Observations and Insight
Jeromee Johnson, VP & Head of BATS Options, BATS Global Markets – Exchanges, Dark Pools and Other Market Places
“You can absolutely gain as much and learn as much from those failures as you can from the things that work.”
Jeromee Johnson, vice president and head of BATS Options for BATS Global Markets, gives an overview on exchanges and marketplaces. He discusses how certain regulatory factors affect some but not all markets, as well as an exchange’s overall goal of bringing buyers and sellers together. Johnson also details the process of creating a new exchange gives an in-depth look at how the regulatory environment could potentially affect a fledgling exchange.
Optiver to Halt Trading in Australian Options Markets
Australia’s main financial trading venue, the Australian Securities Exchange (ASX), will lose a major liquidity provider in its Options product range. As reported by Australian media, Optiver will cease trading on the ASX. The move is expected to impact the exchange’s derivatives offering.
The Dutch origin financial trading firm reported that it will halt its market-making offering on the exchange, the news was confirmed by a representative of the firm. Optiver has been a major contributor to ASX’s Exchange Traded Options (ETO) product range.
European equity & ‘call’ options in vogue on prospect of ECB action
Traders are buying up ‘call’ options betting on a gradual move higher in European stock markets, as expectations grow of new stimulus measures from the European Central Bank.
The ratio measuring the number of negative ‘put’ options versus bullish ‘call’ options on the euro zone’s blue-chip Euro STOXX 50 index – the most liquid European market for options traders – has dropped sharply in the past three weeks, to 0.93 currently from 2.45 on Aug. 8.
Pound’s Volatility Surges by Most Since 2008 as Scots Vote Looms
Anchalee Worrachate and Alexa Liautaud – Bloomberg
A gauge of future price swings for the pound against the dollar jumped by the most in almost six years as a survey showed support for Scottish independence is increasing before this month’s referendum.
The pound dropped to the weakest versus the dollar since March after a poll by YouGov Plc for the Times and Sun newspapers showed a narrower lead for those favoring remaining part of the U.K. Volatility in sterling rose 22 percent, the biggest one-day jump since October 2008. The U.K. currency stayed lower even after a report showed construction growth unexpectedly accelerated in August. Gilts declined for a second day.
Does Back To School Mean Back To Volatility?
JJ Kinahan – Forbes
Trading desks worked with skeleton crews during much of August. In fact, trading volume last week was the slowest since at least 2008 (excluding the holiday-lite end of December) with average daily turnover below 5 billion shares in each of the past nine sessions, the longest stretch for sub-5 billion going back six years, according to Bloomberg data. Now, as most investors and traders get back to work, August employment numbers and a handful of central bank meetings cap a busy economic calendar in a holiday-shortened week.
An Interesting Development in the Volatility Complex
Adam Warner – Schaeffer’s Investment Research
Another week, another — well, nothing much. There were new highs in the S&P 500 Index (SPX), and some modest drifting in the CBOE Volatility Index (VIX). We did expect that last week would stay quiet, and it certainly lived up to those expectations.
Sanctions Threat Ravaging Ruble Stokes Rate Bets: Russia Credit
Ksenia Galouchko – Bloomberg
The ruble’s slide to records and derivatives showing more losses are in store are spurring wagers the Bank of Russia will raise interest rates again this year.
Forward-rate agreements for the local currency show traders expect central bank Chairman Elvira Nabiullina will decide on almost two quarter-point increases to the key rate by Dec. 1, according to data compiled by Bloomberg. That’s the highest showing since policy makers unexpectedly raised the one-week auction rate by 50 basis points to 8 percent on July 25 in response to the selloff in Russian assets triggered by tougher sanctions over the standoff in Ukraine.
George Soros Is Betting Against The Market And Why Investors Should Take Notice
For institutional investors, keeping secrets for long is an impossible task. The Securities and Exchange Commission requires these entities to file a 13F, a quarterly filing required of investment managers of assets of $100 million or more, which contains information regarding the asset manager’s investment style and potentially even a list of equities owned.
