Observations & Insight

Kenny Polcari, O’Neil Securities – Charting a Career
MarketsWikiEducation.com

“Let me go and check this out. I’m either going to love (an intern job at the NYSE) or I’m going to hate it. If I hate it, OK, chalk it up to experience, but if I love it, it may change the course of my life. And, in fact, it changed the course of my life.”

Market strategists love to follow charts. They look for trends, breakouts and key reversals. They pay close attention to entry points and exit strategies. Most importantly, they know they must concentrate not on the last trade, but rather the next one.

In this highly energetic and entertaining MarketsWiki Education talk, Kenny Polcari charts his 30-year career in the context of a 30-year chart of the Dow Jones Industrial Average. The stock market, like most people’s careers, will see plenty of highs and lows, periods of consolidation and periods of volatility. And if you are lucky, you will also see a whole lot of action and a whole lot of fun.

Watch the video »

Lead Stories

Volatility Hedge Fund Sees Bull Market in Fear as Bets Jump
Aleksandra Gjorgievska – Bloomberg
Beneath calm stocks, the volatility market is jumping. Take futures on the CBOE Volatility Index, whose volume surged 50 percent this month and is on pace for a record year, according to data compiled by Bloomberg. Belying the lull evidenced in the VIX itself, which has traded almost 30 percent below its historical average in September, six-month contracts on the index are priced about 40 percent higher and last month the gap hit its widest since 2012.
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CME quits dealmaking as CBOE acquires Bats
Joe Cahill – Crain’s Chicago Business
Once an aggressive acquirer, CME Group is getting more attention lately for the deals it isn’t doing. The financial exchange operator stood by as CBOE Holdings negotiated a $3.2 billion agreement to buy electronic stock exchange Bats Global Markets. Their Sept. 26 deal punctured longstanding expectations that CME might acquire neighbor CBOE, which runs the Chicago Board Options Exchange. “It probably means that CME will never acquire CBOE,” says analyst Michael Wong of Morningstar. “People had always speculated on that.”
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Deutsche Bank Slips Below 10 Euros as Options Traders Bet on 8
Aleksandra Gjorgievska – Bloomberg
For the first time ever, Deutsche Bank AG’s share price dipped below 10 euros. Traders are preparing for it to fall even lower. The most-owned bearish option on the German lender is a put with an exercise price of 8 euros. While investors started piling into the position in June, the fact that it’s so popular shows they’re seeking to hedge for further declines. The stock sank as much as 9 percent to 9.90 euros intraday, before paring its slide.
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****SD: Well, those traders must be displeased by DB’s recovery on speculation that the potential DOJ fine would be less than half the $14 billion demanded and Cryan’s reiteration that the German lender has sound financial footing.

Goldman’s Libya Salesman Was a Little Too Good
Matt Levine – Bloomberg
I used to sell equity derivatives at Goldman Sachs, which puts me in fascinating company. For instance there is Youssef Kabbaj, a London-based equity derivatives salesman who, in 2008, was described internally as “perhaps Goldman’s top salesman globally.” Banks tend to throw around superlatives pretty casually, so I don’t know how true that is, but if it is true then we should pause to hold a small parade for him.
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BofA Stunned By Record VIX Roundtrip; Fears “Fragile Market”
Zero Hedge
In recent months, BofA notes that the speed of mean reversion in the VIX has been particularly striking by historical standards. Since the end of QE3, VIX spikes have had very little persistence, generating low cumulative volatility relative to the previous 25 years, underscoring BofA’s thesis of a fragile market that features rapid jumps from states of calm to states of stress and back.
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Market Making – Behind the Models
Larry Tabb – TABB Forum
Market making is misunderstood. Common wisdom suggests market makers sit on the bid and offer of each product waiting for an investor to take their liquidity. Once acquired, the liquidity is quickly turned over, providing the market maker with a nice and easy profit that very well may be in conflict with original investor. While that may have been the business model of the market makers a decade ago, market making has grown up since a single trader had unique access to proprietary information from exchanges that had garnered a 90% market share.
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KCG’S Susi and Bulthuis Discuss Tick Pilot Preparations
John D’Antona Jr. – Traders News
Being an executing broker/financial technology company isn’t easy these days in the current evolving equity market structure. Just ask Charles Susi, co-head institutional equities and Brian Bulthuis, head of quantitative research client execution services at KCG, both of whom took a few moments to speak exclusively with Traders Magazine to discuss how the firm altered its trading technology ahead of next week’s start of the Tick Pilot Program.
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The Need for Speed in a Maturing FX Market
Jeff Patterson – Finance Magnates
Ahead of our upcoming London Summit in November, the event’s speakers weigh in on what keeps them busy. In this latest installment, Donal Byrne, the Chief Executive Officer (CEO) of Corvil, lends his insight and perspective on the changes the industry has undergone in the wake of new regulatory regimes.
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Exchanges

