternative equity trading venue operator Keith Ross thinks the aggressive HFT reform policies outlined by Securities and Exchange Commission Chairwoman Mary Jo White yesterday have the potential to change industry business models but it “is not onerous” and the high frequency trading (HFT) firms “will adapt and continue to do well.” This comes as Eric Hunsader, perhaps among the more vocal critics of the SEC and HFT, is positive on White’s speech with a caveat.
Fed officials put financial stability concerns on front burner
Richard Valdmanis and Ann Saphir – Reuters
A pair of Federal Reserve officials on Wednesday warned that raising U.S. interest rates to fend off bubbles and other troubling signs of financial market unrest could undercut the Fed’s efforts to put the U.S. economy on a sounder footing.
But they embraced broadly different approaches to address the possibility that, as policymakers from Fed Chair Janet Yellen on down have said, extremely loose monetary policy may be encouraging businesses and households to take risks that set the financial system up for another crash.
U.S. futures regulator NFA cuts fees as market grows
Douwe Miedema – Reuters
The U.S. National Futures Association said on Thursday it would cut its fees because increased trading volume and a broader revenue base had swelled the coffers of the agency that self-regulates the futures and swaps industry.
The Chicago-based watchdog said that effective Oct. 1 it would halve the fee it raises on futures contracts, and options on futures contracts, to $0.01 for each side of the trade.