Observations & Insight

Bits & Pieces
By John J. Lothian

Jim Kharouf and RJ Roxas have done a terrific job of taking the FinTech Exchange Chicago 2015 video we shot and combining the event’s lightning round of speakers in a new format for John Lothian News.

Jim had discovered the Sway multimedia tool from Microsoft and used this to tell the story of this sold out Chicago fintech event organized by Barchart.com. You can see the presentation below. I suggest you click on the link to see the whole layout and design on Sway.com to get the full effect.

I love Jim’s drive to innovate and find new ways to tell stories better. Having all these videos, text and graphics in one presentation is very effective.

Meanwhile, I voted yes for the changes to the NFA Articles of Incorporation and urge other NFA member firms to do likewise.

We would like to welcome PDQ ATS as a new sponsor of JLN Financials. PDQ (a double entendre that stands for Procedure Derived Quotes) is an equity trading venue that offers a unique execution technique, a pause for a few milliseconds while liquidity aggregates. Kind of like a broker shouting “what’s here now?” but with today’s execution speed.

My Chicago singer songwriter nephew Andrew Lothian is looking to mix, master and print his debut LP paid for with a kickstarter-like campaign. Here are the details about the album and his fundraising campaign. If you are a Chicagoan, you may have heard Andrew play at a downtown Potbelly’s.

This weekend Jim Kharouf, Doug Ashburn, Colin Ashburn and I are off to London for IDX next week. We will be editing JLN from there, with help from Jeff Bergstrom, Sarah Rudolph and Spencer Doar working from Chicago.

Lead Stories

Fear, Complacency, and ‘Irrational Exuberance’
By Adam Warner – Schaeffer’s Research
It seems like a lifetime ago now, but back at the end of 2014, there was a bit of a CBOE Volatility Index (VIX) rush. It closed at 19.20, virtually guaranteeing that year-to-date performance would look misleadingly bad in 2015.

***DA: Among the shorter-duration scares in recent years.

There’s a Big Disagreement Between Bond and Stock Traders About Interest Rates
By Julie Verhage – Bloomberg
Bond traders have a long-running reputation for being more pessimistic than their stock market counterparts and it looks like that disagreement is becoming more pronounced.
The ratio of rates volatility to equity volatility is at a post-financial crisis high, according to a new note from Deutsche Bank’s Chief International Economist Torsten Slok.

***DA: Market unsure when there will be a rate adjustment but confident that it will be done in such a way as to not upset the equity market. Here’s hoping.

Volatility ETF Guide: VXX vs. VXUP
Outed as the ‘Investor Fear Gauge’, the CBOE Volatility index or ‘VIX’ is now one of the most followed market indicators around the world. This tends to outperform when markets are falling or fear levels over the future are high. The CBOE VIX determines the volatility that the equity market (i.e. S&P 500) is heading toward.
There is no doubt that the U.S. economy is well on its course of recovery, but this does not ensure that there is no volatility in the market. The economy is presently caught between mixed data points and is baffled by the rate hike speculations.

Bond Dealers Enfeebled as Liquidity Woes Boost Derivatives
By Sam Mamudi Saijel Kishan – Bloomberg
As Wall Street retreats from its traditional role as the bond market’s middle man, investors frustrated by sudden gyrations and a lack of liquidity are turning to derivatives — in a big way.
In the world’s biggest debt markets, including the U.S., Europe and Japan, the number of futures contracts on government debt reached a post-crisis high in May after doubling since 2009. Trading of German bund options and Italian futures hit records

Here’s a Chart That’s Been Making a Move
By Helene Meisler – TheStreet
With the market continuing to chop us to death, I thought we should take a look at a chart that has really moved in the last few months. I am not talking about bonds. I am not talking about the dollar. Nor am I talking about oil. The chart that has moved drastically in the last few months is the 21-day moving average of the put/call ratio of the VIX.

***DA: It is not a bet on an equity break, as the article says, but rather a move to protect a lead. A smart play after a six-year one-way train.

Investors piling into volatility funds bet on more anxiety ahead
By Ashley Lau – Reuters
The U.S. stock market has been strangely calm this year, much to the chagrin of investors who have been betting billions on volatility.


