JLN Options: Outage in Nasdaq Options Trading to Persist Through End of Day; ISE Granted Stay in CBOE’s Patent Suit; Financial firms on the defensive: A culture of fear

Nov 1, 2013

Lead Stories

Outage in Nasdaq Options Trading to Persist Through End of Day
Kaitlyn Kiernan – The Wall Street Journal
Nasdaq OMX Group Inc.’s second systems breakdown this past week—a halt in trading at one of its options markets Friday—will persist through the end of the trading day, the latest in a number of outages at U.S. exchanges.

ISE Granted Stay in CBOE’s Patent Suit
Press Release (ISE)
In the case of Chicago Board Options Exchange, Incorporated v. International Securities Exchange, LLC, Case No. 1:13-cv-01339-JMF, the Honorable Jesse M. Furman of the United States District Court for the Southern District of New York issued a ruling yesterday that halted CBOE’s patent suit against ISE while the validity of the patents-in-suit is examined by the U.S. Patent and Trademark Office (USPTO).

VIX Surprisingly Tame on Erratic Trading Day
Wall Street Sector Selector
On Thursday, the Chicago Board Options Exchange Volatility Index (VIX) made a surprisingly modest, 0.73 percent advance, although the S&P 500 popped in and out of positive territory six different times.  As it turned out, the range of the S&P’s swings was too limited to provide any enhancement to the market’s volatility.  Nevertheless, it was surprising to see the VIX spend most of the session in the red, considering the erratic movements of the S&P.

Videocast: Low implied volatility
Chris McKhann – optionMONSTER

Financial firms on the defensive: A culture of fear
The Economist
“IT WOULD be suicidal to fight them,” says the chairman of a big international bank, speaking of America’s regulators and prosecutors. A week of settlements, fines and provisions by big banks in Europe and America underscores just how ready authorities are to raise the whip hand and how quick banks are to pay up rather than go to court. Lost in the flurry of payouts is any clear adjudication of what banks have done wrong, and therefore any guidance for setting things right.
**There is a reason they sign big checks and demand no fault settlements and it is not because they are at the mercy of evil regulators. -JB


OCC Announces Cleared Contract Volume Rose 24% in October Reaching 400 Million Contracts
Press Release (OCC)
OCC announced today that cleared contract volume in October reached 407,220,455 contracts, representing a 24 percent increase from the October 2012 volume of 327,576,945 contracts. This marks the first time since August 2011 that cleared contract volume hit 400 million contracts in a single month and the fourth time in history. OCC’s year-to-date total cleared contract volume is up 4 percent from 2012 with 3,526,716,786 contracts.

The Options Industry Council Announces October Options Volume Up 24 Percent
Press Release (OIC)
The Options Industry Council (OIC) announced today that 401,726,200 total options contracts traded in October, which is 23.86 percent more than the previous October when 324,329,913 contracts were traded.

CBOE Holdings, Inc. Reports Strong Results For Third Quarter 2013
Press Release (CBOE)
CBOE Holdings, Inc. (NASDAQ: CBOE) today reported third quarter 2013 net income allocated to common stockholders of $41.0 million, or $0.47 per diluted share, compared with $45.2 million, or $0.52 per diluted share, in the third quarter of 2012.  On an adjusted basis, net income allocated to common stockholders was $41.0 million, or $0.47 per diluted share, compared with $37.7 million, or $0.43 per diluted share, in the same period last year.  Operating revenue for the quarter was $136.7 million, up 7 percent compared with $128.3 million in the third quarter of 2012.

Liffe Executive Departures Said Planned Following ICE’s Takeover
Nandini Sukumar & Isis Almeida – Bloomberg
Two senior executives at NYSE Liffe, Fraser Cowie and Ian Dudden, plan to leave the derivatives market after IntercontinentalExchange Inc. finishes buying its owner, NYSE Euronext (NYX), according to three people familiar with the situation.

