Rate Volatilities Catch Up With Equity as Riskoff Takes Hold: Analysis
Tanvir Sandhu – Bloomberg
Volatility in rates options market is finally moving in tandem with equities after staying relatively subdued in the beginning of this year even amid liftoff in VIX, Bloomberg strategist Tanvir Sandhu writes. At the heart of it all is the resurfacing of U.S. recession talk and heightening of global disinflationary concerns as financial markets turbulence rises in face of China slowdown while oil prices slide.
SEC Affirmation of OCC Capital Plan Strengthens Clearing Organization’s Resiliency
Press Release – OCC
OCC, the world’s largest equity derivatives clearing organization, today applauded the announcement by the U.S. Securities and Exchange Commission (SEC) that, following an independent review of the record by the full Commission, the regulatory agency approved OCC’s capital plan that had been previously approved on behalf of the Commission by SEC staff in March 2015.
Oil Volatility Jumps With Record Trading Amid Price Rout: Chart
The CBOE Crude Oil Volatility Index, which measures expectations of price swings, rose to the highest level since February 2009 on Thursday as West Texas Intermediate slumped to a 12-year low.
****SD: Also see Business Insider’s Volatility in the oil markets is now higher than during the financial crisis and Bloomberg’s The Oil Industry Got Together and Agreed Things May Never Get Better. At International Petroleum Week, BP CEO Robert Dudley said “Every tank and swimming pool in the world is going to fill” with oil in the second half of 2016. As an aside, reports indicate (read: Instagram pictures) that International Petroleum Week has been just as lavish as when oil was $100 a barrel. Chocolate truffles anyone?
Message for U.S. Stock Investors: Get Used to Big Market Swings
Saumya Vaishampayan – WSJ
Volatility investors are betting that big swings are here to stay.
Those who dabble in derivatives tied to the CBOE CBOE +0.50% Volatility Index are placing bets that pay out if the stock market keeps swinging, and especially if it drops.
The VIX futures curve rose sharply Thursday and was in “backwardation,” meaning that investors are paying more for short-term protection than protection over the next several months. That’s been the case for much of the year amid steep declines in stocks, but is still worth pointing out.
****SD: Related content: Financial Advisor Magazine’s More Market Swings Ahead
Yield curve recession indicator sends warning on US economy
Robin Wigglesworth – Financial Times
The famous economist Paul Samuelson once joked that the stock market had predicted nine of the last five recessions. Investors often retort that professional economists forecast none of them. But the most accurate recession gauge of the modern era is currently blinking ambiguously. The stock market carnage of January and ructions in the corporate bond market have exacerbated concerns that the underwhelming but long US economic recovery from the financial crisis is about to fizzle out. Both equities and bonds imply a spookily high probability of a recession in 2016, despite relatively few economic indicators looking in the danger zone.
****SD: From the piece: “The yield curve has been flat or ‘inverted’ — in other words longer term borrowing costs have fallen close to or below shorter term ones — ahead of every single US economic downturn since the second world war. Lena Komileva, head of G+ Economics, therefore calls this measure the ‘new Vix,’ a reference to the wildly popular stock market volatility index that has doubled as a fear gauge in the past decade.”
KCG Holdings Rebounds Strongly in January, Paring Lackluster Q4 Volumes
Jeff Patterson – Finance Magnates
KCG Holdings, Inc. (NYSE: KCG) has released its monthly trading volumes for the January 2016, which secured a sizable advance to kick off the New Year, according to a KCG statement.
NASDAQ OMX Group Witnesses Mixed Volumes In January
NASDAQ OMX Group (NASDAQ:NDAQ) released its monthly volume report for January, reporting varying trends in Europe and U.S. for cash equities and equity derivatives.  While U.S. equity options failed to show growth in January, they saw increased volumes in Europe. On the other hand, cash equities performed impressively in the U.S, but fell in Europe. Below we take a look at NASDAQ’s metrics across various products for January and our full year forecasts.
IntercontinentalExchange: Growth Momentum In Volumes Continues In January
IntercontinentalExchange Group (NYSE:ICE) recently released its volume figures for the month of January. Continuing its momentum from last year, ICE reported a 15% year-on-year (y-o-y) increase in total futures and options volumes to 5.3 million contracts in January. Interest rate contracts, along with sugar contracts, saw the greatest gain in volumes at 30% and 40% y-o-y, respectively.  Below we discuss these results in more detail.
Exchanges warn against giving brokers power over key decisions
Nicole Bullock – Financial Times
Exchanges including the New York Stock Exchange and Nasdaq have written to lawmakers arguing against giving brokers and investors power over key decisions affecting the US equities market. At issue are the rules and operation of areas such as dissemination of consolidated quote and trade information via Securities Information Processors, or SIP, and safeguards for investors against market stress known as limit up/limit down price bands.
****SD: Bloomberg’s take here
‘Flash Boys’ Market Loses Support From Bats as Opposition Mounts
Bats Global Markets Inc. has changed its mind about IEX Group Inc.’s controversial proposal to become a U.S. stock exchange.
Bats withdrew support for the upstart venue’s bid, saying in a letter to regulators on Thursday that IEX made “gross misrepresentations” about the operations of competitors. IEX’s actions “call into question the applicant’s professional judgment,” Bats said in the letter to the Securities and Exchange Commission, a copy of which was obtained by Bloomberg News.
****SD: Since the “BATS” formatting wasn’t used, I have to admit that for a split second the title made no sense as I was imagining how the support of a flying mammal mattered at all to IEX.
