Observations & Insight

Sit down, let me tell you how this works
Jim Kharouf, JLN

When I sat down in Doha, Qatar with Yossi Beinart, CEO of the Tel Aviv Stock Exchange, at the World Federation of Exchanges annual conference last November, he outlined one of the key initiatives for the exchange – helping young companies grow.

For many companies, Beinart said, access to capital is just one part of the puzzle. The other is finding access to people who can help small and medium sized companies assist in taking them to the next stage of growth. TASE aims to be one of those sources, he said, a novel approach for an exchange which traditionally simply offered a way for firms to go public. In January, TASE and Nasdaq announced a strategic agreement to create a joint-venture to support private growth companies in Israel. It’s a wise move for the exchange and great for growing the domestic economy.

So it is interesting to read the London Stock Exchange’s report on small and medium sized businesses. Among the nine or so categories of businesses in the report, the financial technology category appears poised for growth, with 70 percent of financial firms getting loan approvals from lenders in the UK over the past 18 months. And some banks are offering free mentoring services to help entrepreneurs grow, including a service called Mentorsme, which has reached more than 200,000 businesses in the UK.

The top exchanges and some key firms in the industry have venture capital funding entities as well and are looking for start-ups who have the next big thing, but are still relatively small things at the moment. TriOptima, Traiana and Duco are three that have come out of the ICAP incubator and have been disruptive in our space. In fact, ICAP is an interesting example of a company that has shed its interdealer broker skin and become a technology investment firm.

The future is bright in this space, but providing old fashioned mentoring and advice to these budding entrepreneurs is still needed.

Lead Stories

Options market reveals depths of UK/EU jitters
Swaha Pattanaik – Reuters
Certainty sometimes breeds huge uncertainty. Now that investors know Britain will hold a referendum on its European Union membership on June 23, they are free to fret about how much UK assets might suffer before and after the vote.

This $1.4 Trillion Investor Says Wild Markets Are Here to Stay
Tom Redmond – Bloomberg
Strap in for more volatility in markets as the global economy slows and central banks dabble in the dangerous world of negative interest rates, says $1.4 trillion money manager Capital Group Cos.
Turbulence will probably persist as rates below zero and deflation pose a “real threat” in Japan and Europe, Capital Group wrote in a note to clients this week. The risk of a U.S. recession has increased, they say, which means the Federal Reserve probably won’t increase borrowing costs in 2016.

Pound in Worst Day Since Banking Crisis as `Brexit’ Fears Bite
Eshe Nelson – Bloomberg
The pound fell the most since the U.K.’s 2009 banking crisis after London Mayor Boris Johnson, one of the nation’s most popular politicians, said he’ll campaign for Britain to leave the European Union in a June referendum.

Options market sees 50% chance of massive S&P plunge
Alex Rosenberg – CNBC
Stocks may have rebounded from their recent lows, but the option market still implies a big chance that stocks plummet anew before the year is out.
After falling as low as 1,810 two weeks ago, the S&P 500 Index bounced significantly in the prior week, closing Friday trading at 1,918. But even as stocks somewhat regained their footing, the market’s fear certainly has not dissipated.

Europe’s Biggest Derivatives Exchange Halts Trading on Glitch
John Detrixhe – Bloomberg
Deutsche Boerse AG halted trading on Eurex, Europe’s biggest derivatives exchange, as it investigated technical issues on the platform.

Tired of Boogeymen Portrayals, Speed Traders Take to NYSE Floor
Annie Massa – Bloomberg
Automated traders have an image problem. What better way to address it than to set up shop in one of the most iconic spots in global finance: the floor of the New York Stock Exchange.
Citadel Securities and Global Trading Systems LLC recently agreed to buy NYSE floor-trading businesses, putting their computers on the same team as humans working at the lower Manhattan facility. They’re joining other automated market makers, Virtu Financial Inc. and IMC, who now oversee nearly all transactions on the floor.

Saudi-Russia Oil Deal Can’t Stop Biggest Bull Exodus in 7 Months
Moming Zhou – Bloomberg
A deal between Saudi Arabia and Russia to freeze oil output failed to stem the biggest drop in bullish bets since July.
The agreement reached Feb. 16 isn’t going to revive crude prices, according to Goldman Sachs Group Inc. Iran said it supported the deal, without saying whether it would temper its own production. A ban on Iran’s oil exports was lifted last month when the Persian Gulf country completed the conditions of a nuclear deal with world powers.

Yuan Forwards Rise on Bets PBOC to Support Currency Before G-20
Yuan forwards rose the most in a week on speculation Chinese policy makers will support the currency before a meeting of the Group of 20 central bankers and finance ministers. Government bonds fell.

