Observations and Insight

Speedy Delivery: Keith Ross

Today’s financial markets can be summed up in three words – global, fast, and complex. But as the market structure evolves, so must the regulatory structure that oversees it. John Lothian News has spoken with several industry experts to create this series on the evolution of financial market structure.

In Part 3, Keith Ross, CEO of PDQ ATS offers his thoughts on HFT, Regulation NMS, maker-taker arrangements, and dark pools, and voices his concerns that regulatory oversight may give way to legislative overreach.

Watch the video »

Lead Stories

Heightened Expectations for Systemically Important Clearing Houses: How OCC is Meeting the Challenge
Press Release (OCC)
Craig Donohue at the Options Industry Conference in Austin, TX, gave the following speech on May 1, 2014:
Thank you – it’s great to be here with you this morning. I especially want to thank our hosts at BATS for providing me with the opportunity to speak with you about the changes that are occurring at OCC and in the post-trade landscape more generally. In particular, I want to take this opportunity to address the recently announced changes to our fee schedule and refunds for 2014.
As you’ve just heard, the options industry continues to experience strong growth. In the last 10 years, the compound annual growth rate for options has been 13 percent versus 11 percent in futures and just 3 percent in equities. I personally believe that growth will continue as our markets become more global, we innovate exciting new products and services, and institutional users increasingly rely on our markets for their trading and investment needs.

Exclusive: Faulty technology triggered CME trading outage – chairman
Nadia Damouni and Tom Polansek – Reuters
The worst-ever trading outage on the world’s most important agricultural markets was triggered when sophisticated technology tripped over a trading halt in a single market, the executive chairman of exchange operator CME Group Inc told Reuters.
The April 8 outage stopped electronic trading in 31 agricultural markets that influence global prices for food staples such as wheat, corn and pork, and sent a flood of traders into CME’s (CME.O) normally deserted open-outcry futures pits to execute transactions.

The Strange Death of Volatility
Mark Gilbert – BloombergViews
Ask any trader to list the market conditions most conducive to making money, and you’ll hear the word volatility. Swinging prices create profit (as well as loss) opportunities; when prices flat line, the trading seas are becalmed. Volatility, though, is disappearing, in stocks, bonds and currencies.

The Reverse-Line Movement of the VIX
Dissecting supply and demand in May VIX options
Adam Warner – Schaeffer’s Investment Research
In sports handicapping, there’s a phenomenon known as “Reverse Line Movement.” Or, so they tell me. It’s said to happen when the majority of bets are tilting to one side, yet the line is moving the other way. For example, let’s say 75% of bets are on the Warriors versus the Clippers, yet the Clippers have moved from 3-point to 4-point favorites. It’s an indication that “sharp” money is probably on the Clippers, and the casinos are reading that and lifting the spread accordingly.

Poker-Playing JPMorgan VIX Trader Wien Joining Och-Ziff
Joanna Ossinger and Hugh Son – Bloomberg
Jeremy Wien, JPMorgan Chase & Co. (JPM)’s head of VIX trading and a competitive poker player, is joining hedge fund Och-Ziff Capital Management Group LLC. (OZM)
Wien, 29, will trade equity-index derivatives at New York-based Och-Ziff, he said today in an e-mail to clients and co-workers. He joined JPMorgan, the biggest U.S. bank, in 2012 to trade options and futures on the VIX, as the Chicago Board Options Exchange Volatility Index is known. In his e-mail, Wien thanked his JPMorgan colleagues for the two-year experience.

Videocast: VIX action farther out


The Options Industry Council Announces April Options Volume Down 4 Percent
Press Release (OIC)
The Options Industry Council (OIC) announced today that 355,803,000 total options contracts traded in April, which is 4.13 percent less than last April when 371,147,433 contracts were traded.
With one less trading day in the month, average daily volume was up 0.43 percent with 16,943,000 contracts exchanged compared to last April’s 16,870,338 contracts. Year-to-date volume stood at 1,446,102,568 contracts, 5.96 percent more than April of last year when 1,364,727,666 contracts were traded.

CBOE Holdings Reports April 2014 Trading Volume
Press Release (CBOE)
CBOE Holdings, Inc. (NASDAQ: CBOE) reported today that April 2014 trading volume for options contracts on Chicago Board Options Exchange (CBOE) and C2 Options ExchangeSM (C2SM) and futures contracts on CBOE Futures ExchangeSM (CFE) totaled 107.17 million contracts. Average daily volume (ADV) was 5.10 million contracts, a nine-percent increase from April 2013 and a one-percent decrease from March 2014.