French sacrifice may not be enough for LSE/Deutsche Börse
Tim Cave – Financial News
With the ink barely dry on a European Commission document referring the merger between Deutsche Börse and the London Stock Exchange Group to an in-depth antitrust review, the LSE revealed its intent to give up its French clearing business in a sale to remedy competition concerns.
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A new dawn in Indian commodity market; large knowledge gap biggest hurdle
Kishore Narne – Economic Times
A healthy and vibrant commodity futures market has an enormous impact on any economy. Unlike other financial markets, commodity market place has a purpose and a role in enabling entrepreneurs to take risks without bothering about price volatility in raw materials, encourage a farmer to be sure of the price he is going to get when he harvests his crop and a miner to dig for minerals assuring that he shall be able to sell it at a price, which is discovered by an efficient market.
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Montréal Exchange to relocate to Deloitte Tower in city’s burgeoning Quad Windsor district
TMX
Cadillac Fairview and TMX Group are proud to announce today the signing of a long-term lease agreement to relocate the Montréal Exchange (MX) to Deloitte Tower in 2018. MX and the Montréal offices of The Canadian Depository for Securities, Canadian Derivatives Clearing Corporation, Toronto Stock Exchange and TSX Venture Exchange will occupy approximately 44,000 square feet on two floors of the 26-storey office building, and will start adapting the space for occupancy this fall.
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Regulation & Enforcement

CFTC Orders Jon P. Ruggles to Disgorge More than $3.5 Million in Trading Profits and Pay a $1.75 Million Penalty for His Illegal Futures and Options Trading
CFTC
The U.S. Commodity Futures Trading Commission (CFTC) today entered an Order filing and settling charges against Jon P. Ruggles of Orlando, Florida, for engaging in fraudulent, fictitious, and noncompetitive trades in crude oil and heating oil futures and options and RBOB gasoline futures on the New York Mercantile Exchange (NYMEX), a division of CME Group, from March 2012 to December 2012. During that time, Ruggles resided and worked in Atlanta, Georgia.
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CFTC Charges Options Trader Thomas C. Lindstrom with Fraud
CFTC
The U.S. Commodity Futures Trading Commission (CFTC) filed a civil enforcement Complaint, charging Thomas C. Lindstrom, of Winnetka, Illinois, with fraud in connection with his trading of options on 10-year U.S. Treasury note futures (T-Note Options). Lindstrom is registered with the CFTC as a floor broker, has been a member of the Chicago Board of Trade (CBOT) since 1993, and is a long-time trader of T-Note Options offered on the CBOT.
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Tech, reforms slow derivatives growth – paper
Luke Jeffs – Futures & Options World
The Fincad report found nine in ten respondents want to use more derivatives
Old systems and regulatory uncertainty are holding back firms’ increased use of derivatives, a new study has found, suggesting regulatory reforms are hampering rather than helping the derivatives industry. A survey of 230 buy and sell side firms by tech firm Fincad found 92% of respondents wanted to increase their use of derivatives or keep it at the same level but they were unsure about doing so. Some 57% of the same group said they were either unsure if their systems could handle or sure their technology couldn’t support an increased use of derivatives.
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Sellers crucial for success of commodity options
Rajesh Bhayani – Business Standard News
As the Securities and Exchange Board of India (Sebi) enters second year of regulating commodities market, exchanges are buoyed up by the in-principle approval for the launch of commodity options. It is a significant move but more needs to be done. “The introduction of options trading is a necessary but not sufficient condition for healthy commodity markets,” said Jayant Manglik, president, Religare Securities.
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Options trading to have one agri & non-agri item each: Sebi
India Today
On the heels of allowing options trading in commodities, market watchdog Sebi today said the process will begin with one agri and one non-agri product. “We will begin options trading in one agri and one non-agri product. Options could be helpful to the farmers and producers in their price protection and hedging needs,” chairman U K Sinha told reporters here on the first anniversary of commodities regulation under the Sebi. The regulator, however, did not offer a timeline for the introduction of these items.
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Sebi considering entry for mutual funds in commodity derivatives
Business Standard News
After ensuring a consolidating risk management and surveillance mechanism in commodity markets, regulator Securities and Exchange Board of India has now decided to broaden participation of other players in this segment. Sebi is also of the view to encourage competition in the commodity derivatives, which aims at no exchange having monopoly in any sub segment of commodities.
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The rise and fall of financial traders Oliver Curtis and John Hartman
Michael Evans – The Age
Tick, tick, tick. Time is running out for Oliver Curtis – it’s now nearly 3pm – and he knows he’s got to move fast. All afternoon he’s been in a frenzy, peppering his broker Andrew Knight with calls. In this high torque form of trading he’s playing, small fortunes can be made or lost in hours, minutes – even seconds. Curtis knows he’s on a sure thing with Leighton Holdings: the only problem is that he can’t get his hands on enough stock to make a nice little killing. And so he’s on the phone to Knight.
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****SD: Reckless abandon.