Volatility Update: Equities rally as markets reach oversold levels
Georgio Stoev – TradingFloor
Global equities rallied in yet another attempt to reverse some of the hefty losses piled up so far in 2016. For the week of February 15th, investors seemed to be focused on bargain-hunting, pushing energy and financial related stocks. As a result, shares of oil services company Halliburton (HAL) surged some 9% while interest rate sensitive JP Morgan (JPM) and Wells Fargo (WFC) gained 9% and 6.5% for the week.

Banks Keep Cutting Currency Traders as Volatility No Job Saver
Lananh Nguyen – Bloomberg
As banks around the world cut sales and trading jobs in an effort to reduce costs, the bloodletting in foreign exchange is proving to be among the deepest and most painful.
The world’s 12 biggest banks cut front-office currency staff by 5 percent in 2015, extending a trend that’s seen them reduce foreign-exchange headcount by more than a quarter since 2010, according to Coalition Development Ltd., a London-based provider of research and analytics for the financial industry. Layoffs among foreign-exchange traders last year outpaced those in equities, corporate finance and advisory, and fixed income, currencies and commodities trading broadly.

Look Who Sold Apple Last Quarter
Philip Elmer-DeWitt – Fortune
Apple, the U.S. markets’ most widely held and actively traded stock, lost 5% of its value last quarter, despite heavy buying by the company. Apple bought a total of 46 million of its own shares, 26 million in the open market and another 20 million through an accelerated stock repurchase program.
If Apple was buying, who was selling?


IEX Responds to Exchanges’ Comment Letters
John D’Antona Jr. – Traders News
IEX is writing in response to comment letters sent by Nasdaq, NYSE, and BATS. Each of these incumbent exchanges has questioned the credibility and accuracy of IEX’s recent statements. IEX appreciates the opportunity to respond to our competitors to address these misunderstandings and to avoid further miscommunication.

Regulation & Enforcement

SEC brings new charges over global press release hacking scheme
The U.S. Securities and Exchange Commission has charged nine new defendants over what it has called a more than $100 million international scheme to hack into newswires that distribute corporate press releases and to use stolen information to conduct insider trading.

HSBC’s Asia-Pacific Hiring Practices Being Probed by SEC
Cathy Kit Ching Chan – Bloomberg
HSBC Holdings Plc, Europe’s biggest bank, said it’s among financial institutions being investigated by the U.S. Securities and Exchange Commission in relation to their hiring practices in the Asia Pacific.


Covered Call Overwriting: “Let the seller beware”
Mark Melin – ValueWalk
Covered Call overwriting? With stock markets moving sharply lower and then higher, now is a challenging time to sell call options on individual names where the investor owns the stock, says a UBS report. But then again, with the proper stock selection – choosing shares that are not likely to spike in value – the investor could be handsomely rewarded, but be careful.

Gold’s 2016 Rally: Don’t Fall for the “Fear Trade” — The Motley Fool
The Motley Fool
With very few industrial applications, gold doesn’t trade like a genuine commodity. You might be better served to think of it as psychological commodity, one that provides comfort to the anxious, the unhinged, and those more or less rational individuals who have fallen for gold marketers’ pitch.


The 4 Combinations of Volatility and the Stock Market
Skip Raschke – The Street
Emotionally-related chaos, especially the type of chaos that enters the markets, expands time. The opposite of chaos, that being “order”, contracts time.
When trading at-the-money or out-of-the-money options, what we really trade is time relative to volatility and the price of that volatility relative to the time left to expiry. We are trading only time and not any form of equity when trading any option not in the money by even one penny. And since the vast majority of options that are traded are not worth even one penny of equity, understanding as much about volatility as possible makes for very important option trading-sense.

Relevant trading-focused information authored by key players in the futures, options and forex industries
Fred Oltarsh – Inside Futures
The first topic to understand is liquidity. The importance of liquidity is often overlooked in Options Trading. Whether one is trading standard or binary options, it must be clear to the trader how expensive it is to initiate and liquidate a position. The wider the Bid/Ask spread as a percentage of the contract value, the costlier it is to trade the particular contract. Ideally, a trader would benefit from the largest contract with the Bid/Ask spread at a minimum. For those who don’t focus on commissions and slippage, Options Traders don’t have a chance of making money in the long run.

How to Calculate Beta From Volatility and Correlation — The Motley Fool
The Motley Fool
Investors understand intuitively that some stocks are riskier than others. The capital asset pricing model attempts to quantify the common perception of risk using a term called beta. By understanding how beta works, you can better understand how the individual stocks in your portfolio are likely to move based on how the overall market performs.


CBOE RMC – Five Things I’m Looking Forward to Next Week
CBOE Options Hub
One the best parts of my job as Director of Education at The Options Institute is getting to attend each of the Risk Management Conferences offered by CBOE. Back in the Fall the running theme at both the European and Asian versions of RMC seemed to be how the markets were shifting from a low to high volatility regime. Early 2016 price action has confirmed this.
There are five things that have me particularly excited about heading to Bonita Springs, FL next week for the 32nd Annual RMC Conference in the US.

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