Regulation & Enforcement
Europe Takes Lead in FX ‘Best Ex’
Spot foreign exchange trading is not covered by Markets in Financial Instruments Directive II, the incoming regulations covering European financial markets from 2018, but that does not mean the asset class completely escapes increased scrutiny. MiFID II expands best execution requirements to non-equities and although spot FX is not included in the mandate, it will be unlikely to be excluded when asset managers start monitoring execution across other asset classes more carefully. John Adam, global head of product strategy at trading-technology provider Portware, a FactSet company, told Markets Media that Europe was a bit further that the US with regards to best execution. “They’re not exactly saying what a good trade is, but they want to make sure that you have a definition of one on hand,” he said. Under MiFID II, the European Securities and Markets Authority is also looking to define liquidity in foreign exchange derivatives – including forwards, swaps and options – which could result in new pre- and post-trade requirements for liquid trades, while foreign exchange is also included in the trade reporting regime.
****SD: I don’t have a best ex, only varying degrees of worst ex…
CFTC Says Alleged Spoofer’s Trading Leads to New Complaints
Janan Hanna and Brian Louis – Bloomberg
Commodities regulators suing alleged spoofer Igor Oystacher said some of his trading activity this month has generated new complaints about market manipulation.
****SD: Snuggle Bear is back in the news! Put him in a corner and he doubles down.
BofA Merrill Unveils New Algos, Option Data Feeds for Options on Instinct
Buy- and sellside traders who execute options orders on Bank of America Merrill Lynch’s Trader Instinct trading system are getting a slew of improvements and new tools.
The bulge broker, in a bid to grab more options trading volume as that sector experiences solid growth, has revamped its Instinct Options electronic trading system. The firm is looking to help traders maximize their order-handling efficiency and get better fill rates.
According to Meaghan Dugan, head of electronic options product, the new enhancements to the Instinct Options component of the platform include an infrastructure upgrade, a range of new algorithms including a TWAP (Time Weighted Average Price) algo, and direct option market data feeds for more efficient, finely tuned processing in the router.
****SD: I buy lots of things purely on instinct. Oh, nevermind.
Precious metals experts say buy bullion coins before derivatives, options, futures
Saheli Roy Choudhury – CNBC
Investors should hold physical gold as a hedge in a market meltdown, some experts have advised, as equities continued their wild ride on Friday.
Jeffrey Nichols, managing director at American Precious Metals Advisors, told CNBC’s “Squawk Box” if retail investors planned to buy gold as a hedge against the financial risks present in today’s stock markets, they should invest in gold they could hold in their hands.
Dimon Just Spent a Year’s Pay on JPMorgan Stock After Bank Rout
Hugh Son – Bloomberg
Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co., spent $26.6 million to buy shares of his bank Thursday after they tumbled to the lowest price in more than two years. On Friday, the stock surged 8 percent, the most in more than four years.
****SD: Ask three people whether or not to buy banks now and you’ll get four different answers.
Examining the VIX Curve
Frederic Ruffy – The Ticker Tape
Market conditions change often. One old adage tells us that “history rhymes rather than repeats,” which is certainly true of the markets. And that uncertainty can have important implications for the investment decisions we make.
Six months ago, for example, I was droning on and on about the collapse of market volatility, a little like a weatherman lamenting the lack of rainfall in Death Valley. Well, when it rains it pours, because the CBOE Volatility Index (VIX) is well above its summer 2015 lows. Recall that, in early August, VIX hit lows just below 11 for the first time in nearly a year (figure 1).
Fed Minutes, U.S. Inflation, EU Summit: Week Ahead Feb. 13-20
James Amott, Phyllis Halliday and Stanley James – Bloomberg
The U.S. Federal Reserve releases the minutes from the Jan. 26-27 Federal Open Market Committee meeting as investors signal they may have lost faith in central banks’ ability to support the global economy.
****SD: Happy long weekend! Are you more excited for Valentine’s Day or honoring our presidents?
CBOE RMC, Feb. 29-Mar 2, 2016, Bonita Springs, FL
Now in its 32st year in the U.S., the annual CBOE Risk Management Conference (RMC) is the premiere financial industry conference designed for institutional users of equity derivatives and volatility products. Hosted by the Chicago Board Options Exchange (CBOE), RMC is an educational forum dedicated to exploring the latest products, trading strategies and tactics used to manage risk exposure and enhance yields. RMC brings together top traders, strategists and researchers, enabling participants to learn the state-of-the-art in investment risk management from true experts in the field. Learn more HERE and register for the event HERE
*****John Lothian News is a media sponsor for this event.
WILD Networking With a Purpose Event open to men, non members as well as women
On Thursday, March 3, Women in Listed Derivatives (WILD) is offering an evening of speed networking that uses “smart matching software” to allow participants to target the types of people they are interested in meeting, based on customized matching parameters put together by WILD.
This is the first such event open to men and non members as well as WILD members – a rare chance for men in the financial industry to participate and to help advocate for women’s opportunities as well as to make meaningful connections for themselves.
WHO: This event is open to all professionals (gentlemen welcome)
WHEN: Thursday, March 3
5:30 p.m. Registration
6:00 p.m. Networking begins
7:00 p.m. Cocktails and Appetizers
WHERE: BP Offices
30 South Wacker Drive
COST: $25 for members and $50 for non members
This event is sponsored by Eurex and BP.
Full event details HERE