Flows to Volatility ETFs Becoming Deluge as S&P Rally Hedged
Joseph Ciolli – Bloomberg
The longer the rebound in the Standard & Poor’s 500 Index lasts, the more traders are piling into hedges that pay out if it comes crashing down. Take the TVIX, an exchange-traded note betting on an increase in the Chicago Board Options Exchange Volatility Index, which absorbed $160 million on Monday, the most ever for a single day and almost twice the security’s previous record. A leveraged ETF returning twice the performance of the VIX has also seen all-time inflows, even with the fear gauge below 15 for five straight days, the longest such streak since August.
Cost of hedging pound soars to near 6-year highs on Brexit anxiety
The cost of hedging against sharp swings in sterling surged to its highest in almost six years on Wednesday, three months before a June referendum on Britain’s European Union membership, and coinciding with narrowing bookmaker odds on a vote to leave. Sentiment towards the pound has soured this week after the resignation of a senior pro-“Brexit” minister and criticism of finance minister George Osborne over his 2016/17 budget.
How Hedging Rises for European Stocks Getting Used to Terror
Manisha Jha and Camila Russo – Bloomberg
Options traders on Tuesday bet VStoxx will jump 36% by July
History shows markets recover fast after terror attacks
The rapid rebound in Europe’s equity markets after bombings in Brussels Tuesday may be a function of how much turbulence is already priced into the region’s shares. Shares tracked by the Euro Stoxx 50 Index tumbled 1.7 percent after Belgium’s worst terror incident ever left at least 31 dead, then recouped the losses before the close. The resilience followed a period of frantic hedging in European shares that on Monday pushed the the number of bearish options on the gauge to a six-month high relative to bullish contracts.
Why a complacent VIX makes me nervous
Evan Lucas – IG UK
The call:put spread measure of the volatility index (VIX), sometimes referred to as the level of put protection, is back at pre-CNY devaluations levels. The US VIX has declined from 30 to a low of 13.4 in two weeks. It has declined eight out of the last ten days and is trading a full standard deviation off the historical average, even as most point to the S&P and DOW being overbought and overvalued again.
Credit Suisse To Exit European Securitized Product Trading, Distressed Debt Markets
Credit Suisse today announced it is exiting European Securitized Product trading as part of an accelerated restructuring initiative, aimed at increasing its 2018 cost-reduction target from CHF3.5 billion gross savings to at least CHF4.3 billion, and driving its absolute operating cost base below CHF18 billion by 2018. “For 2016, we aim to achieve CHF1.7 billion in cost savings,” said CEO Tidjane Thiam.
****SD: The move also includes reducing their options business. For more on Credit Suisse’s woes, check out these two Bloomberg Gadfly pieces: Liquidity Death Spiral Traps Credit Suisse and Credit Suisse’s Bosses Didn’t Know
Markets’ Calm Reflects Central Banks’ Balm
Randall W. Forsyth – Barron’s
Another terrorist attack left global financial markets unmoved Tuesday, which stood in stark contrast to the civilized world’s reaction to the heartrending events in Brussels. Yet the markets’ seeming equanimity may face a more proximate threat from mundane technical forces. “Another massacre, another hashtag, #JeSuisBrussels,” as USA Today wrote in its e-mail digest, summing up the reaction to the blasts at a subway station and airport in Belgium’s capital that claimed at least 30 lives. No longer are we shocked by such attacks apparently, only saddened.
****SD: Does Janet Yellen use Burt’s Bees?
US credit volatility inverts on central bank signals
Credit index options prices have fallen so far following recent central bank moves that implied volatility measures are below trailing measures of realised volatility for the first time in four years. Credit default swap spreads tightened after this month’s European Central Bank and US Federal Reserve announcements, but trading flows still show a preference for investment grade bonds.
BATS Set to Move Forward with April IPO Plans
Fears of terrorism aren’t stopping Bats Global Markets from plans to go public with company officials preparing to sell shares in an initial public offering (IPO) slated for the end of April, the FOX Business Network has learned.
Deutsche Boerse Cautioned Not to Pay Too Much for LSE
John Detrixhe – Bloomberg
Some of the biggest shareholders of Deutsche Boerse AG are cautioning management not to overpay for London Stock Exchange Group Plc if a counteroffer emerges, according to people familiar with the matter. Intercontinental Exchange Inc. is contemplating a bid for LSE, which last week agreed to a deal with Frankfurt-based Deutsche Boerse. The German exchange would get 54 percent of the London-based company it wants to form with LSE. The all-share transaction with Deutsche Boerse values LSE’s equity at 8.9 billion pounds ($12.6 billion), according to data compiled by Bloomberg.
Wall Street looks to copy IEX ‘speed bumps’ model
Kevin Dugan – New York Post
If you can’t beat the “flash boys,” you might as well join ’em. In a major reversal, Wall Street’s biggest stock exchanges are looking to copy the controversial “speed bump” put forward by IEX that’s divided the investment world during the past two years, The Post has learned.
Regulation & Enforcement
US automated trading rules cause uproar
Proposals by the Commodity Futures Trading Commission (CFTC) enabling regulators to inspect the source codes of algorithmic traders without a subpoena have caused trepidation among market participants. Regulation Automated Trading – also known as Reg AT – will impact any financial institution engaged in algorithmic trading including futures commissions merchants (FCMs), exchanges, swap dealers, introducing brokers and major swap participants. Proprietary trading firms would also be required to register with the CFTC.
