Observations and Insight
A Wrinkle in the OCC’s Capital Plan?
Doug Ashburn – JLN
Today is the last day to file a comment letter to the Securities and Exchange Commission on a capital raising plan, and two of the 12 U.S. options exchanges have voiced an objection.
On January 26, 2016, the SEC published and sent out for comment a proposed rule change at the Options Clearing Corp. that would allow it to raise its target capital reserve from $25 million to $247 million. Under the proposal, the five legacy “equity holder” exchanges – CBOE, ISE, NASDAQ OMX PHLX, and the two NYSE exchanges (NYSE MKT and NYSE Arca) – would augment their capital contributions up to the new buffer, in exchange for a perpetual dividend from the OCC from its clearing fees. The remaining options exchanges – BATS Options, NASDAQ Options, NASDAQ BX, BOX, C2, Gemini, and MIAX, are non-equity holders.
The dual-class system dates back to 2002, when OCC amended its rules to remove the ownership requirement for firms for which it provides clearing services. It should be noted that, of the seven non-equity holders, four of them – C2, NASDAQ Options, NASDAQ BX and Gemini – are all subsidiaries of equity holder exchanges. From a corporate level, that leaves BOX, BATS and MIAX as the possible odd-men out, as non-subsidiaries.
Read more ==> http://jlne.ws/1AUBKVa
In case you missed it:
Ivers Riley: A Man for All Markets
Jim Kharouf – JLN
There are pioneers, innovators and leaders in every industry. Ivers Riley is one of the rare individuals to wear all three titles.
Riley, who died yesterday at the age of 82, is one of those executives who was part of several transformational events in the financial markets’ history, including: the early stages of the options industry; the creation of exchange traded funds, one of the most successful products in the history of financial markets; two critical periods at the Hong Kong exchanges; and a key player at the International Securities Exchange, which ushered in fully-electronic options markets.
Riley’s career was rare in the sense that he worked at several exchanges and across three asset classes: stocks, options and futures. He is first noted for his work in the mid-1970s at the Chicago Board Options Exchange, for his efforts in promoting and educating regulators and the industry on put options. Riley’s work earned him the nickname “Mr. Puts” for his relentless efforts on behalf of the contract.
While the CBOE was established in April 1973 and was growing, it wasn’t until the introduction of puts just over three years later that volumes at the exchange exploded. With puts established at the CBOE, the exchange posted record daily volumes in 1978 and soon afterward topped average daily volumes of 500,000 contracts per day.
“When I think of Ivers, I think of a person who took a backwater product, one that was listed and only traded calls initially,” said Gary Katz, CEO of the International Securities Exchange and a long-time colleague of his at the ISE. “And he convinced the regulator that puts were not boogeymen, that they were not to be afraid of, they were necessary for a portfolio. That, at the most basic level, was the building block of what would ultimately become the listed options market. Can you imagine what the market might look like today if we only traded calls?”
Read the rest of the article, including Riley’s innovative work on ETFs, his stint in Hong Kong, and his push toward electronic markets, on JohnLothianNews.com: http://jlne.ws/1vFvyZD
ETFs To Protect Against Rate Increases Make Their Debut
Katy Burne – WSJ
A pair of exchange-traded funds launched Thursday aim to shield investors against rising rates, as the guessing game continues over when the Federal Reserve might act.
One, a new actively managed ETF from provider AdvisorShares Investments LLC, is focused on the $730 billion market for tradable bank loans. Interest rates on bank loans float above a market benchmark, meaning investors should earn more on the loans as rates rise.
Options-Based ETFs Generate Better Risk-Adjusted Returns
Tom Lydon – ETF Trends
Exchange traded funds that employ options have performed as well as the S&P 500 Index with lower volatility, providing investors with higher risk-adjusted returns.
“Options-Based Funds had similar returns as the S&P 500 Index with lower volatility and lower maximum drawdowns. The Options-Based Funds had higher risk-adjusted returns, as measured by the Sharpe Ratio, Sortino Ratio and Stutzer Index,” according to a recent white paper commissioned by the Chicago Board Options Exchange, titled Performance Analysis of Options-Based Equity Mutual Funds, CEFs and ETFs.
Hackers May Have Taken Customer Data From Morgan Stanley Broker
Matthew Goldstein – NY Times
There’s been little dispute that a former Morgan Stanley broker, Galen Marsh, violated the firm’s rules when he downloaded information about 350,000 customers onto his personal computer. But Mr. Marsh may not be responsible for posting that information online late last year and trying to sell it, people familiar with the investigation said on Thursday.
Options traders bet on growing U.S. demand for cyber security
Saqib Iqbal Ahmed – Reuters
A barrage of damaging cyber attacks has shaken up the security industry, and traders in the options market are betting on cyber security companies benefiting from increased spending as governments and businesses boost security.
Cyber security has become a major concern for U.S. firms with recent high profile data breaches reported at Sony Pictures Entertainment, Target Corp, Home Depot Inc, and most recently at health insurer Anthem Inc.
Weekly Market Commentary 2.20.15
Larry McMillan – CBOE Options Hub
$SPX has finally broken out to new all-time highs and has maintained that status by closing above the old highs for four consecutive days. That’s the bullish news. The less-than-bullish news is that the breakout is not being confirmed with any resound by some of the other indicators. However, as long as $SPX remains above the 2065 support level, the bulls are in charge.