Technology

Derivatives surge sees two thirds of firms increasing tech investments
Hayley McDowell – The Trade
Over two thirds of financial institutions will increase investments in technology in 2017 to keep up with the surge in derivatives activity, according to a recent survey by FINCAD. A poll of 230 global buy- and sell-side firms found 92% will either increase or continue with the same level of derivatives activity in 2017.
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Strategy

Transtrend: Trend-following in non-symmetric markets
Eurex Group
Transtrend’s latest research addresses the non-linear and non-symmetric behavior of markets in the context of a diversified investment strategy. The paper highlights how disregarding the non-linearity and non-symmetry of market behavior can result in an underestimation of portfolio risks. Furthermore, how these characteristics may actually create opportunities for a diversified trading strategy. Transtrend’s Diversified Trend Program (“DTP”) is such a diversified trading strategy, running many different positions at the same time.
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Events

Discussion on Improving Trading Using Correlation Information at RMC
CBOE Options Hub
Three presenters worked together on a presentation that asks the question, Can We Improve Trading Using Correlation Information? Kokou Agbo-Blou from Societe Generale, Neale Jackson of 36 South Capital Advisors, and Trung-Tu Nguyen of Capital Fund Management all divided duties to answer this question.
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Chris Cole’s Keynote Address on Volatility at CBOE RMC Europe
CBOE Options Hub
Christopher Cole who is a Managing Partner at Artemis Capital Management kicked off the final day of the 5th Annual European of CBOE’s Risk Management Conference. He gave his view of the current market environment while also framing the discussion around a paper he authored, Volatility and the Allegory of the Prisoner’s Dilemma.
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Session Focusing on European Market Volatility at RMC
CBOE Options Hub
For the final presentation of the second day at CBOE RMC Europe, Abhinandan Deb from Bank of America Merrill Lynch and Michael Stephens from Pioneer Investment Management split duties to discuss Global Volatility Trading Opportunities with a Focus on Europe.
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Panel on The Evolution of Options and Futures Strategies at RMC Europe
CBOE Options Hub
Andy Nybo from Tabb Group delivered a presentation and then headed a panel discussion on The Evolution of Options and Futures Strategies on the Buyside Trading Desk at CBOE’s RMC Conference Wednesday.
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Miscellaneous

Wall Street Guru’s Spiritual Guide to Hitting Your Number Faster
Sangwon Yoon – Bloomberg
Khemaridh Hy left the fast-track to meditate, dole out advice; One recommendation: cold showers for mental resilience
Khemaridh Hy, late of Wall Street, starts at 5:15 a.m. with a Snapchat selfie and a caption that says, “Time for daily practice. Be present in the now!” After 20 minutes of meditation, he heads for the elevator and posts a quote on Twitter by the philosopher Lao Tzu, the one that begins: “Stop leaving and you will arrive.” He strolls to a coffee shop and blogs about “the number” — the amount of money you need to amass to quit the business.
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****SD: “If the number enables you to live off a bond-like profile, remember that you’re also short a put. In the journey of life, don’t we want to be long-call options?” -Hy

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