Observations and Insight
Boca Bits & Pieces, Clearing Edition
Sarah Rudolph and Doug Ashburn – JLN
One way to tell which topics are “trending up” on the conference circuit is the attendance at the various panels. Aside from the “big ones” – keynote addresses and exchange leader panels, for instance – the one garnering the most attention at this year’s FIA Boca conference was the clearing panel, and for good reason. Central counterparty clearing is the key ingredient of the new global regulatory regime, but this cake is half-baked at this point. Plus, some would say the recipe is in need of a few tweaks.
Here is a quick snapshot of the clearing heads’ collective views on the hottest topic of 2015.
It began with a discussion of the effects of Basel III, which Eurex Clearing’s CEO Thomas Book said had brought about “an irrevocable transformation of the business model.”
He said there were questions about what will be the direct access model for clearing houses in the future.
Read the rest of the column, including the discussion of “skin in the game,” at JohnLothianNews.com — http://jlne.ws/19gyG9T
Traders right to be worried about Friday the 13th
Gina Francolla – CNBC
Traders’ superstitious fears about Friday the 13th are based somewhat on history.
Back to 1980, there have been five Friday 13ths in March and they have been pretty negative for the Dow Jones Industrial Average and the S&P 500 Index, according to Kensho, a quantitative analysis tool used by hedge funds.
On Shorting VIX, Volatility Spikes, and Leveraged Vehicles
Adam Warner – Schaeffer’s Investment Research
It’s been a somewhat interesting week in volatility land, as we’re in the midst of our bi-monthly CBOE Volatility Index (VIX) spike, brought to you by the euro plunge. Thus, I’ve neglected to mention this event:
Trading Post: Careful, now. Here comes the Fed
At least options traders are wary of the possibility of more wobbles in Treasuries should the market be surprised.
The Merrill Lynch Option Volatility Estimate, known as the MOVE index, tracks the implied 1-month option volatility of US government bonds across the curve.
BOE’s Intelligence Chief Says Buckle Up For Volatility
Christopher Whittall – WSJ
Markets are volatile – get used to it.
That’s the message from Chris Salmon, head markets honcho at the Bank of England, in a speech today.
Mr. Salmon, an executive director at the BOE, should be something of an authority on the topic as he is responsible for all of the Bank’s operations in financial markets. In other words, buying bonds under its £375 billion ($555 billion) quantitative easing program and managing the U.K.’s official foreign exchange reserves. His role also involves keeping his ear to the ground to gather “market intelligence” to inform policy decisions.
Michael Lewis says he doesn’t even ‘feel that strongly about high-frequency trading’
Flash Boys, which explains how high-frequency trading is used to rig U.S. markets, caused an uproar on Wall Street last year among financiers, regulators, and the general public.
But in the April issue of Vanity Fair, Lewis said that he doesn’t “feel that strongly about high-frequency trading,” compared to the overwhelmingly negative response. Instead, it should be the big banks the public is angry with, he said.
CME nixes e-trading in Dow and Nasdaq 100 ‘bigs’ – Finance News
Crain’s Chicago Business
CME Group Inc. ended electronic trading in the largest Dow Jones Industrial Average and Nasdaq 100 Index futures, leaving smaller versions and exchange-traded funds as the main vehicles for out-of-hours speculation.
Traders will have to wait until the start of floor trading at 8:30 a.m. Chicago time before they can buy and sell full- sized versions of the equity benchmark futures. Contracts known as E-Mini Dow, which cost half as much, and E-Mini Nasdaq futures, which are priced at 1/5th the full contract, still trade electronically.
ICE Futures U.S. Sets Back-to-Back Daily Volume Records in ICE U.S. Dollar Index
Press Release – ICE
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, announced today that ICE Futures U.S. reported record daily volume in the ICE U.S. Dollar Index (USDX) on March 12, 2015.
Volume in the USDX was 192,589 contracts on March 12, 2015, surpassing the day-before record by 21%. Open interest currently stands at 155,305 contracts.
ICE USDX futures and options trade exclusively on ICE Futures U.S. The ICE USDX futures contract is a leading benchmark for the international value of the U.S. dollar and the world’s most widely-recognized traded currency index. In a single transaction the USDX enables market participants to monitor moves in the value of the U.S. dollar relative to a basket of world currencies, as well as hedge their portfolios against the risk of a move in the dollar.
Regulation and Enforcement
Was ‘John Doe’ Manipulating Treasury Futures? New Lawsuit Says Yes
Bradley Hope – WSJ
A Chicago proprietary trading firm headed by the influential chairman of the National Futures Association is taking a novel approach to fighting back against “spoofing,” a type of price manipulation that plagues a range of markets.
HTG Capital Partners LLC filed a federal lawsuit earlier this week against unnamed “spoofers,” which the suit referred to as John Doe(s), in the hopes of getting a judge to force the Chicago Mercantile Exchange to reveal the names of the firms. HTG said it had found evidence of thousands of such manipulations over 2013 and 2014.
CFTC enforcement chief to revive use of in-house courts
Sarah N. Lynch – Reuters
The U.S. derivatives regulator’s enforcement director said on Thursday that his division planned to revive the use of in-house administrative courts, after more than a decade of bringing contested cases only to federal courts.
“We are going to start to do that very soon,” said Aitan Goelman, the enforcement chief of the Commodity Futures Trading Commission, in remarks at Georgetown Law’s Corporate Counsel Institute. He added that the move would help the agency, which has a very constrained budget.
Block Trade Analysis – OTM Russell 2000 Bear Call Spread
Russell Rhoads – CBOE Options Hub
The recently blocks I’ve written up in the Russell 2000 tended to be trades in short dated out of the money put options. Despite being on the put side of the equation these big trades were bullish spreads. Typically the Russell 2000 would need to drop several percentage points for those trades to turn sour.
When Will The VIX Tell Us It’s Time To Buy SVXY? – ProShares Short VIX Short-Term Futures ETF (NYSEARCA:SVXY)
Peter F. Way – Seeking Alpha
In our recent SA article on the VIX Index, we demonstrated how poorly that index acted as a forecaster of the S&P 500’s coming price. But we suggested that a strategy involving the ProShares Short VIX Short-Term Futures ETF (NYSEARCA:SVXY) could be employed to take advantage of already-experienced recent declines in that market index.