Observations and Insights

Exchange CEO Series – Asian Opportunity: CME Group’s Phupinder Gill says Asia is the place to be

Exchanges have never faced more challenges and opportunities than they do today.

John Lothian News sat down with six exchange CEOs at the 2014 FIA Boca Conference to talk about their views on four main topics: competition, regulation, growth and technology. Phupinder Gill, CEO of CME Group, said that regulation will continue to define the competition and industry framework for the foreseeable future and rising global demand for existing and new products, particularly from Asia will drive growth.

“The competitive landscape, as it stands now, is going to be largely dictated by where the regulatory landscape takes us,” Gill said. “As exchanges with a global footprint start to think about how the world might evolve, you have to take into account a few things – what the impact of Dodd-Frank is, the finalization of the SEF rules, how MIFID and EMIR work themselves out and implications for infrastructure providers such as ourselves. The trick for us is to make the experience for our client base as seamless as we possibly can.”

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Lead Stories

Equity Markets Destroy The VIX – Weekly VIX ETF Report
Wall Street Sector Selector
Fear definitely left the marketplace last week, despite a hawkish Janet Yellen testimony.  The declines for the VIX and VIX ETFs can likely be attributed to higher equity market prices, in particular the S&P 500 which rose 1.38% for the week.

Ukraine Takes VIX Futures Global
Steven M. Sears – Barron’s
When Russia invaded Ukraine earlier this month, international investors reacted like American investors when they fear some unexpected event is about to clock the stock market. They traded Chicago Board Options Exchange Volatility Index (VIX) futures even though it tracks U.S. stocks and not some European market.

Quadruple-Witching Friday Spooks Stock Market
Wall Street Sector Selector
All of the major stock market indices finished Friday’s session in the red, as “quadruple witching” day sparked an afternoon selloff.  On quadruple witching day, contracts expire for stock index options, stock index futures, individual stock futures, and individual stock options.  Quadruple witching usually increases stock market volatility. 

Father of VIX Options Enters ETF World with AccuShares
Tom Lydon – ETF Trends
In 1993, the year the first U.S. ETF was launched, there was also another monumental introduction.
Robert Whaley was an established expert in derivative contract valuation and risk management.  In 1993, Whaley developed the CBOE Market Volatility Index “VIX” for the Chicago Board Options Exchange. He went on to create the NASDAQ Market Volatility Index “VXN” in 2000 and the BuyWrite Monthly Index “BXM” in 2001. He also co-developed the NASDAQ OMX Alpha Indexes.

New Derivative Guards Against Bitcoin’s Price Swings
Katy Burne – The Wall Street Journal
If you thought trading bitcoin was a shot in the dark, how about bitcoin derivatives?
A start-up derivatives exchange is working on what it claims will be the first bitcoin swap, allowing financial institutions to bet on the value of the embattled virtual currency.

Videocast: Volatility seen headed lower

2014: A Brave New Volatility-Trading World
Adam Warner – Schaeffer’s Investment Research
It was a tough week for the CBOE Volatility Index … but that’s mainly because it had such a strong close to the week before. Remember way back then, Pi Day? We were so afraid Russia would annex Crimea that we needed portfolio protection in a big way.
You know the punch line there.

CLEARING: OTC Derivatives Market is A OK, Aite Reports
John D’Antona Jr. – Traders Magazine
Everything is A OK in derivatives.
That’s what consultancy Aite Group said about the Over the Counter derivatives market, despite the increase in fragmentation in trading venues and projected consolidation among the central clearing counterparties (CCPs). The findings are part of its latest research report, “OTC Derivatives Clearing in 2014: Pump Up the Volume.”

How High-Speed Traders Are Like Fish
Mark Buchanan – Bloomberg View
At precisely 4:00:00 p.m. on Dec. 5, closing time for the Nasdaq stock exchange, a company called Ulta Salon Cosmetics & Fragrance announced worse-than-expected earnings. By 4:00:01 p.m., in the one second Nasdaq required to calculate the final stock price, high-speed traders with access to direct news feeds had already knocked it down by about 3 percent.


JPX’s integrated derivatives market debuts in Osaka
The Japan Times
Japan Exchange Group Inc. (JPX), launched a new derivatives market Monday by integrating the related market at the Tokyo Stock Exchange with that of the Osaka Securities Exchange.

Regulation and Enforcement

U.S. swaps regulator gives EU firms more time to meet rules
Douwe Miedema – Reuters
The U.S. derivatives regulator on Friday gave European trading platforms more time to register and meet strict new rules to make the market more transparent, in anticipation of comparable rules abroad.

CFTC steps up probe of ‘exchange for futures’ deals
Gregory Meyer and Kara Scannell – Financial Times
The US derivatives watchdog has warned market participants of potential legal charges as it escalates a probe into more than a million energy, metals, foreign exchange and other swap transactions.


Investing Insights: Handling End Of Quarter Surprises
JJ Kinahan – Forbes
Last week had it all. Anxiety about escalating tensions over Crimea, uncertainty about the economic impact of the frigid winter and China’s slowing economy, a little gaffe from the new Fed chair, plus “quadruple witching” contract expiration, all of which caused momentary spikes in market volatility. And yet, the net effect? The S&P 500 continued to climb the proverbial “wall of worry” to all-time highs.
Now, don’t get caught flat-footed amid end-of-quarter position squaring but most signs point to a first quarter wrapping up in relatively quiet fashion.  Collective exhale.

A VIX Buy Signal Worth Watching
Before we were so rudely interrupted by all the hullabaloo surrounding Janet Yellen’s definition of a “considerable” amount of time (now known to be six months), we were looking at how the VIX could be used to help identify decent entry points for traders looking to get long the U.S. stock market.

A Perfect Trade for Increased Volatility: TVIX
Roberto Pedone – The Street
It’s been a long time since the market has had a healthy correction. When you look at the chart for the SPDR S&P 500 ETF Trust (SPY), you’ll notice that we now have a failed breakout from the recent test of the SPY’s highs. The selling for stocks could easily pick up the pace to the downside if the SPY takes out its 50-day moving average of $182.59 a share with high volume soon.

Options Education

Volatility Trading Digest – Rotation Challenge
The Options Insider
While the S&P 500 Index made a new intraday high Friday, it also closed lower making a Key Reversal on high options and futures expiration related volume. Interestingly laggards and initial public offerings are replacing the former sectors leaders.




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