Lead Stories

Uber Bear Sees ‘Super Spike’ In VIX
Tomi Kilgore – The Wall Street Journal
Lots of investors assume that the quiet in the stock market won’t last long. But one noted bear on stocks is reiterating her two-year old call for a “super spike” up in volatility, the likes of which haven’t been seen since the depths of the financial crisis.
Abigail Doolittle, founder of Peak Theories Research, wrote in a note to clients Friday that, like many technicians, she believes the CBOE Market Volatility Index, or VIX, could double off recent lows to within the 18-to-22 range, just like it has several times the last couple years.

Financial markets: Hurrah before the storm
Ralph Atkins – Financial Times
After Lehman Brothers collapsed in late 2008, financial markets around the world panicked. Almost six years later, the world may feel as vulnerable to geopolitical and economic shocks but serenity has broken out.
World stock prices have surged to historic highs, with the FTSE All-World and S&P 500 setting records this week. Yet volatility appears to have disappeared. By one measure, the Vix index – known as the “Wall Street fear gauge” – is near seven-year lows.

Bears growl at the full moon and the volatility spike it could deliver
Shawn Langlois – MarketWatch
The last time a full moon coincided with Friday the 13th, the S&P 500 would go on to lose some 30% in less than six months.
That was back in October 2000, in the thick of the dot-com bust.
Fast-forward 14 years, and werewolf meets Voorhees again — their last meeting until 2049. Traders might want to prepare for some fireworks, considering what full moons have meant for the VIX over the years (see chart of the day).
***JB: The next time a full moon coincides with Friday the 13th will be in 2049 (an unusually long time between these occurrences).

Bank of England warns on early rate rise
Andrew Wilkinson – Futures Magazine
Carney sent a cool-wind across financial markets when they opened on Friday after he told an audience the first rate hike “could happen sooner than the markets currently expect”. Ten-year British gilt yields, however, only added 2bps to 2.74% towards the close of trading. The speech prompted record volume in short sterling interest rate futures and options contracts according to the Intercontinental Exchange, which owns the LIFFE-traded contracts.

The Rise and Fall of VIX-Related Trading
Charting the epic collapse of the TVIX
Adam Warner – Schaeffer’s Investment Research
The only thing we have to Fear is Lack of Fear Itself!
That’s not true in the market, as we (and others around the street) have shown recently. A low CBOE Volatility Index (VIX) does a better job of reflecting a trend well in progress than predicting when that trend will end.

Block Trading Grows to 12% of Volume in 2013, Tabb Reports
John D’Antona Jr. – Traders Magazine
The block trade is back.
The buyside has told Traders over the years it wants to execute more block trades and in 2013 it did, according to a report from market consultancy Tabb Group. Block trading grew in 2013 to 12 percent of total trading volume from 11 percent in 2012.
Tabb attributes the growth to multiple factors such as the fact the U.S. equity market is settling down post-credit crisis and that equity correlations have declined back to historically normal levels.

Hedge Funds Get Stung by Slow Markets
Gregory Zuckerman, Rob Copeland and Juliet Chung – The Wall Street Journal
Some of the biggest investors on Wall Street are losing money with wrong-way bets in markets around the globe, a surprising black eye amid a rise in stock and bond prices.
Hedge-fund managers including Paul Tudor Jones, Louis Bacon and Alan Howard are among those who have misread broad economic and financial trends. Some have lost money as Japanese stocks fell, while others have been upended by the surprising resilience of U.S. bonds.

Dark Pools Take Larger Share of Trades Amid SEC Scrutiny
Sam Mamudi – Bloomberg
The rise of off-exchange trading in the U.S. stock market continues unabated even as regulators question the wisdom of allowing the shift to continue.
Shares changing hands in private venues such as dark pools accounted for 40.4 percent of total share volume on June 10, according to data compiled by Bloomberg.

Risk parity protects portfolios – Jean-Louis Nakamura profile
Justin Lee – Risk Magazine
Recently appointed to take charge of investment policy at the Asian arm of Swiss private bank Lombard Odier, Jean-Louis Nakamura says the allocation of risk, rather than capital, is key to success.
Jean-Louis Nakamura’s extensive background managing pension fund portfolios is serving him well in his new role. It is therefore appropriate that the ex-chief investment officer of the French Pensions Reserve Fund is now helping to advise China’s National Social Security Fund (NSSF) as part of the mandate Lombard Odier received in 2012 from the state pension fund.