What’s Behind the Mixed Signals from VIX Speculators?
Adam Warner – Schaeffer’s Investment Research
I noted the other day that it was difficult to read much into the news that hedgies had gotten more bullish on CBOE Volatility Index (VIX) into actual VIX strength. Going with the trend isn’t generally the best signal for the rest of us, in my humble opinion. But hey, opinions vary!
A trading firm with a notorious New York tie is coming to Chicago
Lynne Marek – Crain’s Chicago Business
Chicago usually grows its own trading firms, but an outsider with a past will parachute into the city come May.
Trillium Management, a New York-based stock-trading company led by non-executive chairman, founder and principal owner Lee Maschler, plans to open an office in the city.
Volatility in U.S. Stocks Simmers, but Heats Up Around the World
Kristen Scholer – WSJ
The calm that has settled across U.S. stocks this month has not spread to other markets.
U.S. stock volatility surged in January on the back of falling oil, a rising U.S. dollar, questions about a possible Greek exit from the eurozone, geopolitical tensions and lackluster corporate earnings. Since the end of January, the CBOE Volatility Index – or the market’s fear gauge – has dipped to its lowest level in about two months as some of last month’s concerns have cooled. The VIX hit a high of 23 in January, but has since dropped to 15 as stocks have risen to record territory.
Berkshire Hathaway, Exotic ETFs Among Flash Boy Holdings
Michael P Regan – Bloomberg
Ever wonder what sort of stocks those highly secretive, high-frequency trading firms — aka the Flash Boys – – like to play with most, but were afraid to ask?
Well, actually, even if you weren’t afraid to ask, it doesn’t matter because they probably wouldn’t tell you. Except for when the market’s music stops at the end of the quarter, and some of the biggest speed traders are required to tell the Securities and Exchange Commission what’s in those black boxes.
GFI Group’s Board to Support BGC Partners Takeover Bid
Chad Bray – NY Times
The board of the GFI Group, the New York brokerage and clearing house, threw its support on Friday behind a takeover bid by BGC Partners after shareholders rejected a tie-up with the CME Group last month.
In a statement on Friday, BGC Partners said that GFI’s directors had agreed unanimously to support its offer to acquire all of the outstanding shares of GFI.
Markets Media Magazine Names CME Group “Best Global Exchange”
Press Release – CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced the company was named “Best Global Exchange” by Markets Media 2015 Markets Choice Awards. The award ceremony, held last night in New York, recognized CME Group’s excellence in diverse and innovative new products, client service and education, and technology design and execution as voted by peers and customers.
Bitcoin Derivatives Trading Platform Coinarch Expands into China
Jon Southurst – CoinDesk
Derivatives-focused bitcoin trading platform Coinarch is making a push into the Chinese market, with the launch of dedicated local branding and support staff.
The new operation, with the address Coinarch.cn, will be named 币琪 (pronounced ‘bi-qi’). Coinarch is now in the process of registering a local subsidiary and aims to be perceived as a local company, in order to better challenge established competitors like Huobi, OKCoin and BTC China.
Regulation and Enforcement
U.S. futures regulator’s chairman says probably will step down next year
The chairman of the U.S. National Futures Association, who led the regulator during broker scandals that rocked confidence in the industry, was re-elected on Thursday but told Reuters he plans to step down after that term ends.
After the board re-elected Christopher Hehmeyer as chairman for his fifth one-year term, he said in a telephone interview that he had told board members he will likely step down because chairmen typically serve five years.
Ex-Qualcomm Exec Pleads Guilty to Insider Trading
Alexander Nguyen – Times of San Diego
A former Qualcomm executive pleaded guilty in San Diego federal court Thursday to insider trading and admitted netting almost $200,000 in fraudulent proceeds by trading ahead of the global semiconductor firm’s 2011 purchase of Atheros Communications.
Derek Montague Cohen, 52, was a director in Qualcomm Inc.’s North America Sales Department when he learned of the imminent corporate acquisition, according to prosecutors.
Commodity Bears Celebrating “Golden Week”The Options Insider
Mike Zarembski – The Options Insider
Speculators both large and small appear to be in the process of long liquidation selling of Gold futures following the market’s poor performance of late. The most recent Commitment of Traders report shows non-commercial traders (normally, large speculators and funds) shed over 30,000 net-long positions during the reporting period ending on February 10th.
Investors can control volatility, but the tools are not for novices
Joseph Halpern – Investment News
A number of financial products attempt to address this turmoil and provide a level of control to equity investing, that is, low volatility. However, these solutions tend to mitigate rather than eliminate the exposure. For instance, there is no limit to what losses can be borne within low-volatility strategies — there is simply the assumption these losses will be lower than the overall market. Truly controlled environments are essentially unattainable through most conventional equity solutions.
CBOE Risk Management Conference is Two Weeks Away
Marty Kearney – CBOE Options Hub
I received two inquiries this morning about CBOE’s 31st Annual Risk Management Conference (RMC), March 4 – 6, 2015 in Carlsbad, California. It is being held at the Park Hyatt Aviara, along the Pacific Ocean, 25 miles North of San Diego California.
The agenda, topics, speakers and registration forms are available at http://www.cboermc/agenda. There is still some space available at CBOE RMC.