Observations & Insight

“You Can Close your Eyes” – an Appeal from Mark Spanbroek
John Lothian News – Giving News
Most of you know what this message is about. October is the month for breast cancer awareness and to raise money for its research. I am walking again this year for A Sisters Hope during the first weekend in October, for the 9th time, to support this much needed research. Over the last 8 years I raised with your support just over EUR 300.000, and this year I would like to increase this number again with your support.

‘Why still support breast cancer research’ you may ask? Every child needs a mother and not just for the first 9 years of its life. This is how old my son was when his mum passed away. Also every mum by nature needs to see her child grow up. This is my one and only reason to walk and to prevent this to happen to other kids and mums.
Please support me before October 3 through www.asistershope.org/donate and state my participant number 1257.

Read the rest of Spanbroek’s appeal at JohnLothianNews.com
***DA: Spanbroek is acting chairman of the FIA European Principal Traders Association and also serves as the chairman of CME Europe. He will also be speaking at this year’s MarketsWiki Education London series in a couple weeks.

Lead Stories

Market volatility drives FX revenue
FXWeek (subscription)
Macro-volatility is the driving force behind the increase, as it prompts clients to hedge Revenue from the G10. FX business at banks increased by more than two-thirds in the first half of this year, compared with the corresponding period last year, making the scandal-bruised industry the top-performing business line for banks.

Wall Street says ready if Joaquin hits New York
John McCrank – Reuters
Wall Street has a new risk on its radar: Hurricane Joaquin.
The Category 4 hurricane, now pummeling the Bahamas, is the first major storm to threaten the U.S. East Coast since Superstorm Sandy devastated New York and New Jersey in October 2012.
Joaquin’s trajectory is still uncertain – it could yet cut a path out to sea – but New York’s financiers are aiming to keep trading should it strike early next week.
NYSE Group, which runs the New York Stock Exchange, said it anticipated that all of its exchanges would be open on Monday, regardless of the weather.

****SD: Ready or not ready, I imagine grocery lines will be pretty long.

S&P 500 May Bottom in Days, Then Rally, Seasonality Charts Show: Analysis
Sejul Gokal – Bloomberg
The biggest slump in U.S. stocks since 2011 may end in a matter of days, if long-term price averages are anything to go by, Bloomberg strategist Sejul Gokal writes.
The S&P 500, which slid 6.9 percent last quarter, could reach its lowest point in the current selloff during the first 10 days of this month, before starting a rally into the year-end, so-called seasonality charts based on average daily price changes since 1985 show. A similar graph for the Chicago Board Options Exchange Volatility Index, or VIX, shows volatility tends to peak in early October, before starting to ease.

***DA: Or it may bottom around 9:00 am and then rally today.

U.S. IPO market seen shaken but not shut
Lauren Hirsch – Reuters
Many companies gearing up for initial public offerings in the United States are expected to stick with their plans despite a wave of discounted pricings this week, though the size of their stock sales could be cut, industry experts said on Thursday.
Four companies announced offering prices below the expected range this week, the first string of IPO pricings since the stock market plummeted in August. The market has remained choppy amid concerns over an economic slowdown in China and the prospect of higher interest rates.
The CBOE volatility index, essentially Wall Street’s ‘fear gauge,’ has recently lingered above the 20 mark, which many IPO investors view as the threshold between an open and a treacherous IPO landscape. That is well above its level for most of the past 12 months.

How One Hedge Fund Got Wrecked in a Hurry
Adam Warner – Schaeffer’s Research
Well, we officially have our first high-profile wrecked hedge fund story of the 2015 correction (or bear market … we’ll see). Via The New York Times:
“It was an upstart hedge fund that pitched large returns in periods of market turbulence by relying on a complex and controversial trading strategy.”

Glencore’s Chaotic Week of Stock Volatility Set to End in Calm
Jesse Riseborough – Bloomberg
Glencore Plc shares took a breather after whipsaw swings this week that sent volatility to the highest on record.

****SD: This week may end in calm, but when one week ends, another begins.


Options Exchange Marketshare – September 2015
OCC (via electronic mail)
September 2015 Total Options Marketshare:
AMEX- 8.48%
BATS- 10.94%
BOX- 2.37%
CBOE- 26.09%
C2- 1.74%
GEM- 2.56%
ISE- 11.51%
MIAX- 5.67%
NOBO- 0.81%
NSDQ- 5.68%
NYSE Arca- 9.69%
OMX PHLX- 14.46%

September 2014 Total Options Marketshare:
AMEX- 11.71%
BATS- 5.69%
BOX- 2.20%
CBOE- 26.66%
C2- 2.08%
GEM- 3.90%
ISE- 10.99%
MIAX- 3.72%
NOBO- 0.66%
NSDQ- 7.95%
NYSE Arca- 9.61%
OMX PHLX- 14.82%

September 2015 Equity Options Marketshare:
AMEX- 9.63%
BATS- 12.45%
BOX- 2.70%
CBOE- 16.15%
C2- 1.92%
GEM- 2.90%
ISE- 13.02%
MIAX- 6.45%
NOBO- 0.92%
NSDQ- 6.45%
NYSE Arca- 11.00%
OMX PHLX- 16.41%

