JLN Options: TT at 20: So a CEO Walks Into a Bar; Selloff Spreads to S&P 500 as Stocks Fall Most in a Month; What a $4 Million Error Says About Market Anxiety: Opening Line

May 16, 2014

Observations and Insight

TT at 20: So a CEO Walks Into a Bar
Jim Kharouf – John Lothian News

Rick Lane, the new CEO of Trading Technologies, takes a seat at the bar to talk about a notable milestone – TT’s 20th Anniversary today.

The interesting thing about Lane and the bar is that they represent a major shift for the company and perhaps the industry.

The firm was founded in 1994 in Frankfurt by Gary Kemp and later run by the enigmatic industry pioneer and legendary trader Harris Brumfield from 2003 until he handed the reins to Lane in February. It is Lane’s turn to overhaul the company and its technology, and perhaps change the way trading software and networks are developed in this industry.

(For the rest of the article, visit the JLN blog at http://jlne.ws/RYNKQB)

Lead Stories

Selloff Spreads to S&P 500 as Stocks Fall Most in a Month
Joseph Ciolli and Callie Bost – Bloomberg
A three-day decline in Internet and small-cap stocks spread through the rest of the market yesterday, sending the Standard & Poor’s 500 Index (SPX) to its biggest retreat in a month and pushing up options prices.

What a $4 Million Error Says About Market Anxiety: Opening Line
C. Thompson – Bloomberg
Why did you make Barclays’s botched trade the most read story yesterday? It was only a less-than-$4 million goof. This probably happens all the time and we don’t hear about them all, so what’s the big deal?
Oh, wait. That’s it, isn’t it?
The Flash Crash, Knight Capital’s meltdown, Goldman Sachs’s options calliope last August, more haywire options trading at NYSE Amex and NYSE Arca at the end of April, Tuesday’s thing, so many different order types that the NYSE was moved recently to say enough already — is it all getting to be too much? Too complicated?

Wall Street dips as small-caps underperform again
Ryan Vlastelica – Reuters
U.S. stocks slipped on Friday, trimming some of their earlier declines after some positive earnings, though investors remained wary of lingering weakness in small-cap names.
Despite the S&P 500 hitting a record on Tuesday, the indexes were on track for a negative week, with small-caps down for a fourth straight session.

Rates hedging confounds bond investors
Christopher Whittall – International Financing Review
Shorting US Treasuries to position for rising interest rates in the world’s largest economy has been a popular trade this year. It has also been a hugely expensive one, as yields on 10-year US government paper have confounded expectations by slumping from over 3% in late December to around 2.50% now.
But despite being chastened by this rates rally, hedging against rising Treasury yields remains at the forefront of bond investors’ minds with the US economy expected to strengthen as the year progresses.

Small-Cap Stocks: Traders Bet on a Bounce
Steven M. Sears – Barron’s
“Every major metric we track is still near all-time highs or post tech bubble highs and small cap remains extremely expensive vs. large,” Credit Suisse’s Lori Calvasina advised clients in a morning advisory.
And yet the options market is showing signs that small-caps may soon rally higher. Investors are buying bullish calls on shares of the iShares Russell 2000 ETF even though traditional financial valuations paint a rotten picture.

The VIX Is Not Broken, Contrary To Popular Belief
Scott Murray – Seeking Alpha
With the S&P 500 down 25 points and threatening a major moving average yesterday (the 50 day SMA), the VIX was amazingly quiet. VXX holders were left baffled, and VIX futures and option traders were probably scratching their heads in disbelief. Bonds were screaming higher as yields hit lows not seen in months, leading many of the media punditry to pontificate on a worsening economy. Yet the VIX just didn’t care.

Musings on Volatility
 US stocks took their biggest daily drop in weeks Thursday, with the S&P 500 dropping a bit less than 1% and the Russell 2000 inching toward correction territory. Headlines speculate over whether broader markets will follow the Russell, but there is no way to know—short-term moves are impossible to predict. Corrections can start any time, for any reason (or no reason!) and usually come without warning. But if stocks do pull back from here, it would be the latest instance of markets humiliating those who utter those four little, dangerous words: It’s different this time.

