Observations & Insight
2016 Exchange CEO Series: Jeff Sprecher Talks Data, Clearing and Growth for ICE
For the Intercontinental Exchange (ICE), 2015 was about major investments in data and analytics services. Now in 2016, the exchange is looking to integrate recent data acquisitions into its business and grow well beyond traditional exchange trading and clearing services.
ICE CEO Jeff Sprecher spoke with John Lothian News at the FIA Boca Conference about how its purchases of SuperDerivatives, Interactive Data and S&P Analytics fit into its business model. ICE is also working with Blackrock, on exchange traded funds, to become its benchmark index provider.
“We started to pivot the company to get deeper into the data space,” Sprecher said. “We want to articulate a vision on how exchanges and data can come together into one holistic business that can serve customers.”
Nothing can be certain but delta and taxes
Spencer Doar – JLN
As tax accounting firms spring to life and TurboTax ups its marketing, so too is the Options Clearing Corporation working on taxes. The OCC’s concern does not rest with income taxes, but rather section 871(m) of the Internal Revenue Code.
The code, which is set to tax foreign entities on US equity options trades under certain conditions, could have a negative effect on the use of options overseas, an audience the options industry has worked hard to bring into US options markets.
For the rest of the story, click here
OCC voices concern over SEC derivatives proposal
Futures & Options World
Proposal could limit funds’ ability to use exchange traded options – OCC
The Options Clearing Corporation (OCC) voiced concern over the the US Securities Exchange Commission’s (SEC) latest proposed derivatives rules, stating that they could hit trading. In an open letter to the US Securities Exchange Commission, The OCC said that the Commission’s proposal regarding the use of derivatives are concerning, and outlined worries that certain aspects of it will limit the ability of funds to effectively use exchange-traded options. The Securities Exchange Commission (SEC), the US regulator, proposed new rules in December 2015 that would curtail the use of derivatives by registered investment companies including mutual and exchange-traded funds.
****SD: Full PDF of the OCC’s letter here
The Markets Have a Message – Don’t Believe This Rally
James Mackintosh – WSJ
Amid the epic recovery in risky assets since mid-February, one thing has been missing: an equivalent selloff of the havens to which investors rushed during the earlier panic. Instead of the usual reckless rally, this has been a very cautious comeback. Some of the highest-risk assets chalked?up spectacular gains?during the recovery. The J.P. Morgan Emerging Markets Currency Index rose 8%, a gain matched in such a short time only once since the index was created in 2000. U.S. junk bonds leaped 8% in price, the biggest jump in the Bank of America Merrill Lynch benchmark over such a short period since the summer of 2009, when the country was just emerging from recession.
****SD: Today’s market message is, “We like Yellen when she talks but we come back to earth a bit when done digesting her Fed-speak.” (Maybe Mackintosh wrote this when listening to Public Enemy’s “Don’t Believe the Hype.”)
Oil enthusiasts stay out of rally led by shrinking bearish bets
Asjylyn Loder and Mark Shenk -Bloomberg
Oil enthusiasts haven’t been jumping on board the latest rally. As crude has soared more than 50 percent since Feb. 11, the number of bets on increased prices has barely budged. Instead, the upward pressure on prices appears to have come from traders cashing out of bearish wagers at an unprecedented pace. The liquidation of short positions during the last seven weeks covered by data from the U.S. Commodity Futures Trading Commission was the largest on record.
****SD: No enthusiasm, just decreasing pessimism.
Just how volatile will June 23rd be for sterling?
Giles Wilkes – Financial Times
So on Wednesday 23rd March, three month implied volatility for the proud pound was 14.5 per cent, which is up a third from 11 per cent the day before. For an options market maker, such a move in ‘vol’ is a pretty big deal: expected volatility in a market is the major factor driving prices, and being caught the wrong way on such a move would be enough to cause a fairly large loss. But that is not what happened. The reason for the change in three month vol was rather more mundane.
