JLN Options: Hedge Funds Gear Up for Another Big Short; World’s Wildest Stock Market Submits to Communist Party Rule; Euronext wins Dutch court ruling over intellectual property

Jul 22, 2015

Observations & Insight

Community Building: CME Europe’s Cees Vermaas Looks To Grow Asset Classes and Customer Base
Jim Kharouf – John Lothian News
Cees Vermaas, who took the reins as managing director and CEO of CME Europe in January, is in building mode. On his plate is a plan to expand the exchange’s product line-up and customer base to become a broad-based European derivatives market.
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Intern Series Tickets Selling Like Hot Cakes
Doug Ashburn – John Lothian News
The MarketsWiki Education World of Opportunity Summer Intern Series continues to set new records as we proceed through year three. Yesterday we were forced to close off registration for Session 3 of this year’s Chicago event series. The August 7th event, held at Trading Technologies‘ Tech Tap and featuring Chicago Mayor Rahm Emanuel, as well as Phupinder Gill, CEO of Global Premier sponsor CME Group, has been filled to capacity.

The first two days of Chicago 2015 will be held once again at IIT’s downtown campus auditorium, and we still have room, but you are advised to hurry if you plan to register. We have a number of dynamic speakers scheduled for those dates as well, plus we have added a nifty giveaway, sponsored by SunGard, that we will announce shortly. We will also be raffling off several Series 3 exam study kits, compliments of the Institute for Financial Markets, and a host of industry swag. Get the full lineup and register HERE

The positive feedback continues to roll in from last week’s New York event, and industry folks are taking note.

We return to London this fall for the second year of our education series there, and have have set aside October 14th and 15th as tentative dates. Stay tuned.

Lead Stories

Hedge Funds Gear Up for Another Big Short
Rob Copeland – WSJ
Wall Street is preparing for panic on Main Street.
Hedge funds are lining up to profit from potential trouble at some “alternative” mutual funds and bond exchange-traded funds that have boomed in popularity among retirees and other individual investors.
jlne.ws/1VtPgGR

World’s Wildest Stock Market Submits to Communist Party Rule
Kyoungwha Kim – Bloomberg
It took three weeks of unprecedented government intervention, but Chinese authorities have finally managed to subdue the world’s wildest stock market.
jlne.ws/1MI27PP

Euronext wins Dutch court ruling over intellectual property
Philip Stafford – Financial Times
Euronext has won a court ruling in the Netherlands that prevents rivals from using the exchange operator’s intellectual property to help run their own trading operations.
Judges in The Hague ruled on Wednesday that The Order Machine (Tom), a small options trading platform, and BinckBank, a retail broker, infringed Euronext’s so-called “database property”, which is used to maintain and develop index and stock equity options.
jlne.ws/1HRZtDF

Special Report: Blackstone champions hedge funds for the little guy
Lauren Tara LaCapra – Reuters
John McCormick has been on a mission for the past five years: to bring hedge funds to the masses.
That may seem like a tough sell. Traditional hedge funds, those lightly regulated investment pools open exclusively to large institutions and rich individuals, have been duds lately, trailing the U.S. stock market’s performance every year since 2009 by an average of 10 percentage points, according to Hedge Fund Research Inc data.
jlne.ws/1HRVVRL

VIX Near the Bottom?
Dan Keegan – CBOE Options Hub
The VIX has a highly negative correlation to the SPX. The VIX is priced upon the time value that is embedded in the premium of SPX options. When stocks fall they usually move much more rapidly to the downside than they move to the upside. As the stocks fall investors rush to scoop up puts that provide downside protection or grabbing calls should there be a correction. Insurance for a beachside cottage is much more expensive when a hurricane hits ten miles offshore than when there hasn’t been a hurricane in ten years. The same principle applies to the stock market.
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Hedge fund withdrawal requests drop to 2-1/2 year low in July-data
Carolyn Cohn – Reuters
Investors kept their money in hedge funds in July amid market volatility over Greece and China, data showed on Tuesday, with requests to take cash out dropping to their lowest levels in 2-1/2 years.
jlne.ws/1JfuENy