The New Face of Volatility
Examining the recent volatility backdrop
by Adam Warner – Schaeffer’s Investment Research
If you want to guarantee that volatility will pick up, just write an article about how volatility will never pick up. I feel like I’ve literally caused every mini-pop in volatility over the last decade just by noting how nothing much is happening.

Weekly Market Commentary 5.16.14
Larry McMillan – CBOE Options Hub
It is hard to imagine a market any more perverse than this one.  Once
again, there has been a failure to break out on the upside, despite some
favorable (although not unanimous) technical conditions.   Now $SPX
has pulled back into the previous trading range, whose limits of 1810-1900
are more secure than ever.

Videocast: Cheap VIX protection

Schwab CEO: Disclose payment for selling client orders
Jed Horowitz – Reuters
The chief executive officer of Charles Schwab Corp on Thursday suggested that regulators require brokerage firms to disclose how much they are paid for selling their clients’ orders.
Companies like Schwab receive hundreds of thousands of orders daily and have long sold many of them to trading firms known as market makers or to exchanges.

Wall Street Washes Traders’ Mouths With Soap
William Alden – The New York Times
Wall Street now has its very own Emily Post.
Vulgarities and indiscreet chatter have percolated through Wall Street’s trading floors and online chat rooms for many years, and might have stayed there were it not for a string of recent regulatory crackdowns. Now, thanks to investigations that have produced reams of internal communications among traders and brokers, a window has opened onto the predominantly male locker room culture of finance.
Some banks — anxious to avoid further embarrassments — are taking steps to clean up that culture.

Regulation and Enforcement

Cross border and HFT issues to be tackled by CFTC
John Bakie – The Trade
Two influential Commodity Futures Trading Commission (CFTC) committees are set to meet in the coming weeks to agree on high-profile / controversial? cross border and technology issues.
On 21 May, the US derivatives regulator’s Global Markets Advisory Committee will meet to discuss cooperation with foreign regulators on oversight of non-US clearing houses and swap execution facilities (SEFs).


Spinaris Capital Selects OptionsCity to Trade on CME and Eurex
Press Release (Options City)
OptionsCity Software, a global provider of electronic trading solutions for professional futures and options traders, today announced that London-based Spinaris Capital will expand its FX and energy options trading utilizing OptionsCity’s Metro and Freeway platforms.
Situated within OptionsCity’s hosting infrastructure, Spinaris Capital will trade on CME and Eurex using a combination of Metro, the company’s flagship trading and risk management platform, and Freeway, its multi-asset automated trading solution.


A Strategy With Literally Fantastic Returns
Samuel Lee – Morningstar
The S&P 500 Dynamic VEQTOR Index is a shining example of financial innovation gone wrong. Start with the name: If an investment sounds like it came out of a science fiction novel, it’s likely too creative for its own good. Products with futuristic names are targeted at people impressed by the veneer of sophistication. They are rarely good investments.
***JB: See next story too.

VIX Tricks: Morningstar Pans the ‘VEQTOR’ Index
Brendan Conway – Barron’s
Morningstar’s Samuel Lee is no fan of the S&P 500 Dynamic VEQTOR Index, which is best described as an attempt at have-your-cake-and-eat-it-too investing. The index is built to own the stock market in good times but vie for protection against financial-crisis-magnitude selloffs, too. Does it work?
It’s the idea seemingly every investor lusts after these days, but Lee contends it’s too good to be true.


Euronext announces second Pan-European Investor conference at the New York Stock Exchange
Press Release (NYSE Euronext)
Euronext, a wholly owned subsidiary of IntercontinentalExchange Group (NYSE: ICE), today announced its second pan-European Investor conference in New York aimed at raising the profile of its European listed companies among US investors.   The event, which will be attended by over 50 large issuers from across all the Euronext countries and over 200 US investors, will take place over three days from 19th to 21st May 2014.


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