Morgan Stanley predicts the S&P 500 could skyrocket to 3,000
Matt Egan – CNN Money
In a compelling 27-page report released on Tuesday, the investment bank said the S&P 500 could surge to 3,000 by 2020. That’s a pretty big leap considering the index only topped 2,000 last week.
Their reasoning is that the economic recovery isn’t even close to being over.
Videocast: Cheap VIX protection
FIA Europe appoints new Director of Regulation
Press Release – FOA
FIA Europe is pleased to announce the appointment of Corinna Schempp as Director of Regulation. Corinna joins from LCH.Clearnet Limited where she was a Senior Regulatory Advisor in the Compliance team. Most recently, her responsibilities covered regulatory compliance in relation to LCH.Clearnet’s SwapClear business, including liaison with the Bank of England, CFTC, Ontario Securities Commission, AMF Quebec, BaFIN and other international regulators. During her time at the clearing house, she also worked closely with the legal team to provide support on European and US regulatory issues, including the implementation of Dodd-Frank and associated CFTC regulations across LCH.Clearnet impacted business units.
People: Citi names new equity derivatives head
James Boyle has replaced Simon Yates as global head of equity derivatives at Citi. Based in Hong Kong, he will report to Derek Bandeen, global head of equities, and will relocate to New York in 2015. Boyle joins Citi from Bank of America Merrill Lynch, where he was global head of derivatives trading. Before that, he was head of derivatives at Citadel.
Bank rankings 2014: a question of scale
Tom Osborn – Risk.net
JP Morgan heads this year’s Risk bank rankings – one of the big dealers that appear to be benefitting as rivals retreat. But some say the growing number of pull-backs by major dealers is hurting liquidity, leaving the market vulnerable when interest rates finally rise.
Can the New York Stock Exchange Be Saved?
Bradley Hope – WSJ
The day after Jeffrey Sprecher, the chairman and chief executive of Atlanta’s Intercontinental Exchange Inc., took control of the New York Stock Exchange, he sent trusted lieutenant Thomas Farley to size up the 222-year-old icon of capitalism.On a crisp November morning, the 38-year-old Mr. Farley arrived alone at the corner of Wall and Broad streets in lower Manhattan. After walking beneath the building’s majestic colonnade and past its storied trading floor, he found signs of an institution that was showing its age.
GFI Group Shareholder Sues to Block CME Group Acquisition
Chris Dolmetsch – Bloomberg
CME Group Inc. (CME)’s $580 million acquisition of GFI Group Inc. (GFIG) undervalues the trading company, a shareholder said in a lawsuit seeking to block the takeover.
CME, owner of the Chicago Mercantile Exchange, agreed in July to buy New York-based GFI to expand into European energy trading. The transaction calls for Chicago-based CME Group to sell GFI’s wholesale brokerage and clearing unit to a group of managers led by Michael Gooch, GFI’s executive chairman, for $165 million plus the assumption of $63 million in liabilities.
CBOE Futures Exchange Reports August 2014 Is Busiest Month Ever (NASDAQ:CBOE)
Press Release – CBOE
CBOE Futures Exchange, LLC (CFE) today reported that August 2014 was the busiest month all-time for average daily volume and total trading volume, both exchange-wide at CFE and for futures on the CBOE Volatility Index (VIX Index).Average daily volume in VIX futures was a record 216,996 contracts during August, an increase of 37 percent from August 2013 and an increase of 10 percent from July 2014. August’s record ADV surpassed the previous record ADV of 216,797 contracts in February 2014. Total volume in VIX futures reached a new all-time high during August with 4.56 million contracts, up 31 percent from August 2013 and up five percent from July 2014. August’s record total volume topped the previous record of 4.40 million contracts in January 2014.
CBOE Holdings Reports August 2014 Trading Volume (NASDAQ:CBOE)
Press Release – CBOE
CBOE Holdings, Inc. (NASDAQ: CBOE) reported today that August 2014 trading volume for options contracts on Chicago Board Options Exchange (CBOE) and C2 Options ExchangeSM (C2SM) and futures contracts on CBOE Futures ExchangeSM (CFE) totaled 99.10 million contracts. Average daily volume (ADV) was 4.72 million contracts, a two-percent increase from August 2013 and a five-percent decrease from July 2014.
