Observations & Insight
In case you missed it:
Young Gun: Ivan Brown likes historical biographies, and other insights regarding the new head of NYSE Options
By Spencer Doar – JLN
In early April, Ivan Brown assumed the role of NYSE head of options. The Options Industry Conference in May served as his unofficial, unheralded unveiling in the new position. He is an almost eight-year veteran of the exchange yet could still be called a millennial as a freshly minted 30-year-old.
Originally, Brown was with the listings group at NYSE in a strategy role before transitioning to the options side of the business after two years. In the ensuing period, Brown worked in competitive analysis, pricing and ultimately strategy before taking the helm two months ago as the successor to Steve Crutchfield, who left the exchange in March.
JLN spoke with Brown regarding the challenges he faces, getting the next generation engaged in the markets, and sports.
To read the Q&A, go here
U.S. Investors Are More Worried About Brexit Than a Summer Fed Hike or the Presidential Election
Time to focus on the news across the pond rather than headlines from Washington, D.C. According to a new note from Goldman Sachs Group Inc. analysts led by Krag Gregory, options in the S&P 500 are pricing in more risk around the U.K. leaving the European Union than the Federal Reserve’s interest rate decision later this week.
VIX Stress Signal Telling Even Worse Story Than the Stock Market
S&P 500 volatility gauge surged 43 percent over two days
VIX speculators were shortest since 2013 heading into selloff
The current slump in the U.S. stock market would look like a full-blown selloff if all you had to go by was the Chicago Board Options Exchange Volatility Index. Signals from the VIX have been downright dire over the last week or so, as relatively small retreats in the S&P 500 Index get amplified through the lens of investor stress. The VIX rose 16 percent on Friday and 23 percent yesterday, the biggest two-day move since the depths of the August rout. Its 1.5 percent increase at 12:20 p.m. in New York sent the gauge to an almost four-month high.
****SD: This morning the CBOE noted that “$VVIX (VIX of $VIX) rose 54% since June 6.” WSJ has yesterday’s recap, The VIX Just Had a Huge Day, and Barron’s has a related blog, VIX Pops Above 20 On ‘Brexit’ Angst.
CBOE to Develop Series of Social Media-Based Strategy Benchmark Indexes
Chicago Board Options Exchange (CBOE) announced today that it has entered into an exclusive licensing agreement with Social Market Analytics (SMA) to develop a series of sentiment-based strategy benchmark indexes based on SMA’s social media metrics. SMA, headquartered in Chicago, is a leader in providing actionable intelligence from social media sources. SMA data analyzes social media streams to estimate market sentiment. SMA’s patented process extracts relevant Tweets, validates their sources and evaluates their meanings. Metrics are converted into actionable indicators called S-Factors, designed to capture the signature of financial market sentiment and provide a leading indicator of market movement. CBOE is exclusively licensing SMA’s proprietary data to create strategy benchmark indexes and plans to introduce the first index this summer.
****SD: Here is yesterday’s blog from the CBOE Options Hub, #Brexit Update from Social Market Analytics, for some context on SMA.
Brexit jitters drive sterling volatility to record high, pound choppy
Sterling steadied after hitting an eight-week low on Monday, although jitters days before Britons vote on whether to leave the EU or not drove the cost of hedging against huge swings in the exchange rate to record highs. Betting markets have lowered the chances of the country remaining in the European Union after some recent polls showed the “Leave” camp ahead, creating anxiety amongst investors.
****SD: Bloomberg has the chart: Pound Weakens Against Dollar on Concern of Brexit Vote
Social Software and Suspicious Options
The Second Law of Insider Trading is of course: “If you have inside information about an upcoming merger, don’t buy short-dated out-of-the-money call options on the target.” If you bought LinkedIn stock on Friday — it closed at $131.08 — you made a lot of money over the weekend; Microsoft will pay $196 per share in cash. But if you bought short-dated out-of-the-money call options on LinkedIn on Friday, you made even more money. LinkedIn call options expiring this Friday, with a strike price of $150, traded for 2 cents a share last Friday. They’re now worth more than $42 per share. If you’re the lucky person who bought, say, the 77 contracts — 7,700 shares’ worth — that traded at 3:30:13 p.m. on Friday, you paid $154 for options that are now worth more than $325,000, for better than a 200,000 percent return in about 72 hours.
****SD: The above text is the start of Matt Levine’s second mini-column within the greater story. Bloomberg also has a related chart, Anatomy of LinkedIn Options Bet That Probably Lost Money
‘Abenomics’ doubts drive foreigners off Japanese stocks, volatility spikes
Foreign investors are bailing out of Japanese stocks as a wobbly economy feeds disillusionment about ‘Abenomics’, sparking bouts of volatility in a market increasingly shaken up by policy decisions of the Bank of Japan. The trouble is that long-term focused foreign funds have turned bearish on doubts that Tokyo can pull Japan out of two decades of economic stagnation, despite more than three years of massive monetary and fiscal stimulus.
