Observations & Insight

Drew Shields, Trading Technologies – Next-Generation Product Development

“There will always be someone as smart or smarter than you and you have no control over that. The only thing you have control over is whether you have more drive, more passion than others.”

As chief technology officer at Trading Technologies, Drew Shields has been instrumental in the implementation of the software vendor’s new top-to-bottom makeover. The new architecture required lots of technical talent, to be sure, but it also required two additional attributes – hunger, and the ability to challenge the status quo.

In college Shields majored in theology, and he started in the business world with few discernible technical skills. But he had the drive and passion to succeed, and he was given a chance to prove himself. He says that, while some job opportunities at TT require specific expertise, in many cases the company places a higher priority on a candidate’s motivation and attitude.

That’s not just next-generation product development; that’s next-generation talent development.

Watch the video »

Chicago 2016 Video Releases to Date
Lisa Dunsky, OCC – Hit By A Brick: How Setbacks Shape Your Career
Kate Maehr, Greater Chicago Food Depository – Volunteerism: Good for the community and good for you!
Christian Domin, GlenStar Properties – Value Investing: Office Space and Associated Risks

Lead Stories

S&P 500 Option Bulls Eye New Records With 2,200 in Sight: Chart
Bailey Lipschultz and Joseph Ciolli – Bloomberg
The seven-week rally that pushed the S&P 500 Index within 10 points of the 2,200 level still has room to run, according to a signal from options on an ETF that tracks the equity benchmark. The level of bullish bets that the SPDR S&P 500 exchange-traded fund will rise reached a record this month and hit the highest level since January relative to bearish options. The underlying index has set 10 closing records since July 11.

Volatility Update: At about 12, is it Possible VIX is Too…High?
Frederic Ruffy – The Ticker Tape
Investors are navigating the summer doldrums in quiet fashion as the S&P 500 has been setting a series of record highs through mid-August. The large-cap index is up a modest 0.6% for the month, and daily market moves seem to be getting smaller and smaller. As a result, many measures of volatility are at, or near, lows for 2016. In a rare move, one gauge has dropped to levels not seen since December 2014.

****SD: From MarketWatch — Is Wall Street’s ‘fear gauge’ signaling that investors are getting too complacent?

Fed’s July Minutes Show a Split Central Bank Seeking to Keep Options Open
Jon Hilsenrath – WSJ
Federal Reserve officials, playing a waiting game on the economy, sought to keep their options open at a July policy meeting as they tried to reconcile differences over whether it was time to raise short-term interest rates again. The Fed’s Wednesday release of minutes from its July 26-27 meeting suggested a rate increase is a possibility as early as September, but that the Fed won’t commit to moving until a stronger consensus can be reached about the outlook for growth, hiring and inflation.

****SD: Also from the WSJ — People Are Getting Emotional About Fed’s ‘Schizophrenic’ Debate. In other news, the Fed is launching a Facebook page. Good thing FB didn’t fully embrace the dislike button.

Market Complacency Ruling The Day Into U.S. Presidential Election
See It Market
What, Me Worry? As we contemplate the upcoming U.S. presidential election one of 720Global’s chief investment related concerns is the potential for the election results to roil financial markets.

****SD: If you’ve ever been curious about the history of Alfred E. Neuman, this article from the Paris Review, A Boy with No Birthday Turns Sixty, answers all the burning questions.

Hedge Funds Avoided Big Losses Despite ‘Brexit’ Shock
Anita Raghavan – NY Times
In late June, as Britons prepared to go to the polls to vote on the country’s membership in the European Union, about 800 hedge fund managers gathered at the opulent Cavalieri hotel on a hill overlooking Rome for an annual rite. They were there to attend Goldman Sachs’s European hedge fund conference; among the guests were Pershing Square Capital Management’s William A. Ackman and Man GLG’s managing director, Pierre Lagrange. As the illustrious group mingled with investors over cocktails, the hedge fund managers, who collectively command hundreds of billions of dollars on behalf of institutions and individuals, were for the most part upbeat. Few believed that Britain would vote to exit the European Union.

****SD: Non-negative news is the new good news for the hedge fund industry.

Sun Trading’s London MD departs
Tim Cave – Financial News
Sun Trading’s London managing director, twice named a Financial News Rising Star, has decided to leave the Chicago-based trading firm – the latest in a series of top-level moves within Europe’s proprietary trading community.

****SD: Simon Dove spent six years with Sun.

You’re a good Muslim? No problem, we’ve got Islamic binary options accounts
Dov Lieber – The Times of Israel
You consider yourself a good Muslim who would never gamble, or deal with interest, which every Muslim knows is haram, or forbidden. But, you also want to make money fast. Well, you’re in luck, or at least a number of Israeli companies would like you to believe you are. Marketers for binary options firms — some of them based in Israel or run by Israelis — are targeting Muslims, especially wealthy citizens from the Gulf, through websites that assert that the use of their trading platforms is permissible according to Islamic law.