CBOE Holdings’ year-to-date ADV was 5.12 million contracts, 10 percent ahead of the same period one year ago.
August was the most active month ever for futures on the CBOE Volatility Index (VIX index), surpassing previous monthly volume and ADV records. VIX futures ADV increased 37 percent from a year earlier.
BOX Price Improvement Activity for August
Press Release – BOX
Boston, September 2 2014: In the month of August, price improved contracts on BOX Options Exchange (“BOX”) averaged 282,085 per day, which represented a 65% increase over the same period last year. Price improvement versus the prevailing NBBO for contracts submitted via BOX’s price improvement auction, PIP, averaged $463,779 per day, while total savings to investors this month was $9.7M. With this, BOX has saved investors over $537M since its inception in 2004. Overall average daily trading volume on BOX in the month of August was 399,261 contracts, which represented a 20% increase over the same period last year.
OCC Announces Average Daily Cleared Contract Volume Up 4% in August
Press Release – OCC
OCC announced today average daily cleared contract volume in August was 15,502,290 contracts, a 4 percent increase from August 2013. Total cleared contract volume for the month reached 325,548,099 contracts in 21 days, a 0.35 percent decrease from the 22 trading-day August 2013 volume of 326,697,656 contracts. OCC’s year-to-date cleared contract volume is up 0.19 percent with 2,803,135,205 contracts in 2014.
The Options Industry Council Announces Average Daily Options Volume Increased 4 Percent in August
Press Release – OIC
The Options Industry Council (OIC) announced today that 15,245,495 contracts were traded on average each day in August, a 4.17 percent increase compared to the 14,635,274 contracts in August of last year.
Total options trading for the month was 320,155,407 contracts, just off of last August’s volume of 321,976,044 contracts by 0.57 percent. August 2013 had one more trading day than August 2014. Trading volume so far for 2014 stood at 2,758,678,957 contracts, slightly lower by 0.01 percent than the 2,758,963,425 contracts traded throughout the same period last year.
Regulation and Enforcement
Insider traders in US face longer prison terms, Reuters analysis shows
Nate Raymond – Reuters
U.S. judges are imposing increasingly long prison terms for insider trading, a Reuters analysis shows. The rise is at least partly driven by the bigger profits being earned through the illegal schemes, defense lawyers said.
The trend is likely to continue on Monday when former SAC Capital Advisors manager Mathew Martoma is sentenced for what prosecutors have called the most lucrative insider trading case ever brought.
Momentum Investing: Big Risk, Rare Reward
Mark Hulbert – Barron’s
On the surface, investing strategies based on momentum are quite appealing: Buy stocks that have recently performed the best and avoid those that have been big losers. In other words, the strategy calls for us to act just as our emotions would have us behave. Everyone loves a winner and hates a loser.
Hedging the Market with Volatility
Vance Harwood – CBOE Options Hub
It’s expensive to buy securities that track volatility. Their holding costs are so high that your timing has to be exquisite in order to end up with a profit. However, if you’re hedging a short volatility position, or poised to jump into the general market at a possible transition point a long volatility position might make sense.
Avoid Overexuberance As September Begins – Weekly Market Outlook
Price Headley – CBOE Options Hub
Although it was a low volume week, the bulls clearly outnumbered the bears last week. The S&P 500 (SPX) (SPY) managed to close at a record high close on Friday after hitting a record intraday-high on Thursday. Well supported or not, the momentum continues to carry us higher.
CBOE SKEW Index Averages 129.6 in 2014; High Demand for Bearish Index Puts
Matt Moran – CBOE Options Hub
Investors are inquiring about the cost of hedging as the S&P 500 (SPX) Index hit its all-time monthly closing high value of 2003.37 last Friday, and we are entering the historically volatile months of September and October.