Margin Requirements for Non-Centrally Cleared Derivatives Issued in Canada
The Office of the Superintendent of Financial Institutions (OSFI), Canada’s federal regulator of financial institutions, recently issued Guideline E-22 – Margin Requirements for Non-Centrally Cleared Derivatives? (Guideline). The Guideline requires the mandatory exchange of margin for non-centrally cleared derivatives transactions (NCCDs). A draft of the Guideline was published by OSFI on October 19, 2015, and the final Guideline reflects many of the comments submitted during the comment period. Blakes represented the International Swaps and Derivatives Association, Inc. in commenting on the draft Guideline.
Refining Reporting: Where is Esma heading?
Dheeraj Joshi and Ravi Jain – Futures & Options World
Since 2007, European Securities and Markets Association (ESMA) has implemented and/or proposed a host of regulations that will have a significant impact on firms’ reporting requirements. As evidenced by its growing list of regulations – from MiFID and EMIR through to MIFID II/MiFIR and the Securities Financing Transaction Regulation (SFTR) – ESMA plans to bring together all OTC derivatives, ETDs and securities financing transactions into its purview as early as 2018. The cost of achieving and maintaining compliance is increasing as firms invest in understanding the regulations, creating reporting mechanisms for trades and transactions, and implement systems and infrastructures to manage the process.
Ban on Binary Options – the Start of a New Trend?
Tal Itzhak Ron and Aviya Arika – Finance Magnates
The most interesting thing going on in the legal scene of binary options lately is the controversy among regulators about whether binary options are considered financial instruments or gambling. Although the terminology is purely financial, some jurisdictions are still not buying it and are keen on highlighting the risky nature of the product. Most of the regulators that are debating this question have leaned over the financial character of binary options. This includes, for example, CySEC, the Netherlands, and the UK.
The wolves of Tel Aviv: Israel’s vast, amoral binary options scam exposed
The Times of Israel
When Dan Guralnek immigrated from Australia to Israel in 2012, he did not anticipate becoming involved in an international internet scam. “I always wanted to move to Israel,” says Guralnek, who attended a Jewish day school in Sydney. He was working in the administration of a factory in Australia when his boss died suddenly, and, at the age of 28, he realized it was a good time for him to move to Israel. “I thought, ‘I’m free, no strings attached, I can go.'” Guralnek enrolled in Jerusalem’s Ulpan Etzion to learn Hebrew, then moved to the vibrant and bustling city of Tel Aviv, where he landed a series of minimum-wage jobs for NIS 25 (a little over $6) an hour: chopping vegetables in a restaurant, driving a disabled person, working the night shift at a hot-dog stand.
But in a city with sky-high rents and a cost of living relative to salaries (PDF) second only to Japan, Guralnek could not survive. He heard that jobs in an industry called binary options paid twice what he was earning, plus commission.
****SD: The gentleman from the anecdotal lede of the story was told “to tell people I had years of experience in the market, that I had studied at Oxford and worked for the Bank of Scotland” and he had not. Clearly not an aboveboard operation. The glut of fraudulent/non-compliant binary options providers does cast a shadow on reputable organizations that don’t operate in loosely or un-regulated jurisdictions (whether viewed as gambling or not).
OptionsCity to Bring Futures and Options Execution Capabilities to Thomson Reuters’ Eikon
OptionsCity Software, a global provider of futures and options trading and analytics solutions, today announced that City Execution, built on its REST-based City API, will power execution functionality on Thomson Reuters Eikon. Eikon is one of the leading sources of news, data and analytics for financial firms. City Execution will enable Eikon commodity and energy customers to execute futures and options trades within the Eikon desktop eliminating the need for alternative execution platforms and associated market data fees.
Computers Don’t Care About Terrorism
Ten years ago, market players would never have dreamed the market would trade up after a terrorist attack in a major European city. There would be great alarm about the economic and political fallout of such an event.
****SD: Unless you’re playing Counter-Strike.
OptionsHouse Named “Best for Options Traders” In Barron’s 2016 Online Broker Ranking
OptionsHouse, a value leader in the online brokerage industry, announced today that it has been named “Best for Options Traders” in the 21st annual Barron’s ‘Best Online Brokers of 2016’ survey and review. This marks the sixth consecutive year that OptionsHouse has been recognized at the top of the review’s options category. Additionally, OptionsHouse was the only brokerage to receive the coveted perfect 5.0 score in the “Mobile” category.
Barchart’s APIs Now Streams Market Data to Browsers and Mobile
Xignite provides free use of market data APIs to nine Fintech Sandbox residents
ignite, Inc., the leading provider of cloud-based financial data APIs, is proud to announce that three FinTech Sandbox residents will showcase solutions powered by Xignite market data at the FinTech Sandbox Demo Day on March 24th. The FinTech Sandbox is a Boston-based non-profit organization that facilitates free access to financial data and infrastructure for highly qualified fintech startups in order to help them build great products.
What is Anomaly Detection anyway?
A recent survey found that only 27 per cent of application problems were detected by application performance monitoring tools, leaving the majority unnoticed. This large gap could be closed by the use of anomaly detection techniques. However, as there are various ways of defining an anomaly, perhaps the different types can be distinguished with different labels.
****SD: Ask Mulder and Scully.
Indicator of the Week: 25 S&P Stocks for Your Easter Basket
Rocky White – Schaeffer’s Research
Markets are closed this Friday for Good Friday, as we celebrate Easter over the weekend. I figured this was a fitting time to see how stocks have performed around the holiday. Also, I found an interesting stat on what pre-Easter performance means for the rest of the year. Finally, I’ll look at which stocks have historically performed well in the week following Easter.
Options Insight: Are Energy Stocks Running Out of Gas? (VIDEO)
Recon Capital Partners’ Kevin Kelly discusses the recent performance of stocks and his options strategy for the SPDR S&P Oil & Gas Exploration & Production ETF. He speaks with Bloomberg’s Julie Hyman on “Bloomberg Markets.”