****SD: Anonymous Muslim employee in the binary industry says, “It’s a fraud that’s masked as gambling that’s masked as actual trading. And quite frankly, as a Muslim, I find the tone of the website very condescending and it paints Muslims as simpletons.”

Volatility ETPs Surge in Popularity Amid Continued Market Turbulence; TABB Group Research
Traders News
Exchange-traded products (ETPs) based on the CBOE Volatility Index (VIX) have become increasingly popular in 2016 as traders look for opportunities to profit off the tumultuous market.

****SD: ICYMI.

S&P Dow Jones Risk & Volatility Index Dashboard- August 2016
Press Release


Successful Launch for New SPX Monday-Expiring Weeklys Options
Matt Moran – CBOE Options Hub
On August 15 CBOE launched trading of the new S&P 500 Index (SPX) Monday-expiring Weeklys options. Daily trading volume for the new SPX Monday Weeklys in the first two days was 4,334 on August 15, and 10,829 on August 16. Institutional investors have told me that the SPX Monday Weeklys could have potential to be very helpful to them in managing their over-the-weekend risk. SPX Weeklys are one of CBOE’s fastest-growing products, with volume in 2015 setting a 10th consecutive annual record. With the introduction of SPX Monday Weeklys, CBOE now offers SPX options with Monday, Wednesday and Friday expirations.

HKEX To Roll Out Volatility Control Mechanism For Its Securities Market
Press Release
Hong Kong Exchanges and Clearing Limited (HKEX) is set to roll out its Volatility Control Mechanism (VCM) – a measure designed to protect market integrity by preventing extreme price volatility arising from major trading errors and other unusual incidents – in its securities market on Monday, 22 August 2016.

Intercontinental Exchange Statement On Trayport Acquisition
Press Release
Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today provided further information to investors on its acquisition of Trayport following the UK’s Competition and Markets Authority’s (CMA) announcement of its provisional findings on August 16, 2016.

****SD: Reuters — ICE says British watchdog’s concerns about Trayport takeover not justified

Euronext enters into a definitive agreement for the acquisition of a 20% stake in EuroCCP
Euronext today announced it has signed a definitive agreement to acquire a 20% stake in EuroCCP, the leading CCP for pan-European equity markets, providing clearing and settlement services, for an amount of circa EUR14m . This follows the announcement of May 12th confirming Euronext was in exclusive talks to acquire 20% of EuroCCP.

Cetip to expand derivatives portfolio with Platts
Julie Aelbrecht – Futures & Options World
BMF&Bovespa and Cetip announced plans for a merger in April
Brazilian central depository Cetip has signed an agreement with S&P Global Platts to expand its derivative index portfolio. Cetip and Platts have inked a deal which will enable Brazil’s financial institutions to offer over-the-counter (OTC) commodities derivatives contracts. According to the firms, these contracts would allow participants to hedge against price fluctuations, where previously the only hedging tools tended to be like-kind.

ASX Full-Year 2016 Results Analyst Presentation
Press Release
Revenue up $45.6 million; Growth in all business lines underpinned by higher trading activity and robust capital raisings; Expenses up $10.5 million; EBITDA up $35.1 million, increase of 6.5%, NPAT and DPS up 5.7%

****SD: FOW — ASX reports revenue rise on trading volatility

What investors can expect when IEX launches on Friday
Francine McKenna – MarketWatch
IEX is finally going live as an exchange Friday and investors and market players on all sides of the debate await a verdict on whether the reality will live up to the non-stop hype.

HKEX: Stock Exchange Participants’ Market Share Report
Press Release

Regulation & Enforcement

CFTC head dismisses easing rules to benefit high-speed traders
Joe Rennison and Barney Jopson – Financial Times
The top US derivatives regulator has ruled out easing post-financial crisis standards for high-frequency trading firms seeking to carve out a bigger presence in US derivatives. Timothy Massad, chairman of the Commodity Futures Trading Commission, told the Financial Times: “It is not our job to dictate market structure” and new entrants would have to play by existing rules. In the wake of the financial crisis and the collapse of Lehman Brothers and the ensuing turmoil across OTC derivatives in late 2008, global regulators have compelled banks to hold more capital as insurance against their trading activities.


