Observations & Insight
Mark Spanbroek, European Principal Traders Association – Financial Markets 2.0
“What trading is really about is finding an algorithmic, or systematic way, to analyze the market. And this is done with data.”
Mark Spanbroek’s trading career spanned the transition from the old world of trading pits to the new world of algorithms. He now serves as acting chairman of the FIA European Principal Traders Association (EPTA).
In this MarketsWiki Education presentation, Spanbroek showcases both worlds – Financial Markets 1.0 and 2.0 – from the pit trader in the multi-colored trading jacket to today’s trader, which he says is not a trader, but rather an engineer, and today’s trading strategy is more of a team effort than an individual effort.
ECB dashes hopes of major QE expansion
Heather Stewart – The Guardian
Mario Draghi, the president of the European Central Bank, has dashed investors’ hopes of a significant expansion of its quantitative easing programme to boost the flagging eurozone economy.
The euro jumped on foreign exchanges during Draghi’s press conference in Frankfurt, as he said the ECB had decided to cut the deposit rate on bank reserves, and extend QE by six months – but would not step up the pace of bond buying.
Naked Shorts at the Supreme Court
Noah Feldman – Bloomberg
When you’re trading securities, you generally think about being regulated by the Securities and Exchange Commission and federal law. Should you be worried about state law, too? That question isn’t merely theoretical, as shown by the naked short selling case that was argued Tuesday before the U.S. Supreme Court. The answer has practical consequences for traders of all kinds.
Yahoo Spinoff Talks Send Hedges to 2015 High as Shares Surge
Joseph Ciolli – Bloomberg
As Yahoo! Inc. weighs corporate restructuring plans, options traders are paying a premium to play it safe.
Implied volatility on Yahoo’s stock is at its highest of the year versus an exchange-traded fund mirroring the Nasdaq 100 Index, according to data compiled by Bloomberg. The increase signals rising demand for options used to hedge against losses in Yahoo, whose stock has climbed almost 30 percent since the end of September. That increase includes Wednesday’s 5.8 percent gain, the biggest single-day jump in two months.
Euro Bears Swarm Currency ETFs Using Options
Chris Dieterich – Barron’s
Options traders targeted exchange-traded funds with bets that will profit should Mario Draghi follow through with more stimulus on Thursday and send the euro currency plunging.
Saudi Arabia throws down challenge on oil production cuts
Anjli Raval, David Sheppard and Neil Hume – Financial Times
Saudi Arabia has challenged other big oil producers to join it in output cuts at this week’s Opec meeting, saying it will back actions to shore up prices if these are mirrored by rivals both inside and outside the cartel.
While the proposal from Opec’s de facto leader sets a high bar for a deal that was unlikely to be met by Friday’s meeting in Vienna, it leaves open the possibility of an agreement in 2016.
****SD: Barron’s has some options context for the OPEC meeting here.
Merricks Capital says El Nino will create soft commodities buying opportunity
Jonathan Shapiro – Sydney Morning Herald
The year has been a brutal one for commodity traders of all shapes and sizes with everything from copper to soybeans on the receiving end of a savage sell-off.
The Thomson Reuters commodities index is down 20 per cent this year driven by oil and copper but a range of soft commodities have also contributed to the fall. The price of soybeans, for instance, has fallen 13 per cent this year, trading at a six-year low.
Both smart and dumb money is betting on further falls. Speculative short positions in soft commodities are at record levels while money in passive soft commodity funds further drains away as investors reallocate to better opportunities.
Yellen Signals Fed on Track to Raise Rates in December
Jon Hilsenrath and David Harrison – WSJ
Federal Reserve Chairwoman Janet Yellen signaled she’s ready to raise short-term interest rates this month barring a surprise that shakes her confidence in the economy.
She also suggested she sees dissension within her ranks, which could complicate her moves toward ending seven years of near-zero rates.
Euronext faces delay to interest rates options
Alice Attwood – Futures & Options World
European exchange Euronext could see the launch of its new interest rates options delayed to next year as the group confirmed on Thursday there are no firm launch plans.
Adam Rose, head of financial derivatives at the exchange, said in March Euronext was eyeing a second half launch for interest rate options, to help the group tap greater opportunities in the Small and Medium-sized Enterprises (SME) derivatives space, as reported by FOW,
Intercontinental Exchange Reports ICE & NYSE November Statistics
Press Release – ICE
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, today reported metrics for its exchange traded markets in November.
ICE’s November 2015 futures and options average daily volume (ADV) increased 13% compared to November 2014.
BOX Price Improvement Activity for November
In the month of November price improved contracts on BOX Options Exchange (“BOX”) averaged 306,462 per day. Price improvement versus the prevailing NBBO for contracts submitted via BOX’s price improvement auction, PIP, averaged $603,928 per day, while total savings to investors in November was $11.47M. With this, BOX has saved investors over $694M since its inception in 2004. Overall average daily trading volume on BOX in the month of November was 465,614 contracts.