Option Contracts On S&P 500 Futures Start Trading On BM&FBOVESPA
Press Release – Mondovisione
BM&FBOVESPA is making Option contracts on the S&P 500 futures contract available for trading as of June 01, via the BM&FBOVESPA PUMA Trading System. This is yet another product resulting from the strategic partnership with CME Group to cross list products with exposure to the global market. The contract’s ticker is ISP and the first authorized contract month is the option expiring in July 2015. BM&FBOVESPA will establish and announce the series’ strike prices in index points

Euronext Announces Monthly Trading Volumes For May 2015
Press Release – Mondovisione
Euronext, the leading exchange in the Eurozone, today announced trading volumes for May 2015.

Moscow Exchange trading volumes in May 2015
Moscow Exchange announces trading volumes for May 2015.
The Derivatives Market and FX Market posted the strongest growth, with volumes increasing 33% and 27% YoY, respectively. Secondary market turnover in bonds increased 12%, according to Moscow Exchange.

ASX Group Monthly Activity Report – May 2015
The value of ASX-listed stocks, as measured by the All Ordinaries Index, remained flat in May 2015.
This performance is in contrast to rises in other major markets, including Japan up 5.3%, the US up 1.0% and the UK up 0.3%. Singapore was down 2.7%, Hong Kong down 2.5% and Germany was down 0.4%, according to AS

The Spanish Stock Exchange Traded EUR84.3 Bn. In May, Up 17% Year On Year
Press Release – Mondovisione
The best month of May in 5 years.

Regulation & Enforcement

The SEC Brings Fund Reporting Into the 21st Century
By John Rekenthaler – news.morningstar.com
Last month, the SEC released an important document that was years in the making.
What had been suspected before 2008 became painfully clear during that year’s market onslaught: Mutual fund disclosure rules had become hopelessly outdated. Created decades ago, the rules were — and are — ill-suited for modern investment techniques. Many fund reports are indecipherable even for professional investment managers.

ESMA Updates List Of Authorised Trade Repositories – ICE Trade Vault Europe Ltd. Adds Forex Derivatives To Its Services
Press Release – Mondovisione
The European Securities and Markets Authority (ESMA) has published today an update of its list of authorised trade repositories which are authorised under the European Markets Infrastructure Regulation (EMIR). Today’s update concerns ICE Trade Vault Europe Ltd. which has extended its services to forex derivatives.


Pico to Provide Nasdaq Futures Data
Reuters – MarketWatch
Nasdaq and Pico, a provider of multi-asset electronic trading technologies, today announced that Pico will provide market data infrastructure to its clients to access Nasdaq Futures, Inc. (NFX), the exchange group’s U.S.-based designated contract market (DCM). Through NFX, Nasdaq will expand its commodities business with futures and options on key energy benchmarks including oil, natural gas and U.S. power, which will launch in mid-2015.


Options Expert Sees Market Creeping Higher
By Mark Meadows – Benzinga
Options expert Nic Chahine said that he expects the SPDR S&P 500 ETF Trust to “creep up,” not “crash up.” With that in mind, he is shorting what he calls “relief pops.” As Chahine describes, the relief pop happens when the market gains based off of the idea that “something bad didn’t happen.”

Option Market Making – Computers in the Options Market
By Jacob Mintz – www.cabot.net
When I began my trading career on the floor of the Chicago Board of Options Exchange (CBOE) in 1999 as a market maker, it was my job to make markets for small retail investors, large hedge funds and banks. For example, if a broker came into my trading crowd asking for a market on JPMorgan (JPM) calls, I would give a price that the investor could buy and sell the calls for.

Three June VIX strategies (Video)
By Mike Yamamoto – www.optionmonster.com
Video: Three June VIX strategies

EM currencies: are options the way forward?
By Paul Golden – Euromoney Magazine
Recent currency movements have highlighted the limitations of the forward as a hedging option for emerging market (EM) currencies.


Twitter is now in a ‘death cross’
By Lawrence Lewitinn – CNBC
As if Twitter’s stock didn’t have enough problems, it now faces one more worry on the charts—a “death cross.”
Shares of the social media giant are down nearly 30 percent since it reported disappointing quarterly sales on April 28. That plunge has implications for its technicals. Specifically, Twitter’s 50-day moving average has crossed below its 200-day moving average. Technicians refer to that bearish pattern as a “death cross,” indicating short-term momentum has moved to the downside relative to longer-term momentum.

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