Observations & Insight

Looking Up: RJO’s Gerry Corcoran Bullish On Managed Futures
Jim Kharouf – JLN

As CEO of one of the largest FCMs in the world, Gerry Corcoran of RJ O’Brien has diversified its services from futures execution and a clearing member firm to a host of other markets and businesses including managed futures.

To him, the managed futures space has a lot of room to grow. JLN editor-in-chief Jim Kharouf sat down with Corcoran last week at the FIA Boca Conference to talk a bit about his views of the managed futures space.

Q: What do you see in the managed futures space?

A: I’ve personally been invested in managed futures for more than 20 years. I believe in managed futures. I think it’s an important part of my portfolio. I think it plays a role in any type of high net worth, or institutional portfolio.

We looked at it and decided it was one of the new products, for us, that we wanted to invest in. When AlphaMetrix exited, we felt there was a need to serve a certain segment and we’ve been working hard on it. We have a platform business with 10 really good CTAs on it. So we’ve developed the sell side of the business. Now we need to get the buy side of the business on the platform. It’s a natural vertical to us, in the sense that we can be great at identifying CTAs, getting the right buyside platform. Most of that business can be executed and cleared through RJ O’Brien. So we capture a fee-based revenue there.

Read the rest of the interview on JohnLothianNews.com

Lead Stories

ICE Futures U.S. Sets Daily Volume Record in Mini MSCI Complex and Mini MSCI EAFE Futures
Press Release – ICE
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, announced today that ICE Futures U.S. reported record daily volume in the mini MSCI futures complex as well as futures based on MSCI’s benchmark for international equity performance, the mini MSCI EAFE index, which tracks equities in developed markets in Europe and Asia.
Total volume in mini MSCI products traded on ICE Futures U.S. was 395,175 contracts on March 16, 2015. The previous record of 364,483 contracts was set on December 16, 2014. Volume in mini MSCI EAFE index futures was 150,140. The previous record of 139,164 was set on September 12, 2014.
jlne.ws/1xvc376

**JK – Good news indeed for ICE and perhaps for the new MSCI options to be listed in April on CBOE. See the full story from last week here – Global Reach: CBOE to List MSCI Options, Expand its Index Coverage – http://jlne.ws/1Bz4X5n

Japan, China Entice Bulls And Bears Ahead of Fed
Steven M. Sears – Barron’s
Investors are impatiently waiting to see if the Federal Reserve is losing patience with low interest rates. This is sparking mixed investment flows into emerging markets, China and Japan ahead of Wednesday’s critical conclusion of the Federal Reserve’s rate-setting committee…
In the options market, bearish puts are actively trading on the iShares MSCI Emerging Markets (ticker: EEM ) ETF. Investors are buying puts that expire Friday, two-days after the Federal Reserve meeting.
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**JK – And see what the MSCI Emerging Markets ETF is telling us.

The Option Queen Newsletter
Option Queen
The front month for the financial indices is now June. The talk of the FOMC raising rates in June is illogical. The US Dollar has been in rally mode in anticipation of a rate rise. This strong US Dollar is putting a lot of pressure on many multi-nationals as they fight for export market share. On the other hand, our strong dollar makes imports cheaper to us and, along with cheaper fuel costs, is aiding the average struggling wage earner. That said, the stuff that is going up in price such as food, taxes, utilities, education, funerals etc. is never calculated by the government in their inflation studies. These increased costs have hampered that average wage earner, a fact that can be seen in recent retail sales figures.
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**JK – Option Queen has strong insights into the Rusell.

Will plunging oil force energy dividend cuts?
Alex Rosenberg and Lawrence Lewitinn – CNBC
Energy investors may have a new concern.
Even as crude oil has plunged to a six-year low, oil stocks have maintained their appeal to some investors by dint of their rich dividend yields. BP’s ADR, for one, now yields more than 6 percent. And ConocoPhillips and Chevron both yield more than 4 percent—much higher than before plunging oil sank their shares.
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Bill Gross’s Replacements Thrive at Pimco
Miles Weiss – Bloomberg
The new managers of the Pimco Total Return Fund have been trumping former boss Bill Gross since he left the world’s largest bond fund, boosted by an opposing bet tied to short-term U.S. interest rates.
Following Gross’s surprise Sept. 26 exit, the trio that took over the $125 billion fund reduced its exposure to debt maturing within five years, according to filings. Gross went the other way on shorter-term debt after joining the Janus Global Unconstrained Bond Fund on Oct. 6, plowing two-thirds of its net assets into corporate bonds coming due before 2018.
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***DA: Bond investing is a marathon, not a sprint. Bankruptcy courts are littered with people who faded Gross over the years.

Mutual Funds Pick Year When S&P 500 Is Up 1% to Beat Market
Bloomberg
Good news for investors: far more mutual funds are beating the market than last year. The bad news is that stocks are returning one-tenth as much.
According to a Fundstrat Global Advisors LLC survey of 3,265 funds, more than half posted gains that exceeded benchmark indexes in 2015 through March 6, for their best start to a year since 2012. Managers are finding it easier to profit from stock-picking as lockstep moves among shares unwind and the market endures swings not seen since 2011.
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**JK – Talk about market timing.