Execution Quality in the NYSE Market
The share of electronic order books (EOBs) has declined marginally at 57%, from 58% in the last survey. The specialists/designated market-makers (DMMs) have seen their share remain at 29%, while market-makers have seen a marginal increase to 13% from 12%.
Execution Quality in the NASDAQ Market
Electronic order books (EOBs) continue to dominate the Nasdaq market for the covered shares. The share of the three leading EOBs (Nasdaq MC, BATS EDGX Exchange, and BATS BZX Exchange) has declined marginally to 49% (from 50% in the last survey in April 2015). Overall, the share of EOBs has grown to 80% from 79%, while that of market-makers declined to 19% from 20% during this period.
CME Group metals director Harriet Hunnable to leave company
CME Group Inc’s executive director for metals products, Harriet Hunnable, will leave the company on Dec. 11, a CME spokesman said on Wednesday.
Regulation & Enforcement
SEC Announces Charges for Spoofing and Order Mismarking
The Securities and Exchange Commission today announced fraud charges against three Chicago-based traders accused of circumventing market structure rules in a pair of options trading schemes.
The SEC Enforcement Division alleges that twin brothers Behruz Afshar and Shahryar Afshar and their friend and former broker Richard Kenny mismarked option orders to obtain execution priority and lower fees, and engaged in manipulative trading known as “spoofing” to generate liquidity rebates from an options exchange.
And the Winner Is… The SEC Touts Record Number of Cases for Its FY2015, and Highlights Innovative Firsts
Michael Dicke,, Catherine Kevane – JD Supra
The SEC’s enforcement numbers are in for its fiscal year ended September 2015, and to no one’s surprise, the agency filed a record number of enforcement cases. As announced on October 22, 2015, the SEC filed 807 enforcement actions – an almost 7% increase over the 755 enforcement actions filed in 2014. These actions resulted in approximately $4.2 billion ordered in disgorgement and penalties, which is up slightly from the $4.16 billion ordered in 2014. The release also highlighted several “first-of-their-kind” cases, as well as the SEC’s increasing use of cutting-edge data analytics to bring cases.
Proposed U.S Automated Trading Rules Affect Trade Secrets and Cybersecurity
Steve Snyder – Finance Magnates
On November 24, 2015 the Commodity Futures Trading Commission (“CFTC”) issued a notice of proposed rulemaking concerning the Regulation of Automated Trading (“Regulation AT”). Regulation AT reflects the effort of the CFTC to enhance its regulatory regime relating to automated trading in U.S. designated contract markets (“DCMs”). The CFTC is seeking to update its rules to account for the evolution from pit trading to electronic trading and in doing so, to promote best practices for algorithm trading systems, electronic trade matching engines and new connectivity methods. The full publication of the notice of proposed rulemaking (“Notice”) for Regulation AT can be found here.
Fidessa boosts platform with options analytics from Hanweck
Fidessa group plc (LSE: FDSA) today announced that it has integrated Hanweck Associates’ VoleraFEED into its award-winning sell-side equities trading platform to provide users with access to high-performance options analytics. VoleraFEED is recognized as the industry’s leading options analytics service.
CoreOS Enables ISE to Use Containers for Options Trading
Sean Michael Kerner – ServerWatch
In the financial capital of the world, containers aren’t yet king, but they might be – one day. At the Tectonic Summit here, Robert Cornish CTO and Paul Morgan Systems Architect at the International Securities Exchange (ISE) detailed how they are making use of CoreOS and containers in the latency sensitive and performance demanding options trading environment.
Psychological Barriers – Fear of Missing Out
Bob Lang – CBOE Options Hub
One of the four fears of trading is the fear of missing out. The late Mark Douglas, author of ‘Trading in the Zone’ talks about the relevance and how to overcome the four fears of trading, this one being the most important. Oh, the regret we feel when a trade goes away from us. I’ve felt it many times, so have you. The pain from not participating seems worse than that of getting punished on a bad trade. In options trading you can easily miss opportunity, kicking yourself all the way to chasing a trade where you should not be doing so. We’ve all been there, but how do you avoid missing out? There are many key elements to avoid this fear and participating on the winning side.
Another Way to Trade Volatility
Adam Warner – Schaeffer’s Research
In our never-ending quest to bring you ways to analyze the CBOE Volatility Index (VIX), I bring you … the CBOE 3-Month Volatility Index (VXV)! It’s VIX, only longer. While VIX proxies the implied volatility of a 30-day S&P 500 Index (SPX) option, VXV proxies implied vol on a 90-day option. As such, it moves less, as the longer you go out in time, the more mean reversion assumptions set in.
How to Play the iShares Russell 2000 ETF (VIDEO)
Dan Deming, KKM Financial’s managing director, discusses the performance of U.S. stocks and his options strategy with Bloomberg’s Julie Hyman on “Bloomberg Markets.” (Source: Bloomberg)