Is all trading now low latency?
Automated Trader
Nowadays, to be the winner – and there are only consolation prizes for second place – traders are writing algorithms into FPGAs (Field Programmable Gate Arrays). Trades then rarely ever touch the server, the calculations are done in the network in under 10 microseconds. For your primary HFT strategies this might all be true.To get trades in first, companies will shell out the massive budgets required to have algorithms embedded directly into network hardware. FPGA solution vendors such as Accelize, Enyx, Exablaze and Novasparks have created a networking arms race in these markets. However, with traditional FPGAs – in switches or in network cards – this is an ongoing cost, which must be repeated every time users want to modify, update and improve algorithms to fit new trading strategies.


Betting on Tesla Motors Falling Back to Earth
Steven M. Sears – Barron’s
It’s not easy being an enfant terrible–even when you’re a billionaire. Just ask Elon Musk. Alternately regaled and reviled, the founder of Tesla Motors (ticker: TSLA ), the electric car company, wants to explore outer space. Lately, he has been getting smashed into the ground. Some investors like his deal to merge Tesla with SolarCity ( SCTY ). Others see it as the marriage of two fancy gimps with shaky financials. Musk may ultimately have the last laugh, but for now some prominent investors are turning against him. JPMorgan, for example, is telling clients to bet against Tesla in anticipation that the stock will fall to $170 from its current $224.

****SD: Is this title a thinly veiled SpaceX joke?

Quick View Of VIX’s Current MM Outlook
Seeking Alpha
Low VIX value invites possible rise. Odds of that are low, but potential payoff is high, CAGRs huge. Max-Min trade-off historically ~7 to 1 at current Range Index forecasts. Anything can happen, but VIX now is lower than it was three months ago at similar Range Indexes. In the VIX, time can eat you alive. This is an asymmetric, irregular, temporary condition index not suitable for buy and hold. Forget any such strategy.

Advisers should think twice before adding volatility ETFs to client portfolios
John Waggoner – Investment News
If your clients are worried about stock market volatility, your first question might be to ask them why. And if you’re considering using a volatility exchange-traded fund to combat volatility, you might ask yourself why as well. According to the third-quarter Eaton Vance Advisor Top-of-Mind survey, volatility is the chief concern among financial advisers, with 56% of those surveyed saying that their worries about volatility have increased over the past 12 months. And several fund companies, including BlackRock, State Street Global Advisers and TIAA, have all warned about volatility in the coming months.

Is The VIX Forward Curve Giving Clues Of An Overbought Equity Market?
Seeking Alpha
The pricing of the $VIX futures back months have remained relatively stable as the front months recently declined. The longer the spot and front month remain at the lows, the higher the probability for a correction in $SPX. The current state of the forward curve may be giving clues to the “shape of things to come”.

Front-Running: A Thing of the Past
Dan DeFrancesco – WatersTechnology
Two UC Berkeley professors used microsecond timestamps to prove HFT firms haven’t been able to pick off liquidity-taking orders using stale quotes. This Friday, IEX will begin trading as an official exchange, marking the end of one chapter of its story and the beginning of another. “Story” is a fitting word, as it was a book by famed author and journalist Michael Lewis that initially pushed the firm into the spotlight. “Flash Boys” documented IEX CEO Brad Katsuyama’s frustration as a trader at the Royal Bank of Canada (RBC) in dealing with high-frequency trading (HFT) and his determination to change the way the markets operate by setting up his own trading venue.

UBS: Don’t be Fooled by Emerging Markets’ Winning Streak
Alastair Marsh and Sid Verma – Bloomberg
The ‘great migration’ into emerging-markets assets should be seen for what it is — a straightforward yield grab, not a vote of confidence in the developing world’s growth story. That’s the view of UBS Group AG strategists Bhanu Baweja and Manik Narain, who say that even though emerging-market securities are gaining favor as developed markets get increasingly expensive, fundamentals won’t fulfill the hype. Investors rushing into riskier economies should take note, they warn, because when growth doesn’t follow through, cheap valuations might end up looking expensive very quickly


Where Do Investors Go For Unbiased Education On How To Trade Listed Options?
Mary Savoie – The OCC
To the Options Industry Council, of course! Created in 1992 by OCC, the world’s largest equity derivatives clearing organization, and the U.S. options exchanges, the Options Industry Council (OIC) is considered the leading source for unbiased information for investors looking for ways to manage their financial risk. For nearly 25 years, OIC’s mission has been to increase awareness, understanding and responsible use of exchange-listed options among a global audience of investors, including individuals, financial advisors and institutional managers, by providing independent education combined with practical expertise.


Panel: Volatility Spreads: The Great Debate
Many option users argue that volatility is the most important pricing component in an option’s price. Our panel of option industry pros will debate that statement and offer their ideas on how you can best track whether volatility is high or low in your option positions – as well as what you can do about it. Finally, they’ll spend time talking about what option positions are best in high- or low-volatility situations.

****SD: Next Tuesday, 3:30p.m.

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