****SD: June 23rd is also Alan Turing’s birthday. We’ll see how computers factor that in.
Hedge Fund Guru Jacob Wohl, 18, Switches Strategy To Managed Futures
Self-promoted world beater Jacob Wohl, the teenage “hedge fund trader” dubbed “The Wohl of Wall Street” and profiled by many outlets – including Fox Business Network, KLTA, AOL, Tasty Trades, and others – has transitioned from his previous value, stock picking approach to formally offer a managed futures strategy. This is a significant strategy drift for the fund manager who previously professed his idolatry for Warren Buffet, perhaps the antithesis of managed futures.
****SD: “‘Our strategy is based on pricing options more effectively than current liquidity providers,’ he told ValueWalk as he outlined a strategy primarily based on selling and buying options on futures contracts.” Wohl added 19-year-old Jessica Fox, a known derivatives day trader trader and former “Desperate Housewives” actress, to his team as chief innovation officer. I’m going to go out on a very short limb and say their office will feature an open floor plan and a relaxed dress code.
Deadline for ICE LSE bid pushed to “late April”
Alice Attwood – Futures & Options World
The deadline for US exchange giant The Intercontinental Exchange to submit a rival bid for the London Stock Exchange has been pushed to late April after the group confirmed earlier this month that is considering a bid for the firm. According to sources familiar with the matter, the deadline has been pushed to the end of April, giving ICE around six weeks to make an offer, after the LSE and German giant Deutsche Boerse confirmed that they had agreed terms to merge two weeks ago, less than a month after the exchanges said that they were in talks. The latest announcement, made on March 16, kicked off an extension of ICE’s deadline for a counter-bid of around six weeks, sources tell FOW, with the deadline now “late April.”
Exchanges Condoned Alleged Spoofer’s Trades, Ex-Partner Says
Matthew Leising – Bloomberg
Igor Oystacher’s former business partner alleged that top executives at the world’s largest futures exchanges condoned Oystacher’s trading practices, which U.S. regulators later said amounted to market manipulation.
****SD: Alternative title: Exchanges cosied up with “Snuggle Bear” – ex-partner
Regulation & Enforcement
AIMA, MFA wade into SEC derivatives debate
Julie Aelbrecht – Futures & Options World
The Managed Funds Association and the Alternative Investment Management Association have Tuesday joined the debate over the US Securities Exchange Commission’s proposed derivatives rule, following the publication of an open letter from the Options Clearing Corporation. The MFA and AIMA have written a letter of comment to the US SEC on its proposed rule on the use of derivatives by mutual funds and other registered investment companies, after the OCC voiced concerns earlier Tuesday. The associations have said that they have concerns with the adverse effects of the rule’s imposition of a new notional-based leverage limit on registered funds and questions the SEC’s attempt to redefine and regulate derivatives as “senior securities.”
****SD: Hedgeweek’s take here
A Son of Wall Street Privilege Faces Fraud Charges
With forebears who built a fortune in consumer finance, degrees from Princeton and Harvard, and a string of plum Wall Street jobs to his name, Andrew W.W. Caspersen’s pedigree bespoke wealth and privilege. But along the way, federal prosecutors said, his life took a darker turn. They allege the 39-year-old private-equity executive concocted a phony investment fund, invented a fictitious financier and set up bogus Internet domain names and fake email addresses, all part of a bizarre scheme to steal $25 million.
****SD: Steal millions, lose most trading options. Karmic. Bloomberg’s take here
Trader Wins Anti-Defamation Case Against Sun Trading
Sun Trading, a high-frequency trading firm based in Chicago has been ordered to pay a former employee – Kieran Fitzgerald – for damages in a defamation case. The high-speed trading firm alleged that Fitzgerald had sabotaged a successful market-making algorithm he had created for the firm prior to his resignation.