CBOE Futures Exchange Reports April 2014 Trading Volume
Press Release (CFE)
The CBOE Futures Exchange, LLC (CFE) today reported that April 2014 average daily volume (ADV) and total monthly volume in futures on the CBOE Volatility Index (VIX Index) and total exchange-wide at CFE were down slightly from year ago levels.
Average daily volume in VIX futures was 178,167 contracts during April, a four-percent decrease from April 2013 and a three-percent decrease from March.  April total trading volume in VIX futures was 3.74 million contracts, an eight-percent decrease from April 2013 and a three-percent decrease from March. Year-to-date, VIX futures total volume of 16.12 million contracts and ADV of 196,565 contracts per day are both ahead of YTD 2013 by 22 percent.      

CME addresses high-speed trading concerns; earnings jump
Tom Polansek – Reuters
CME Group Inc sought on Thursday to calm investors’ concerns about its exposure to possible U.S. regulations targeting high-frequency trading after the world’s largest futures market operator reported a 13 percent rise in first-quarter earnings.

ICE Options Exchanges Heat Up
Intercontinental Exchange Group’s U.S. options business, comprised of sister exchanges Amex and Arca, is poised to branch out.
“There are opportunities for us to expand our business around complex orders and electronic auctions,” said Steve Crutchfield, executive vice president and head of U.S. options at ICE. “These are areas where we’ve had a smaller business historically.”
Complex options strategies entail combining trades of call or put options into a options spread with a specific speculative or hedging objective. Complex orders make up a comparatively small part of options trading volume, but the area is seen as one with high growth potential.

Interactive Brokers Group Reports Brokerage Metrics for April 2014
Press Release (via BusinessWire)
Interactive Brokers Group, Inc. (NASDAQ GS:IBKR) an automated global electronic broker and market maker, today reported its Electronic Brokerage monthly performance metrics for April.
Highlights for the month included:

Options Exchange Marketshare – April 2014
OCC Press Release (via email)

April 2014 Total Options Marketshare:
AMEX-                 10.38%
BATS-                     4.22%
BOX-                       2.68%
CBOE-                   27.22%                                                            
C2-                          1.84%
GEM-                      2.59%
ISE-                        12.86%
MIAX-                     2.77%
NOBO-                    0.82%
NSDQ-                    9.72%
NYSE Arca-           11.94%
OMX PHLX-         12.96%

April 2013 Total Options Marketshare:
AMEX-                  13.68%
BATS-                      3.97%
BOX-                        2.20%
CBOE-                    24.21%
C2-                            2.37%
ISE-                          16.11%
MIAX-                      0.35%
NOBO-                     1.00%
NSDQ-                      8.12%
NYSE Arca-             11.93%
OMX PHLX-           16.08%

April 2014 Equity Options Marketshare:
AMEX-                  11.26%
BATS-                      4.63%    
BOX-                        2.94%
CBOE-                    20.49%
C2-                            2.01%
GEM-                        2.84%
ISE-                         14.07%
MIAX-                       3.04%
NOBO-                     0.90%
NSDQ-                   10.65%
NYSE Arca-           12.95%
OMX PHLX-          14.21%

April 2013 Equity Options Marketshare:
AMEX-                  14.98%
BATS-                      4.36%
BOX-                       2.41%
CBOE-                   17.28%
C2-                            2.60%
ISE-                        17.41%
MIAX-                     0.39%
NOBO-                    1.09%
NSDQ-                    8.90%
NYSE Arca-          13.02%
OMX PHLX-         17.56%

Regulation and Enforcement

SEC Charges NYSE, NYSE ARCA, and NYSE MKT for Repeated Failures to Operate in Accordance With Exchange Rules
Press Release (SEC)
The Securities and Exchange Commission today announced an enforcement action against the New York Stock Exchange and two affiliated exchanges for their failure to comply with the responsibilities of self-regulatory organizations (SROs) to conduct their business operations in accordance with Commission-approved exchange rules and the federal securities laws.  Also charged was the NYSE exchanges’ affiliated routing broker Archipelago Securities.
The NYSE exchanges agreed to settle the SEC’s charges by retaining an independent consultant and together with Archipelago Securities paying a $4.5 million penalty.

PR Newswire Reaches Deal With New York in High-Frequency Trading Probe
Christie Smythe – Bloomberg
PR Newswire, a leading news distribution service, reached a deal with the New York attorney general’s office in which it agreed to ensure its data feed isn’t used unfairly by high-frequency traders.
The agreement announced yesterday follows similar accords with Business Wire and Marketwired reached as part of Attorney General Eric Schneiderman’s effort to combat what he has described as unfair advantages secured by high-speed traders that gain early access to market-moving information.

U.S. Swap Overseers Flirt With Union as Salaries Squeezed
Robert Schmidt and Silla Brush – Bloomberg
Fed up with pay packages that are smaller than other financial regulators, some workers at the U.S. agency that oversees the derivatives market have begun discussing whether to join a union.
A group of non-management Commodity Futures Trading Commission employees attended a lunchtime meeting April 10 at a Washington bar to hear a pitch from the National Treasury Employees Union, according to an e-mail sent to some staff members at the agency. The message offered a complimentary meal and said to “bring your friends” to learn about “aggressive and professional NTEU representation.”


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