ETF Assets Overtake Hedge Funds; Fisticuffs? Not So Much
Chris Dieterich – Barron’s
It’s official. Exchange-traded funds hold more money than hedge funds.
Research firm ETFGI this week reported ETFs’ global assets under management at $2.971 trillion, as of the end of June. That’s more, slightly, than the $2.969 trillion in hedge funds, according to HFR. The coup was expected; this blog and others foreshadowed the approach of the milestone earlier this year.
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OPEC sees oil drop as short-term, expects stronger demand: delegates
Alex Lawler and Rania El Gamal – Reuters
A drop in oil prices this month is likely to be short-term and will not deflect OPEC from its policy of keeping output high to defend market share, delegates from Gulf OPEC members and other nations said.
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Exchanges

CME Europe sales head Hinxman quits for BGC
Alice Attwood – Futures & Options World
The Chicago Mercantile Exchange (CME) has parted ways with its head of sales for CME Europe Dan Hinxman just six months after he was appointed to that position.
Hinxman has left his role at CME’s European exchange to take up a new opportunity at BGC Partners, according to market sources.
jlne.ws/1Jfqaqc

What Is The REAL Lesson From the NYSE Outage?
David Weisberger – Traders Magazine
Adding microsecond precision to the SIP feed, which has no real use cases for that level of precision and no way to be accurate to that level, is a waste.
jlne.ws/1Jfus0Q

Trading Platform IEX to Apply for Exchange Status
Andrew Ackerman and Bradley Hope – WSJ
IEX Group Inc. is poised to seek a green light to become to become a fully-fledged stock exchange.
The upstart private trading venue, which pitches itself as an antidote to the influence of high-frequency traders, plans to submit its formal application to the Securities and Exchange Commission within the next two weeks, according to people familiar with the matter. The SEC would then make the application available for public comment before deciding whether to approve it.
jlne.ws/1Om5TPl

Japan Exchange Group: Launch Of First Ever Full-Scale Fixed Income Volatility Index In Japan
Press Release – Mondovisione
Japan Exchange Group and Osaka Exchange as well as S&P Dow Jones Indices will jointly introduce the S&P/JPX JGB VIX Index, which measures the implied volatility of Japanese government bonds using options on JGB futures listed on OSE. Constructed using the methodology for the CBOE Volatility Index, the world’s leading gauge of equity market volatility, the new benchmark will become the first ever full-scale fixed income volatility index available in the Japan market, with index calculation expected to start later this year.
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Regulation & Enforcement

FDIC’s Hoenig Leads Campaign Against Easing Swaps-Margin Rules
Silla Brush and Jesse Hamilton – Bloomberg
Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., is fighting congressional efforts that have made progress in freeing large banks from having to hold collateral against derivatives used internally.
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Technology

On the Road to High-Performance Computing Everywhere
Paul Rowady – TABB Forum
As regulations become increasingly pervasive and big data morphs into bigger data, the unprecedented risk analytics challenges that face the banking and capital markets sectors today are only going to accelerate. This imminent reality is forcing market participants to rethink the tools and methods they employ, and as a result, high-performance computing will become mainstream in financial markets.
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Strategy

Option Traders React to Struggling Telecommunications Sector
Josh Selway – Schaeffer’s Research
With domestic indexes sitting mostly in the red in early trading, one of the worst-performing sectors today has been telecommunications. Four of the major players in this group — AT&T Inc. (NYSE:T), Verizon Communications Inc. (NYSE:VZ), Sprint Corp (NYSE:S), and T-Mobile US Inc (NYSE:TMUS) — are all trading off today. Let’s take a closer look at what has the shares of T, VZ, S, and TMUS moving lower, and how option traders are responding.
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