Observations and Insight

Congratulations to our survey prizewinner
Sarah Rudolph
Last week we completed our annual survey, or rather our first annual survey in three years. We are grateful to all those who took the 30 seconds (or so) to answer the questions. Thanks for helping us out! The prize, which was a choice between an iPad Mini or a pair of Bose Quiet Comfort Noise-Canceling Headphones, went to Lynne Howard-Reed, director of marketing at the CBOE, who was chosen in a random drawing among all those who completed the survey. (She chose the iPad Mini.) She said it was the best survey she had ever taken – I’m guessing that is because it consisted of only 5 questions, or maybe she hasn’t taken any other surveys. Anyway, congratulations Lynne!

Lead Stories

Meet BofA’s Culprit: Structured Notes
Katy Burne – The Wall Street Journal
Bank of America Corp. said it will revise its capital plans after disclosing an error in its calculations for certain debt securities. The culprit: so-called structured notes.
Structured notes are bonds with set maturity dates that are paired up with derivatives such as options.

Swings Squelched as Stocks to Bonds Calmest Since 2007
Sofia Horta e Costa and David Goodman – Bloomberg
Tension between Ukraine and Russia is escalating. The U.S. bull market has gone for on a year longer than average. Federal Reserve policy makers are scaling back its bond buying. Investors don’t care.
A risk measure that that uses options to forecast fluctuations in equities, currencies, commodities and bonds fell to its lowest level in almost seven years last week.

Volatile Markets? Think Again
Steven Russolillo – The Wall Street Journal
The Dow Jones Industrial Average rose by as many as 139 points on Monday, lost those gains and then fell by 49 points at session lows before finishing the day up 87 points.
Sounds pretty volatile, right?
Think again.
Such triple-digit-point swings don’t matter much these days with the Dow trading well above 16000.

You Call This Volatility?
Brendan Conway – Barron’s
Monday’s trading was, if anything, disjointed. Major indexes gained in the morning. They lost in the afternoon. Prices in high-flying momentum sectors took a hammering. Then, shortly after 2 p.m., the same indexes took a leg higher. Most finished the day with a slight gain.

Volatility ahead as ‘Big Four’ looms
Jeff Macke – Yahoo Finance
It’s a jam-packed week. You probably already knew that, but what you didn’t know was how unusually tight the news flow is going to be over the next 4 days and what it could mean for your portfolio. In the attached clip John Canally of LPL Financial lends some perspective:

On the VIX, Credit Spreads, and Demand for Volatility Derivatives
Exploring an interesting angle on volatility derivative order flow
Adam Warner – Schaeffer’s Investment Research
The demand for CBOE Volatility Index (VIX) derivatives continues to grow and grow. Existing products continue to see expanding volume and promising new listings like the CBOE Short-Term Volatility Index (VXST) futures and options keep coming down to the pike.
So who’s behind all this VIX fun? The answer may shock and amaze you!

Why Bitcoin’s Volatility is Unique Among Commodities
Danny Bradbury – CoinDesk
For people trying to evaluate bitcoin’s potential against other commodities, its relative price volatility could be a worry or an opportunity, depending on your appetite for risk. So, how closely can we map bitcoin’s volatility against other commodities?
Not very closely, argues Kirill Gourov, Director of Finance for Blocktech, a new company that creates open-source block chains for industries in need of disruption.

Russell survey: Advisors say tax-aware investment strategies not top-of-mind for investors, despite their strong desire for lower taxes
Press Release (Russell Investments)
While 35 percent of financial advisors say that clients ask about strategies to reduce or avoid taxes, only 18 percent of advisors say that clients proactively want to discuss tax implications of investment strategies, according to the Financial Professional Outlook (FPO), a quarterly survey of U.S. financial advisors from global asset manager Russell Investments.


CME Group Earnings Projected to Increase
Wall Street is expecting higher profit for CME Group when the company reports its first quarter results on Thursday, May 1, 2014. The consensus estimate is calling for profit of 83 cents a share, a rise from 73 cents per share a year ago.
The consensus estimate is down from three months ago when it was 85 cents, but is unchanged over the past month.

Regulation and Enforcement

Bogus Fund Fees Cited by SEC’s White in Push for Boosting Budget
Dave Michaels – Bloomberg
Hedge funds and private-equity firms have created bogus service providers to boost fees they charge to portfolio companies and investors, U.S. Securities and Exchange Commission Chair Mary Jo White will tell lawmakers in Washington today.
Private funds also have mis-assigned some fees and expenses to companies in which they hold stakes, White said in remarks prepared for a House Financial Services Committee hearing on her agency’s 2015 budget.

SEC Chief Set to Testify on High-Speed Trading
Scott Patterson and Andrew Ackerman – The Wall Street Journal
Lawmakers pressing Securities and Exchange Commission Chairman Mary Jo White to address worries about rapid-fire trading aren’t likely to hear detailed plans for immediate action when she testifies Tuesday on Capitol Hill.
Ms. White, who will appear before the House Financial Services Committee, has repeatedly said computer-driven trading is one of her top concerns.

CFTC launches inquiry into evasion of swaps rules
Douwe Miedema – Reuters
The U.S. swaps regulator plans to research whether U.S. banks’ overseas trading activity is complying with its rules, a senior official said on Monday, as Wall Street adapts to new rules for the $690 trillion global market.
Scott O’Malia, a Republican member of the Commodity Futures Trading Commission, said he had asked the agency’s staff for a legal opinion on whether U.S. banks were possibly evading its rules when doing business in Europe.


Carnegie Mellon University Joins Trading Technologies’ University Program
Press Release (Trading Technologies)
Trading Technologies International, Inc. (TT) today announced that Carnegie Mellon University’s Department of Mathematical Sciences has joined TT’s University Program. The software will be used by students working towards Carnegie Mellon’s Bachelor of Science in Computational Finance, a joint degree offered by the Department of Mathematical Sciences and the Tepper School of Business.



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