Lead Stories

Deutsche Boerse Said to Explore Sale of ISE Options Business
Matthew Monks and Aaron Kirchfeld – BloombergBusinessweek
Deutsche Boerse AG is exploring a sale of International Securities Exchange Holdings Inc., the U.S. options business it acquired in 2007, people with knowledge of the matter said.
The exchange operator has been studying the matter internally for several months and hasn’t reached out to any buyers, the people said, asking not to be identified discussing private information. ISE, which Deutsche Boerse acquired for $2.8 billion, may fetch $1 billion to $1.5 billion in a sale, one of the people said.

Volatility Increases From Currencies to Bonds Before ECB
Kevin Buckland and Eshe Nelson – Bloomberg
Euro volatility surged to the highest in a year and price swings in Treasuries rose to a two-month high as investors speculated on the extent to which the European Central Bank will ease monetary policy today.

The risk of volatility | Analysis
Michael Berry – Money Marketing
Volatility is the basis for most fund risk-rating tools and European regulators have stipulated that fund managers should use their volatility-based formula for the synthetic risk/reward indicators that feature on investor disclosure documents.
But Morningstar Investment Management global chief investment off-icer Daniel Needham says the use of volatility as a proxy for risk is flawed.

The Fed is freaking out that markets are not freaking out
Daniel W. Drezner – Washington Post
There’s a very weird message that’s been trickling out of the Fed and other central banks over the past week. The first I saw of it was Gillian Tett’s FT story last week that officials are worried about — wait for it — low volatility.

The Backward-and-Forward Volatility Game
Exploring the inflated VIX premium compared to historical volatility measures
Adam Warner – Schaeffer’s Investment Research
The VIX is near 12. That’s about a 250% premium! Even if you prefer to compare them in absolute terms (as you should, in my humble opinion), that’s still a 7.3-point premium of implied over historical. Normally, we see about a 4-point premium.
So sell all options, right?

Markets: Keep Calm But Don’t Carry On
Justin Lahart – The Wall Street Journal
There is nothing inherently wrong with a calm investing climate. The problem is what it can lead investors to do.
These are quiet days in the stock market. Historical volatility for the S&P 500—how much the index has tended to chop around over the past 30 trading days—has fallen to some of its lowest levels since 2007. So, too, has the Chicago Board Options Exchange Volatility Index, or VIX, which measures the degree of volatility that options prices imply is expected by investors. Bond, commodity and foreign-exchange market volatilities are similarly low.

We should not be frightened of a return to volatility in the markets – provided it can be  – Hamish McRae – The Independent
It’s quiet – too quiet. You know the classic movie scene where the hero observes how quiet things are just a moment before all hell breaks loose? It’s a bit like that on the financial markets just now. Whether there is some shock about to hit us is anyone’s guess, but the lack of volatility in the markets is quite remarkable. Shares in the developed world are pretty flat, currencies are pretty flat, bonds are pretty flat and most commodities are pretty flat too.

Even The Mo-Mo Stocks Are Slow-Mo These Days – MoneyBeat
Chris Dieterich – The Wall Street Journal
It’s so quiet in the stock market these days that even the market’s most volatile names aren’t moving much.
It’s now well known that the Chicago Board Options Exchange Volatility Index, an options-based gauge of expected swings in the S&P 500, is unusually low.

Videocast: VIX 11 level targeted

Return To The Valley Of Low Vol
Seeking Alpha
– Large cap U.S. equity volatility is low in the current environment even when compared to the tame standards of 2013. The benign conditions raise concerns that stormier days lie ahead.
– Historical patterns do show a tendency for volatility to surge after a long period of calm. But the calm can last for an extended period.
– Moreover, what follows is not always bad. It is instructive to compare the aftermath of the previous two “low vol valleys” in the early 1990s and mid-2000s.

Quants: how they shaped the modern energy market
Stella Farrington – Risk Magazine
Quantitative analysis revolutionised financial markets in the 1970s and 1980s, but its use in the energy world was limited until the 1990s, when deregulation spread across natural gas and power markets in the US and Europe. As the old order of fixed prices and guaranteed markets came to an end, gas and power companies became exposed to substantial price and volume risk for the first time, rendering risk management an urgent new priority.


OCC Wins Silver in The Best Annual Report Category at The PCC Golden Trumpet Awards
Press Release (OCC)
OCC announced today that its 2012 annual report won a Silver Trumpet in the Best Annual Report category at the 2014 Golden Trumpet Awards presented by the Publicity Club of Chicago at a dinner honoring the award winners on June 4, 2014.
The 2012 annual report, “The Foundation for Secure Markets,” outlines the ways in which OCC provided firm footing, stability and integrity for the derivatives markets by managing unseen risk with the strongest safeguards in the business—a central counterparty role and three-tiered system of financial safeguards.

Regulation and Enforcement

SEC’s White unveils sweeping markets proposals
Scott Patterson – MarketWatch
Securities and Exchange Commission Chairwoman Mary Jo White unveiled a sweeping set of initiatives Thursday to address mounting concerns about the impact of computer-driven trading on the stock market, including proposals that would extend oversight of high-frequency traders and dark pools.

DERIVATIVES: Automated trading rules approach futures markets | Capital City
Capital City | IFRe
CFTC staff told market participants at a meeting of the Technology Advisory Committee on Tuesday that the agency is considering augmenting rules around pre-trade risk controls, registration requirements, reporting obligations and systems safeguards.
“We are getting closer at the staff level on a recommendation we’d like to discuss with the Commission,” said Vincent McGonagle, director of market oversight at the CFTC.

High-Frequency Trading Models Get FCA’s Wheatley Scrutiny
Lindsay Fortado and Dave Michaels – Bloomberg
Britain’s market regulator is scrutinizing high-frequency trading algorithms to ensure firms can suspend operations at short notice and aren’t abusing the market, its chief executive officer said.
The Financial Conduct Authority is monitoring firms across the industry to understand “the risks associated with the development of algorithms for use in high-frequency trading,” Martin Wheatley said at a conference in New York today.


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