Observations & Insight

Phupinder Gill, CME Group – A Look Into Your Future Employment

“As an employer, we need to understand you in a way that makes sense to us and a way that makes sense to the businesses not just as we currently run, but the businesses we want to continue to run as the world evolves.”

It’s not easy to predict much about the future. But Phupinder Gill, CEO of CME Group, is looking forward to see just where the next generation, the so-called Generation Y group, fits into his business.
Watch the video»


SFOA’s CEO Daniel Day-Robinson has a Mountain of a Challenge Rebuilding the Burgenstock Conference
By John J. Lothian

Daniel Day-Robinson has a big challenge in front of him. He wants the SFOA’s Burgenstock Conference to be relevant again. The new CEO of the Swiss Futures & Options Exchange took full control of the conference this year after partnering with the Futures Industry Association last year.

The SFOA has offered 15% off the cost of the attendee charge of the Burgenstock Conference to readers of this newsletter. Use the JLD15 code when signing up at www.sfoa.org

Of course the FIA is the 800-pound gorilla of international derivatives conferences, with major global events in London, Chicago, Boca Raton and Asia, and is fully merging with the former FOA in the UK (now FIA Europe) and FIA Asia.

Did I say Day-Robinson has a big challenge in front of him?

For the rest of the commentary, click here.

Lead Stories

The Best VIX ETFs Are Also the Most Dangerous
Eric Balchunas – Bloomberg
You know exchange-traded funds have arrived when USA Today starts covering leveraged VIX ETPs.
With the recent wild market swings, it is not surprising people are talking about VIX exchange-traded products, which track derivatives on an index that goes up when there is fear in the market.

****SD: In regards to the lede, it’s like when you find your dad on Reddit or getting that first text from an aged relative.

High VIX, no hike? What market history tells us
Alex Rosenberg – CNBC
Will the recent spate of market volatility make the Federal Reserve less willing to raise rates? It’s a case made by many market participants, and it appears to be somewhat supported by 20 years of market data.
Going back to August 1995, the central bank has never raised its target on the key federal funds rate while the CBOE Volatility Index has been as elevated as it is now.

Traders Ride the ETF Roller Coaster
Dan Strumpf- WSJ
Some of the roughest volatility over the past several weeks has been reserved for individual investors who piled into risky bets on commodities prices.

****SD: By a show of hands, anybody riding feel a little pukey?

Hedge Funds Faced a Test in August, and Faltered
James B. Stewart – NY Times
A surge in volatility. Plunging global stock markets. A surprise Chinese currency devaluation.
That was August, among the more eventful months for world markets since the collapse of Lehman Brothers and the 2008 financial crisis. In theory, that’s exactly the environment that hedge fund managers have been waiting for. After all, many hedge funds are marketed as helping to smooth out volatility while delivering superior risk-adjusted returns.

****SD: C’s don’t get degrees when it comes to hedge fund performance…

The VIX and the Psychology of Implied Volatility
Adam Warner – Schaeffer’s Research
You probably don’t need a weatherman to tell you it’s really hot and humid out this week. And you certainly don’t need me to tell you it’s become very volatile lately.
But hey, I can help quantify it! So please, allow me to quantify.

JP’s European clearing sales head walks
Luke Jeffs – Futures & Options World
JP Morgan has parted company with its European head of clearing sales, marking the third high-profile departure from the US bank’s London-based clearing unit in the past four months.
Brian Oliver, who was JP’s head of futures and options, and over-the-counter clearing sales for Europe, Middle East and Africa, left the US bank late last month, according to three FOW sources.

Sarao allegedly wanted to ‘spoof’ markets
Gina Chon in Washington – FT
Navinder Singh Sarao, the UK futures trader who faces charges of contributing to the 2010 flash crash, discussed in emails his desire to “spoof” the markets and joked that everyone else was “breaking all the rules”, according to a US indictment unsealed on Thursday that provides new details about market manipulation allegations against him.

****SD: The hoodie he sports in the accompanying picture is reminiscent of Rami Malek in “Mr. Robot.”

Huge Inverse VIX ETP Bets Hint at Investors’ More Stable Outlook
Tom Lydon – ETF Trends
While the markets plunged and the CBOE Volatility Index spiked, some investors threw over a billion dollars into VIX-related exchange traded products, indicating a turn around and more complacent market outlook.

Are Certain Liquid Alternatives to Blame for This Market?
Larry Shover – Fox Business
As the market turbulence continues, so does the quest to place both cause and reason. The past month had moments where market technicals have flabbergasted the fundamental narrative—adding to uncertainty and the desperate yearning for an answer.
Increasingly, the financial media “powers to be” are dishing out dense terminology including “alternative beta”, “risk premia,” and “alpha” while suggesting that “CTAs” (Commodity Trading Advisors) and “risk-parity funds” have exacerbated the sell-off as these “alternative funds” have programmatic black boxes to “sell short” into a falling market or “sell closing” to simply get out of the way.