Daily Trades Rise for Brokers amid Global Economic Uncertainty
Brokerage firms (VFH) saw trades rise on a quarter-over-quarter basis in the March quarter, and they’re expected to be marginally subdued in the June quarter. E*TRADE Financial (ETFC) reported DARTs (daily average revenue trades) of 165,122 in 1Q16, which was a decline of 3% from 1Q15 and a rise of 12% from 4Q15. Activity increased sequentially in the first quarter, backed by volatility in equity and other asset classes. Options formed 23% of the total DARTs, a level relatively consistent with the past couple of years. In April 2016, DARTS fell by 1% compared to trading in March.
KCG’s Equity, Market Making Volumes Plateau in May
KCG Holdings, Inc. (NYSE: KCG), a comprehensive securities trading exchange, has released its latest tranche of trading volumes for May 2016, and again found itself trending lower in terms of metrics, though it was largely held in a narrow band of consolidation that has been present in 2016 thus far, according to a KCG statement.
Increased Volumes of Crude, Fuels Drive New Trading Tactics
Increased volatility in feedstocks and fuels is driving both upstream and downstream operators to explore more options in both physical and financial risk management. CME Group, Louisiana Offshore Oil Port (LOOP), and online service Neo Markets recently began trading “the first-ever physically delivered crude oil storage futures contract.” The new contract provides an exchange-traded futures contract based on crude storage at LOOP’s Clovelly Hub in Louisiana. Each contract represents the right to store 1,000 barrels at the hub for a specific calendar month.
SEC Staff Recommends Full Approval of IEX Exchange Application
The Securities and Exchange Commission’s staff has recommended that the agency approve IEX Group Inc.’s controversial bid to launch a new stock exchange, according to people familiar with the matter, signaling likely approval when the agency’s commissioners vote on the order Friday. That would end months of debate and lobbying over the startup’s proposal to launch the first platform that slows down trading, countering the decadelong trend toward ever-greater speed.
****SD: Be sure to check out the press release about TABB’s study about speedbumps in our tech section.
International Securities Exchange Surpasses 50 Million Contracts Traded Through Implied Order Functionality
The International Securities Exchange (ISE) today announced that trading of multi-legged strategy orders through its Implied Order* functionality has exceeded 50 million contracts. ISE’s Implied Order functionality has accounted for approximately 5.6 percent of all non-crossing, multi-legged contract volume executed on ISE year-to-date.
CME Group preps for possible market disruption from Brexit vote
CME Group Inc is “continuously and actively monitoring” its markets for impacts related to Britain’s vote on whether to leave the EU, the futures exchange operator said on Monday, amid expectations the outcome will spark sharp moves in currencies.
CME Group’s Terry Duffy to Testify at House Agriculture Subcommittee Hearing on Impact of G-20 Clearing & Trading Execution Requirements
CME Group Executive Chairman and President Terry Duffy will appear before a hearing of the U.S. House Agriculture Committee’s Subcommittee on Commodity Exchanges, Energy & Credit today to testify about the global implementation of G-20 Clearing and Trading Execution Requirements and their impact on derivatives markets.
LME chief says possible link between higher fees, lower volumes
The head of the London Metal Exchange on Tuesday said the bourse’s falling trade volumes could be linked to a fee-hike introduced early last year, but added that the main reason for the decline was a downturn in the global economy. Hong Kong Exchanges and Clearing Ltd bought the LME for $2.2 billion four years ago, before raising trading fees by an average 31 percent in early 2015 as it aimed to wring profit from its investment.
MIAX Options Exchange: MIAX Options
The MIAX Options Exchange is pleased to announce that beginning with the June 2016 billing period, MIAX is introducing the following new reports/transmissions:
Regulation & Enforcement
The SEC at a Technological Crossroads
The Securities and Exchange Commission (SEC) is on the verge of making a pivotal decision that could mark the beginning of a new era in which private sector solutions help close serious regulatory gaps in our equity trading markets. Or, it could signal more of the same chronic SEC inertia, paralysis and inaction that has allowed those markets to deteriorate so badly in the first place. Our markets today are fragmented, opaque, and dominated by high frequency trading (HFT) firms that use speed, preferential data access and advanced technologies to gain unfair advantages and reap enormous profits. Not all of it, but too much of this is predatory and systemically destabilizing. Traditional retail and institutional investors pay the price for this broken system. Investors Exchange, LLC (IEX) is trying to solve these problems by offering a trading venue that is simpler and fairer to all market participants.
Prompting gasps, judge spares NY hedge fund executive prison for fraud
A New York hedge fund manager who at age 28 lost nearly all $57 million he oversaw in less than three weeks was spared prison on Monday, as the judge recognized how quickly and thoroughly the defendant owned up to his crimes. Owen Li, the founder of Canarsie Capital LLC, was sentenced to probation by U.S. District Judge Robert Sweet in Manhattan, prompting gasps from spectators in the courtroom. The defendant then hugged his lawyer, Scott Resnik.