U.S. Senate confirms Fischer, two other nominees for Fed
Howard Schneider – Reuters
The U.S. Senate on Thursday confirmed Stanley Fischer to be vice chairman of the Federal Reserve and approved Jerome Powell and Lael Brainard as members of the central bank’s board, bolstering the Fed as it prepares to wind down its extraordinary stimulus.
Fischer, confirmed last month as a member of the board, was approved to be the central bank’s influential No. 2 on a 63 to 24 vote. Powell, already a member of the board, was granted a new 14-year term on a 67 to 24 vote. Brainard, a former top official at the U.S. Treasury, was backed 61 to 31.

BofA Said to Lose Some Equities Staff to Rivals
Hugh Son – Bloomberg
Bank of America Corp.’s equities unit lost about half a dozen members in recent weeks including John O’Brien, head of New York derivatives sales, who joined Deutsche Bank AG, said two people with knowledge of the matter.
O’Brien, a managing director, previously was co-head of equity-derivatives sales, said the people, who ask not to be named because the moves are private. Michael Kurd, a derivatives trader, was among at least two employees who went to Deutsche Bank, which is based in Frankfurt, and other colleagues left for UBS AG and Morgan Stanley.


CME Group Announces Record Trading Volume for NYMEX Brent (BZ) and British Pound Futures (GBP/USD)
Press Release (CME Group)
CME Group, the world’s leading and most diverse derivatives marketplace, today announced it reached trading volume records for both its NYMEX Brent (BZ) crude oil futures and British pound (GBP/USD) futures contracts yesterday, June 12, 2014. Trading volume for NYMEX Brent reached 112,446, compared to August 12, 2013, the last record day, when volume reached 104,839 contracts. Trading volume for British pound futures reached 337,633 contracts, compared to the previous record on May 7, 2010, of 307,280 contracts.

Liffe Sets Daily Volume Record in 2 Year Euro Swapnote Futures
Press Release (ICE)
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, announced today that Liffe reached a daily volume record of 70,480 contracts in 2 year Euro Swapnote futures on June 12, 2014. The previous record of 38,482 contracts was set on November 11, 2008.
Total Euro Swapnote futures volume, across the 2, 5, 10 and 30 year contracts, reached 97,940 contracts on June 12, 2014, the highest daily volume for more than 10 years. Open interest for Euro Swapnote futures is currently 54,992 contracts as at June 12, 2014.

New Zealand set for equity derivatives launch
FTSE Global Markets
The New Zealand Stock Exchange will launch an equity derivatives market next week, following a year-long consultation with market participants…
…Following the NZX 20 Index Futures launch, NZX will announce a launch date for Individual Equity Options, which are another key tool in managing risk and enhancing income in the underlying equity market.

Regulation and Enforcement

Swaps Industry Vexed by Trade Reconstruction Requirements
Trade reconstruction requirements mandated by the Commodity Futures Trading Commission are having an impact on swap dealers and major swap participants.
The requirements stem from the Dodd-Frank Act and are implemented in rules adopted by the CFTC, in particular CFTC 1.35(a), which requires firms to produce a time-sequenced reconstruction of a swap, from the initial pre-trade communications through to the expiration of the swap, within 72 hours of a CFTC request. In order to do this, firms need to maintain daily trading records of swaps and all related records including communications, such as e-mail, instant messages, and recorded phone calls. Voice data represents a particularly difficult challenge.


Why Are You Long?
Gregory W. Harmon – Investing.com
I have not been asked this question yet but some days it seems it will be coming. With investor bullish sentiment at prior high levels, the bull to bear spread at extremes, no volume in the market which is overbought, Mercury in retrograde and Neptune stationed direct (no idea what that means), a full moon tonight and Friday the 13th, the market has a lot stacked against it. If it goes up today you had better be balls to the walls be long with all this going on.

Options Education

How Do SPOT Options Work?
Michael Shorr – TraderPlanet
Option exchanges are constantly looking for new ways to attract traders.  There used to be very few exchanges available,  but with the migration from the physical option trading floors to electronic or “virtual’ floors, it seems that a new one pops up every week. Over the past few years we have seen a real emergence in currency options.  Currency Options give retail traders many opportunities to limit risk and increase profit.


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