China Growth and Market Structural Integrity Top List of Fear Poll Concern
Bill Luby – CBOE Options Hub
After a hiatus of almost a year (the October 2014 pullback, to be exact), I have reprised the VIX and More Fear Poll in an attempt to get some insight into which issues have been responsible for bring fear back into the investing equation and in so triggering the highest VIX spike (53.29) outside of the 2008-09 financial crisis and the #5 and #6 one-day VIX spikes ever on consecutive days.

India’s VIX Climbs for Fifth Week as Stocks Drop Before Payrolls
Santanu Chakraborty – Bloomberg
India’s benchmark gauge of equity-option costs jumped, capping a fifth week of advances, as stocks slumped before the U.S. payrolls data.

Ruble Swinging Most in Four Months Triggers Putin Budget Switch
Vladimir Kuznetsov – Bloomberg
The ruble fell with oil prices, retreating for a fourth day as market turmoil that’s driven the strongest swings in the Russian currency since May forced Vladimir Putin’s government to cut its budget planning horizon from three years to one.


Nasdaq August 2015 Volumes
Press Release – Nasdaq
Nasdaq 2015/2014 Volumes, Market Share and Revenue Capture Chart

MarketAxess Announces Monthly Volume Statistics for August 2015
Press Release – MarketAxess
MarketAxess Holdings Inc., the operator of a leading electronic trading platform for fixed-income securities, and the provider of market data and post-trade services for the global fixed-income markets, today announced total monthly trading volume for August 2015 of $75.5 billion, consisting of $43.7 billion in U.S. high-grade volume, $26.7 billion in other credit volume, and $5.1 billion in liquid products volume.

ASX Group Monthly Activity Report – August 2015
Press Release – ASX
The value of ASX-listed stocks, as measured by the All Ordinaries Index, fell 8.1% in August
2015. Declines were also observed in other major markets, including Hong Kong down 12.0%, Germany down 9.3%, Singapore down 8.8%, Japan down 7.8%, the UK down 6.7% and the US down 6.3%

Borsa Italiana Monthly Update August 2015
Press Release – Borsa Italiana
Monthly Update Full Text

Regulation & Enforcement

EU regulators consult on compromise in derivatives spat with U.S.
Huw Jones – Reuters
The European Union has signaled that one of its key rules for regulating financial derivatives could be aligned with U.S. practice to help to end a lengthy dispute that risks fragmenting the $630 trillion market.

Flash Crash Trader E-Mails Show Spoofing Strategy, U.S. Says
Suzi Ring, Janan Hanna and Tom Schoenberg – Bloomberg
The British day trader accused of contributing to the 2010 flash crash enlisted a computer programmer to help him work out a system to manipulate stock prices, e-mailing pleas for help perfecting his “spoofing” efforts, U.S. prosecutors said in an indictment.
“I need to know whether you can do what I need, because at the moment I’m getting hit on my spoofs all the time and it’s costing me a lot of money,” Navinder Singh Sarao wrote in a February 2009 e-mail to a programmer he’d tapped to build trading software, according to the grand jury indictment filed Thursday in federal court in Chicago


All-Night Push After Glitch Hit BNY Mellon
Kirsten Grind – WSJ
At the height of the market volatility on Aug. 24, executives at Bank of New York Mellon Corp. got the news they wanted to hear: A glitch affecting the system that keeps more than a thousand mutual funds running was likely to be fixed soon. BNY Mellon relayed the news to some clients.
But the problem was far from over.
By nightfall, BNY Mellon vendor SunGard Systems Inc. hadn’t been able to repair problems with its system, which allows money managers to give investors the values of their holdings. Thus began a weeklong crisis in one of the most basic but crucial sections of Wall Street’s infrastructure.


As volatility soars, this obscure trading strategy draws Wall Street’s ire
William Watts – MarketWatch
When markets fall fast and hard, investors look for something to blame. This time around, a lot of the ire is focused on a trading strategy known as risk parity.

Playing the iPath S&P 500 VIX Short-Term Futures ETN (VIDEO)
OptionPit.com Founder Mark Sebastian discusses his options play for the iPath S&P 500 VIX Short-Term Futures ETN. He speaks on “Bloomberg Markets.”


TYVIX Weekly Review: VIX Futures in Backwardation
CBOE Options Hub
With the Chinese stock market on holiday (the Shanghai and Hong Kong markets were closed Thursday and Friday in remembrance of the 70th anniversary of World War II), volatility has stabilized. However, amid persisting uncertainty about the world economy, it is a new regime. Values are significantly higher than a year ago, especially for equities.

Odd Price Disparity In VIX Hedges Due To Expected Volatility
Mark Melin – ValueWalk
As 20 percent of the ten most damaging stock market drops in history have occurred in the past month, investors who understand the need to hedge at the same time are benefited from having proper expectations for various scenarios. While various volatility measures such as the CBOE Volatility Index (VIX Index) negatively correlate to the stock market 70 to 80 percent of the time, with the VIX typically rising in value at a generally consistent ratio percentage, during periods of anticipated market volatility investors might expect different results.

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