****SD: From the story, “Li, a former trading assistant at a unit of hedge fund founder Raj Rajaratnam’s Galleon Group, suffered catastrophic losses in January 2015 after moving nearly all of Canarsie’s portfolio into long, unhedged market index options whose value collapsed as prices went the other way.”
Testimony On “Oversight Of The U.S. Securities And Exchange Commission”, SEC Chair Mary Jo White Before The Committee On Banking, Housing, And Urban Affairs, United States Senate, June 14, 2016
Thank you for inviting me to testify today regarding the current work and initiatives of the U.S. Securities and Exchange Commission (SEC or Commission). The SEC is a critical agency that serves as the bulwark safeguarding millions of investors and the most vibrant markets in the world. Thanks to the exceptional work and commitment of our superb staff, the Commission has in recent years strengthened its operations and programs across the agency – aggressively enforcing the securities laws to punish wrongdoers, adopting strong measures that protect investors and our markets, and investing in the people and technology required to ensure that our markets remain the strongest and safest in the world. These and other efforts across our extensive areas of responsibility are all in furtherance of our essential mission: to protect investors; to maintain fair, orderly, and efficient markets; and to facilitate capital formation.
****SD: Comprehensive rundown of all current activity at the SEC. I highly recommend a ctrl+f search for any subject or terms you are interested in as this is a hefty bit of testimony.
Thomson Reuters adds execution to Eikon platform
Futures & Options World
Firm has been working with OptionsCity on the integration plans since March
Thomson Reuters is set to next week go live with new trade functionality on its financial analytics desktop Eikon, powered by futures and options trading tech vendor OptionsCity Software. Thomson Reuters’ commodity and energy clients will for the first time be able to execute futures and options trades from within the Eikon system. “This represents a potentially big cultural change as Eikon users are able to access execution functionality direct from the platform; it is a natural extension that can help clients to cut costs and make trading a simpler process,” said OptionsCity CEO Hazem Dawani.
Algo Update: Wolverine’s Best-X Options Targets Options Trading
Options traders face many of the same best-execution challenges as equities traders, such as trying to simultaneously access more than a dozen exchanges, each with different rules, without sacrificing liquidity. They even have to track a greater number of potentially market-moving factors.
Bloomberg to “phase-out” RTS’s HFT system
Futures & Options World
Tech and data giant Bloomberg told RTS Tango clients system to be phased-out
Bloomberg has told clients it plans to switch off RTS’s main high-speed trading system less than two years after acquiring the tech vendor, a move that has frustrated some long-standing RTS clients. Bloomberg has told users of the RTS Tango system, which is popular among high-speed futures and options prop trading firms, it will phase-out the system and help migrate affected clients to a Bloomberg screen or a third-party system as appropriate.
All Speedbumps Are Not Created Fair Or Equal, Warns TABB Group
Speedbumps are implemented to benefit liquidity providers by slowing down marketable orders to reduce the adverse selection risk of posting liquidity, as well as to dissuade fast traders who want to quickly post and cancel orders. To fully understand speedbumps, which have provoked tremendous debate, TABB Group believes you have to first understand speed, which is used primarily for capturing opportunity and managing risk.
Reliance Securities launches mobile app for options trading
Reliance Securities today launched Tick Pro-a mobile app for options trading with an aim to grab a significant share of the growing market for derivatives trading on mobile.
Colin Bennett on volatility trading. Part 3: Focus on Options on Volatility Futures
In our final part of our 3 part series on volatility, we focus on options on Volatility Futures and the trading of volatility of volatility. The key differences between options on equity and options on volatility are established. How traders arbitrage the imbalances between options on volatility, Variance Swaps and Volatility Futures is revealed.
Market Fears Brexit: Volatility ETFs Take Full Advantage
The start of this week has been chaotic for the global stock market with volatility levels skyrocketing. While meetings at central banks like the Fed or BoJ are leading to fluctuations in the market, it is the ‘Brexit’ referendum scheduled for June 23 that is upsetting stock movement most of all.
****SD: Also, this from Barron’s, ‘Brexit’ Fears Plain In ETF Trading, and this from Schaeffer’s Research, 2 ETFs Catching Options Heat Ahead of ‘Brexit’ Vote
Bullish VIX Block Trade
June VIX futures and options settle Wednesday on the open so we are starting to see traders look ahead to July standard expiration. Of course those that want to be more strategic can explore the VIX Weeklys, but that is an argument for another blog.
IDX 2016: Looking Forward
FIA’s 9th Annual International Derivatives Expo (#IDX2016) took place last week at The Brewery in London, with over 1,800 delegates attending from around the world—a record for the conference. Even with the record number, though, IDX gave us an opportunity to spend quality, face-to-face time with many peers and partners in the industry, particularly those from Europe and Asia/Pacific. TT had a brand new stand at the show’s exhibit hall, where we had sales and product managers from both Chicago and London giving demos of the key benefits and new functionality of the TT platform.