September 2014 Equity Options Marketshare:
AMEX- 12.72%
BATS- 6.25%
BOX- 2.41%
CBOE- 19.98%
C2- 2.28%
GEM- 4.27%
ISE- 12.03%
MIAX- 4.08%
NOBO- 0.72%
NSDQ- 8.71%
NYSE Arca- 10.34%
OMX PHLX- 16.22%

LSE set for UK equity derivatives push
Futures & Options World
The London Stock Exchange is set to expand significantly its equity derivatives segment by launching a swathe of new single stock contracts linked to some of the largest British listed companies.
The British exchange is set to launch at the end of this month 32 single stock options for trading, a further 32 for block trading and reporting, and 56 single stock futures for block trading and reporting.

OCC Cleared Contract Volume Down 3% in September
Press Release – OCC
OCC, the world’s largest equity derivatives clearing organization, announced today that cleared contract volume in September was 361,537,608 contracts, off 3 percent from September 2014 volume of 371,034,038 contracts. OCC’s year-to-date average daily cleared contract volume dropped slightly by 0.17 percent from 2014 with 16,855,238 contracts in 2015.

CME Group Volume Averaged 14.4 Million Contracts per Day in Third-Quarter 2015, Up 7 Percent From Third-Quarter 2014
Press Release
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that September 2015 volume averaged 14.1 million contracts per day, down 7 percent from September 2014. Total volume was more than 296 million contracts, of which 87 percent was traded electronically. Average daily volume to date in 2015 is 14.2 million contracts, up 7 percent versus the same period in 2014, with year-over-year growth across all six product lines.

ISE Reports Business Activity for Sept 2015
Press Release
International Securities Exchange Holdings, Inc. (ISE Holdings) today reported a combined average daily volume (ADV) of 2.4 million contracts in September 2015 for its two exchanges, ISE and ISE Gemini. This represents 16.0% of U.S. equity options market share.

CBOE Holdings Reports September 2015 Trading Volume
Press Release
CBOE Holdings, Inc. (NASDAQ: CBOE) reported today that total trading volume in September for options contracts on Chicago Board Options Exchange (CBOE) and C2 Options Exchange (C2) and futures contracts on CBOE Futures Exchange (CFE) was 104.0 million contracts, a decrease of 5 percent from September 2014 and 17 percent from August 2015.

MIAX Options Ranks #1 in Time at NBBO among All Options Exchanges for August; Reports September Trading Activity
MIAX Options Exchange (MIAX((R))) today announced that it ranked #1 in time at the National Best Bid/Offer (NBBO) among all U.S. Equity Options Exchanges for the month of August and over 20 million contracts were executed on MIAX in September. The over 20 million contracts executed represents a 48% increase from the approximately 13.6 million contracts executed in September 2014, and equates to an average daily volume of over 950,000 contracts. MIAX’s September equity options market share of 6.45% represents a 58% increase from the 4.08% achieved in September 2014.

Regulation & Enforcement

What IS a Self-Trade, Anyway?
FIA Principal Traders Group
In the Joint Staff Report on the U.S. Treasury Market on October 15, 2014, the authors noted that there was a higher than usual level of self-trading during the period of market volatility. Although we haven’t seen the data, according to the report, many principal traders stayed engaged in the market on October 15 while many banks withdrew for periods of time. So it would seem logical that, with fewer market participants, there was a higher probability of self-trades.


When Markets Get Volatile, You’ve Got Options
Josh Lisser and Ben Sklar – Seeking Alpha
Last month’s simultaneous volatility spike and stock downturn were unpleasant surprises for investors. But in the spirit of making lemons into lemonade, we see them as reminders to think broadly about downside protection.
For most of the summer, developed-market stocks shrugged off signs of trouble elsewhere, including declines in commodities and emerging-market assets and China’s worsening economic outlook. Even the chance of a Federal Reserve rate hike wasn’t having much effect.
Then everything changed. Over a few days in late August, implied US equity market volatility, as measured by the VIX, tripled. And the S&P 500 Index lost almost 11%. The last time market risk had shot up this quickly was almost 30 years ago during the Black Monday market crash in 1987.


A Volatile, Illiquid Paradise
Seeking Alpha
There is a lot of confusion about volatility.
Some people think that volatility is the square root of the variance in a price series. They would be correct, except when they’re not. Others think that volatility is whatever the CBOE’s VIX metric says. This is also true, but limiting. Similarly, still others would argue that volatility is whatever the derivatives market implies that volatility is. Most will agree, however, that volatility is bad.
We say “most,” but Seeking Alpha really isn’t “most” people. Any investor with even a cursory understanding of Graham-style investing knows the metaphor of Mr. Market, the moody, irrational purveyor of market prices. If we are patient with him, we can take advantage of his irrationality, which is what we ought to do as investors. In this understanding, volatility is simply noise, and it certainly isn’t a bad thing.

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