Is VIX Signaling Complacency — or Sell-Off Fatigue?
Adam Warner – Schaeffer’s Investment Research
The CBOE Volatility Index (VIX), the bull market, and why pessimistic traders get burnt more often than not
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‘Flash Boys’ claims ‘a big lie’: Bart Chilton
Jacob Pramuk – CNBC
“Flash Boys” author Michael Lewis’ recent assertions of stock market rigging are “a big lie,” former commodities trading regulator Bart Chilton said on Monday.
“[High-frequency trading has] contributed to markets that are today cheaper, faster and safer than ever before for average investors,” Chilton told CNBC’s “Closing Bell.”
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**JK – Where you stand depends on where you sit, eh Mr. Chilton?

FIA EPTA blog – Markets: the engine of the economy
Mark Spanbroek – Automated Trader
With the publication of the recent Bank of England report demonstrating that high frequency trading makes pricing more accurate in the markets it seems a good time to consider not only why this is good for the markets, but why, in fact, it benefits the economy as a whole, writes Mark Spanbroek, vice chairman, FIA European Principal Traders’ Association.
jlne.ws/1EtjG2J

Exchanges

ICE Futures U.S. Sets Daily Volume Record in Mini MSCI Complex and Mini MSCI EAFE Futures
Press Release – ICE
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, announced today that ICE Futures U.S. reported record daily volume in the mini MSCI futures complex as well as futures based on MSCI’s benchmark for international equity performance, the mini MSCI EAFE index, which tracks equities in developed markets in Europe and Asia.
Total volume in mini MSCI products traded on ICE Futures U.S. was 395,175 contracts on March 16, 2015. The previous record of 364,483 contracts was set on December 16, 2014. Volume in mini MSCI EAFE index futures was 150,140. The previous record of 139,164 was set on September 12, 2014.
jlne.ws/1xvc376

ICE to boost default funds
Mike Kentz – Reuters
The Intercontinental Exchange plans to infuse several of the default management funds within its derivatives clearing houses with more of the firm’s own cash this year in an effort to improve its risk mitigation capabilities and provide client clearing members with cost savings.
The controversial decision comes as industry debate as to how much capital a clearing house should contribute to the management of a major bank failure in derivatives markets intensifies to fever pitch.
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Regulation & Enforcement

Four key market reforms needed now—commentary
Richard H. Baker – CNBC
Seven years removed from the financial crisis, the recovery has finally taken hold in the U.S. and, to varying degrees, around the world. At the same time, U.S. and global regulators have implemented robust reforms to help safeguard and strengthen our financial system. This has set a solid foundation for stability and growth.
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Broker Deal Prompts CFTC Commissioner to Reexamine His Conflicts
Robert Schmidt – Bloomberg
U.S. Commodity Futures Trading Commission member J. Christopher Giancarlo, whose industry ties are being examined by lawmakers, has sought ethics advice on whether he needs to stay away from regulating an additional company.
The new potential conflict involves R.J. O’Brien & Associates, a major futures brokerage that announced this week it was buying a London subsidiary of Giancarlo’s former employer. If he has to avoid matters related to R.J. O’Brien, it would be the commissioner’s second recusal this month.
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High-Frequency Trading Lawsuit: Algorithmic Traders Sue Other ‘Flash Boys’ Over ‘Spoofing’
Owen Davis – International Business Times
Something was amiss in the trading room at HTG Capital Partners. Namely, the market for U.S. Treasury bond futures seemed jinxed. Moments after traders confirmed a purchase, the price would suddenly fall, as hundreds of other supposed offers to buy disappeared. Likewise, within milliseconds of selling at what seemed like the going rate, the price would jump. They kept getting burned by minuscule fluctuations.
It turns out the Chicago trading firm was allegedly being “spoofed,” as they claim in a lawsuit filed last week in the U.S. District Court in Chicago. The case has reignited the contentious debate around high-frequency trading. The rival traders, known as “John Doe defendants” in filings, used lightning-fast algorithmic trades to carry out what HTG calls “egregious manipulation” in the market for U.S. Treasury futures.
jlne.ws/1EtkGnz

Ropes & Gray LLP: SEC Requests Comment on NYSE Proposed Rule Changes that Would Allow Most Actively Managed ETFs to Forego the 19b-4 Application Process
Ropes & Gray
The proposed commentary also would establish certain requirements for ETFs holding exchange-traded and over-the-counter (“OTC”) derivative instruments, but would not impose any percentage limitations on an ETF’s investments in such instruments. At least 90% of an ETF’s investments in exchange-traded futures and exchange-traded options would be required to consist of options and futures for which the principal market is a member of the Intermarket Surveillance Group or is a market with which NYSE Arca has a comprehensive surveillance sharing agreement.
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Strategy

OVX Index Rises to 56.93, as Crude Oil Falls to 6-Year Lows
Matt Moran – CBOE Options Hub
On Monday the CBOE Crude oil ETF Volatility Index (OVX) rose 2.37 to close at 56.93, and a New York Times article noted that
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Education

Equity Traders Looking for Stock Liquidity Can Find It in the Options Market
Automated Trader
Long-only and hedge funds looking for liquidity events to grab some stock should consider taking a page out of the HFT handbook and look cross-asset. Specifically, be a liquidity provider to the professional and retail options trading community. For traditional long-only buy-side funds, options strategies can be used for more than just generating income, levering positions, etc. Certain options situations can also be tremendous liquidity events-for stocks.
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