Observations & Insight

Out of Chaos: ICE’s Sprecher Says Exchange Is Set For Growth


The Intercontinental Exchange Group had a record 2014, but for CEO Jeff Sprecher “boy, it was a chaotic year.” ICE posted revenues of $3.01 billion last year from transaction and clearing fees, as it consolidated operations from the 2013 NYSE Euronext acquisition, navigated changing regulations, handled energy market volatility and eyed its Asian expansion.

Sprecher, who spoke with JLN editor-in-chief Jim Kharouf at the FIA Boca conference, said regulation will continue to be a strong influence on the marketplace in 2015. But ICE is not waiting for the US and European rulemaking process to reach its conclusion. The exchange plans to launch a new Singapore-based exchange and clearinghouse to complement its US and European operations.

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Lead Stories

Citadel Securities to close Apogee ‘dark pool’: sources
John McCrank – Reuters
Citadel Securities, a top market maker in U.S. stocks and listed options, plans to shutter its Apogee “dark pool” to focus on another of its off-exchange stock trading venues called Citadel Connect, according to people with direct knowledge of the matter.
Apogee ranked 18th out of 37 U.S. dark pools – which like exchanges, match buyers and sellers of stocks, but without disclosing pre-trade information so that trading interests remain hidden – by volume in the latest statistics from the Financial Industry Regulatory Authority.

Warren Buffett’s right hand man Charlie Munger thinks a derivatives trading desk is like a ‘casino in drag’
Myles Udland – Business Insider
Charlie Munger, the vice chairman of Berkshire Hathaway and Warren Buffett’s right hand man, is not a fan of derivatives.
Speaking at the annual meeting of Daily Journal Corporation, a newspaper publisher at which Munger serves as chairman, Munger said, “What do you think a derivatives trading desk is? It’s a casino in drag. They make the witch doctors look good.”

***JB: Just so long as they look fabulous…

A History of Failure Hasn’t Stopped Speculators From Trading This Note
Callie Bost – Bloomberg
Speculators are again piling into an exchange-traded note that lets them bet on how long days of calm will last in the U.S. stock market.
The trade, using a six-year-old security known as VXX that sees more average daily volume than shares of Microsoft Corp. and Facebook Inc., has usually backfired amid the biggest bull market since the 1990s. That hasn’t curbed its popularity, with the iPath S&P 500 VIX Short-Term Futures ETN poised for an eighth straight week of inflows, a streak not seen in three years. Shares outstanding in the note are at an all-time high.

Are We in the Beginning of a VIX Regime Change?
Adam Warner – Schaeffer’s Investment Research
As savvy late ’80s options trader David Coverdale once sang — “Here We Go Again.”
Yes, it’s yet another market drop/CBOE Volatility Index (VIX) pop. It seems like only a week ago we had gotten comfortable with the fact that the Fed would manage to get the word “patience” out of its statement and not spook the markets. Wait … that was only a week ago.

Treasury Help Sought in Cross-Border Swaps Dispute
Andrew Ackerman – WSJ
Senate Agriculture Committee Chairman Pat Roberts (R., Kan.) is pressing the Obama administration to help resolve a cross-border dispute over derivatives regulation in a fight that threatens to harm big U.S. firms like CME Group Inc.
Mr. Roberts, whose panel has jurisdiction over derivatives markets, is asking the U.S. Treasury Department to help resolve the dispute over the global treatment of clearinghouses—entities that are supposed to help prevent a market-wide collapse by ensuring every party in a derivatives transaction would get paid even if one side falters.

Volatility is Back: Here’s How to Embrace This Market
Shelley Goldberg – Wall Street Daily
Over the past few years, the U.S. Central Bank served as a calming drug by forcing both fundamentals and technicals to take a backseat.
One side effect?
Markets became lazy and complacent. Traders sat in their chaise lounges as phases of quantitative easing came and went.
Volatility plummeted as a result.

Wall Street Banks Bask in Warmer Trading Clime
John Carney – WSJ
Although winter weather still besets the northeastern U.S., spring has certainly arrived for big Wall Street banks: Trading is back in bloom.
The volume of trading in bonds, interest-rate products, currencies, and commodities has been sharply higher in the first three months of 2015. This will likely mean improved trading revenues when the big market-making banks report results for the quarter coming to its close in just a few days.

***JB: Global warming?

So Buffett Will Only Get to Triple His Ketchup Money
Matt Levine – Bloomberg
I did some loose calculations and concluded that the market valued the combined company at about $83 billion, giving Heinz an equity value of about $42 billion. This math was fairly uncontroversial. I then said: Well, okay, Berkshire and 3G invested $10 billion in cash yesterday, so that’s worth $10 billion. That means that their shares in Heinz — the ones they bought for $8.5 billion two years ago — are worth $32 billion, roughly quadrupling their money.


CBOE, C2 and CFE Trading Schedule for the Good Friday Holiday
Press Release – CBOE
CBOE Holdings, Inc. (NASDAQ: CBOE) today announced the trading schedule for Chicago Board Options Exchange (CBOE), C2 Options Exchange (C2) and CBOE Futures Exchange (CFE) in observance of the Good Friday holiday on April 3.
CFE will offer limited trading hours for CBOE Volatility Index (VIX Index) and CBOE/CBOT 10-Year U.S. Treasury Note Volatility Index (VXTYN Index) futures on Friday, when the U.S. employment report for March 2015 is released at 7:30 a.m. CT.
All trades on CFE that take place between 3:30 p.m. CT Thursday, April 2, and 3:15 p.m. CT Monday, April 6, will be for business day Monday, April 6.

Regulation & Enforcement

New HFT Oversight Viewed as Hollow Victory for U.S. Regulators
Dave Michaels and Sam Mamudi – Bloomberg
The U.S. Securities and Exchange Commission took its first shot Wednesday at boosting regulation of high-speed traders. The industry says it dodged a blow.
The SEC’s proposal, approved Wednesday by the five-member commission, will force some high-frequency traders to become members of the Financial Industry Regulatory Authority, which oversees brokerage firms’ practices. Affected companies include Virtu Financial Inc. and Tradebot Systems Inc., according to a person familiar with the matter.

Fed’s Top Cop Gets Grilled About Leaks
Alan Katz – Bloomberg
For once, Federal Reserve chair Janet Yellen isn’t the only one on the spot. This week, lawmakers want answers about what’s really going on inside the Fed from its behind-the-scenes internal cop.

***SR: I read that the secret to perfectly grilled leeks is to boil them first.

SEC Unanimously Votes HFT Firms Must Register with FINRA
Phil Albinus – Traders Magazine
The SEC unanimously approved a proposal that high-frequency trading forms would have to register with the Financial Industry Regulatory Authority, the brokerage industry’s self-regulator.


Biotech Bubble? Traders Betting It’s About to Burst
Steven M. Sears – Barron’s
Trade aggressively and carry a big stick.
That’s the approach some investors are taking in the hot biotechnology sector. They are using options to reduce the risk of owning a hot sector, even as some investors worry that biotechnology stock prices are at, or approaching, bubble levels.

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