Siacoin Could Dramatically Change the Way We Look at Data Storage
What is Siacoin and why should you care? Siacoin is the designated cryptocurrency used on the Sia decentralized data storage platform which is essentially a peer-to-peer network of hard disk drives individually connected to the network allowing the disk space on those hard drives to be used or recovered for data storage by people all over the world. Sia will be the first fully functional, remote peer-to-peer data storage network allowing users to store data on a decentralized network where it is available for retrieval anywhere, any time, provided you have the appropriate identifiers in place to access that data.
Five Questions With Danny Riley Of Mr. TopStep
I am continually impressed by the breadth of interesting people I encounter in the fintech arena. Whether they are traders, technologists, media or even marketers (yes, believe it or not), there are so many great stories behind the scenes from the people that make this industry exciting. So, welcome to “Five Questions with…,” a new Trade Talk series in which we interview notable market participants and technology thought leaders about a few common—and a few unique—industry-related subjects. Our first chat is with Danny Riley of MrTopStep, a multi-channel outlet dedicated to financial news and education.
ABR Dynamic Funds Introduces ‘Smart Volatility’ Mutual Fund
ABR Dynamic Funds, LLC, a New York-based asset management firm, is introducing its “Smart Volatility” mutual fund, the ABR Dynamic Blend Equity and Volatility Fund (ABRVX). The fund, driven by algorithms designed to anticipate and dynamically rebalance during market volatility, is a welcome source of diversification intended to improve portfolio performance in turbulent markets.
Weekly Market Outlook – At A Crucial Juncture
Price Headley – CBOE Options Hub
After five straight weeks of gains, the market finally buckled. It wasn’t a big pullback last week – only 0.6% – but all big trends start out with that first small step. We at least have to acknowledge the possibility that last week’s weakness may be the beginning of something bigger. And that possibility isn’t just the result of one losing week. The S&P 500 (SPX) (SPY) bumped into a major resistance line, and if the bears were/are going to make a stand anywhere, it’s where the index peaked last week.
Understanding Volatility ETFs Isn’t As Easy As Watching The VIX
I wrote about the inflows into (TVIX) VelocityShares Daily 2x VIX Short-Term ETN this weekend. The inflows into $900 million (UVXY) ProShares Ultra VIX Short-Term Futures ETF have been even greater than that in the past month. With such large inflows, it is worth examining these ETN’s and ETF’s more closely.
Stuck in a Trading Losing Streak? Strategies to Stall or Stop the Streak
Brian Lund – The Ticker Tape
It doesn’t matter if you’re an amateur trader or a famous hedge fund manager; everybody experiences trading losing streaks in the stock market from time to time. Here are some tips and tricks for dealing with—and getting out of—losing streaks in your trading. First, understand that trading is a zero-sum endeavor. That means there’s a winning side and a losing side to each trade, and both sides incur transaction costs. It’s not that you’re guaranteed to lose money, but it’s likely you might experience more losing trades than winning trades.
Andrew Hacker’s “The Math Myth” is a great example of mathematics illiteracy.
Evelyn Lamb – Slate
In his new book “The Math Myth: And Other STEM Delusions,” Andrew Hacker lays out a bold case for substantially changing the instruction of mathematics. Hacker’s thesis is that too many students drop out of high school and college because they fail math classes, a problem he would solve by removing such obstructions from high schools’ required curricula and providing students with more options for math classes he deems relevant. These would include courses that emphasize numeracy—a facility with numbers and arithmetic as they generally show up in everyday life—and “citizen statistics,” an ability to understand and contextualize figures that appear in media and politics.
****SD: “I reject Hacker’s idea that mathematics doesn’t help us understand other areas of life and enhance our experience of the world. In her recent Slate piece on Hacker’s book, Dana Goldstein described how her husband sees concepts such as derivatives as connecting the concrete to the abstract, of helping us understand the world. He’s right.” That’s about as close to options as the story gets, but overall the piece succeeds in laying out increasingly worrisome practices in U.S. mathematics education. As much as I disliked calculus in high school and number theory in college, in retrospect I’m grateful for being forced into/guided to those subjects. Agree or disagree with the author’s argument, this will get your gears churning.