NYSE Euronext and IntercontinentalExchange Announce Preliminary Shareholder Merger Consideration Election Results
Press Release (NYSE)
IntercontinentalExchange (NYSE: ICE), a leading operator of global markets and clearing houses, and NYSE Euronext (NYSE: NYX), today announced the preliminary results of the elections made by shareholders of NYX regarding their preference as to the form of merger consideration they will receive in connection with ICE’s pending acquisition of NYX, which is currently expected to be effective within two business days after receipt of the final regulatory approvals, which ICE and NYX expect to receive in the coming days.

November 2013 InBOX
Press Release (BOX)
This is the November issue of InBOX, your news source from inside the BOX Options Exchange. This monthly publication will provide convenient summaries of recent developments at BOX.
http://jlne.ws/Hzjo1e (PDF)

Regulation and Enforcement

CFTC Delays Cases, Shelves Probes, in Funding Squeeze
Jean Eaglesham – The Wall Street Journal
The Commodity Futures Trading Commission is so cash-starved that the agency is being forced to delay cases, shelve certain probes and decided not to file charges against two former traders over J.P. Morgan Chase JPM & Co.’s “London whale” trading mess, a top official said.

The CFTC Is Drowning in Market Data
Matthew Philips – BloombergBusinessweek
In the aftermath of the financial crisis, Congress gave federal regulators broad powers to watch over some of Wall Street’s murkiest trades. For years the $600 trillion swaps market operated without supervision and almost entirely hidden from view.

U.S. regulator underdisclosed improper loans to AlphaMetrix: sources
Reuters (via Crain’s Chicago Business)
The U.S. futures industry’s self-funded regulator underdisclosed by more than $2 million the amount of money that fund manager AlphaMetrix improperly borrowed from outside money managers, two sources familiar with the situation said.

CFTC chair eyes final Volcker push
Richard Henderson – The Trade
A long-sought final draft of the Volcker rule could emerge in December according to Commodity Futures Trading Commission (CFTC) chair Gary Gensler, concluding its long process of development.


Are U.S. Options Exchanges Headed For Big IT Troubles?
B.I.S.S. Research Ltd.
With so many exchanges plying their trade in the U.S. options space and too many options series to quote, one might well ask how can the market and end users cope and handle the throughput? From both IT and logistics perspectives it’s certainly a tall order.
Analyst firm Aite Group, which published a 70-page white paper this October on the subject (‘Seven, Eleven, and Now Twelve: How Many U.S. Equity Options Exchanges Are Enough?’), contends that even more liquidity fragmentation could be on the cards and lead to rising IT costs from the myriad of connectivity.


Halloween Monsters
Bill Luby – CBOE
In the spirit of the day and lacking the resources and imagination to do something as elaborate as the Guillermo del Toro couch intro for the 2013 Treehouse of Horrors episode of The Simpsons (definitely worth a click through) I have elected instead to construct a portfolio of what I am calling the Halloween Monsters – a group of ten stocks that have been absolutely killing it this year, leading the markets higher.

‘Short’ the VIX? Talk About Risky!
Brendan Conway – Barron’s
“Owning” volatility: It’s been something of a sucker’s bet for two years. That reflects both the stock market’s remarkable multi-year levitation as well as the quirky construction of exchange-traded funds and notes built with CBOE Volatility Index futures.

Tales from the VXX Crypt
Adam Warner – Schaeffer’s Investment Research
We do take requests (well, sometimes). I got this question about the iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX) the other day.
– Would you like to write an article explaining about coming $vxx reverse split and what and how fast will lose its value compared to non split adjusted basis from previous periods. Thanks.
Well, I’ve never met a VXX-bashing opportunity that I didn’t like. So let’s give this one a whirl.

Options Education

How is the VIX Like the Cost of Insurance? [Video]
Swan Wealth Advisors Director of Trading and Investments Mark Sebastian discusses the VIX on Bloomberg Television’s “Street Smart.”



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