Observations & Insight
Another successful MarketsWiki Education event
Spencer Doar – JLN
Yesterday, we held our third education event in London, and it went off with nary a hitch. Over the course of three sessions hosted by the London branch of the University of Chicago Booth School of Business, young professionals were treated to the insights of some of London’s finest minds in business and finance — plus, John got to give his first talk in the history of the event. We had about 140 registrants.
Getting the chance to mingle with these recent graduates and current university students was truly a treat. They were a diverse bunch from a range of backgrounds and interests — everywhere from Italy to Kosovo was represented.
Steve Grob of Fidessa and Cathryn Lyall of Minnamurra Consulting really stood out. Grob’s talk went in a different direction than most — he spoke about why so many businesses that the attendees will end up working for will inevitably fail. Lyall, in a wide-ranging talk, offered practical advice through the lens of her storied career in derivatives. Stay tuned for the videos of these presentations.
Thanks to our global premiere sponsor, CME Group, and to CBOE, the University of Chicago Booth School of Business, and the LME for sponsoring drinks at a nearby pub.
I’m already looking forward to next year.
October Surprise Puts U.S. Vote Back Atop Currency Risk List
Susanne Barton – Bloomberg
The U.S. presidential election is back at the top of currency traders’ list of worries.
After the revelation last week that the Federal Bureau of Investigation is reopening its inquiry into Hillary Clinton’s use of private e-mail, implied volatility in two-week options in the dollar-yen exchange rate timed to the Nov. 8 vote climbed to the highest levels since September, according to data compiled by Bloomberg. The foreign-exchange market had been looking past the campaign, putting greater emphasis on global central-bank meetings in December, when the Federal Reserve is forecast to raise interest rates.
***JB: Along similar lines, Equity Traders Are Preparing for a Tsunami Amid Tranquil Seas and Election Fear Creeps Into the Market
Shift From Active to Passive Investing Isn’t What It Seems
Barry Ritholtz – Bloomberg
Bill Miller, the legendary stock picker at Legg Mason Capital Management who beat the Standard & Poor’s 500 Index for 15 consecutive years, has an intriguing theory about why investors have been abandoning active investments. Although some people see passive investing as a form of active investing, he sees the precise opposite phenomenon: Active fund managers are often nothing more than high-priced closet indexers.
Challenge Accepted: Chris Isaacson, Bats Global Markets
Dan DeFrancesco – WatersTechnology
CBOE Holdings’ acquisition of Bats in September is the newest and largest hurdle for Isaacson, who will be in charge of technology for the soon-to-be combined entity. Dan DeFrancesco talks to Isaacson about his early days at Bats, lessons learned, and what’s next for the man who can’t seem to turn down a challenge.
Hedge Funds Lose Favour with Investors
John Manning – International Banker
The $3 trillion hedge-fund industry is clearly losing its appeal as it delivers progressively lower returns to investors. According to data released by Preqin, a provider of information on the alternative-asset industry, hedge funds yielded average returns of 12.22 percent in 2013, 4.65 percent in 2014 and only 2.02 percent in 2015.
Election will push Fed rate hike to December, say CNBC survey respondents
Steve Liesman – CNBC
On the 11th day before Christmas, the Fed will give the Street: One quarter-point hike.
The CNBC Fed Survey finds that 100 percent of respondents do not expect a rate hike at the Fed’s meeting this week, but 86 percent see one coming in Dec. 13-14 meeting.
Stock Exchanges Are Eating Your Returns
Larry Tabb – Bloomberg
Over the past decade, the widespread availability of information and new technologies has helped establish the most level playing field in financial markets we’ve ever seen.
But there’s an exception to this positive trend: Exchanges are quietly, yet dramatically, increasing the fees they charge for market data and access to compensate for their own dramatic declines in market share as the revenues of brokers, specialists, market makers and other users of stock-exchange services have toppled. The result is that the exchanges are making it more expensive to trade, and that’s harming investors.
OCC Cleared Contract Volume Down 13 Percent in October
Press Release – OCC
OCC, the world’s largest equity derivatives clearing organization, announced today that cleared contract volume in October was 318,439,491 contracts, a 13 percent decrease from October 2015 monthly volume of 367,647,983 contracts. Average daily volume at OCC is down three percent year-to-date in 2016 with 16,367,412 contracts. OCC’s stock loan program reported that securities lending activity was up 33 percent in October and 38 percent year-to-date.
NYSE-owner ICE’s profit jumps 12.4 percent on higher data revenue
Richa Naidu – Reuters
Intercontinental Exchange Inc (ICE.N), the owner of the New York Stock Exchange, reported a 12.4 percent rise in quarterly profit as revenue from its data services business more than doubled.
Intercontinental Exchange Reports Solid Third Quarter Earnings Growth
Press Release – Intercontinental Exchange
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses and provider of global data and listing services, today reported financial results for the third quarter of 2016. For the quarter ended September 30, 2016, consolidated net income attributable to ICE was $344 million on $1.1 billion of consolidated revenues less transaction-based expenses. On a GAAP basis, diluted earnings per share (EPS) in the third quarter were $2.86. On an adjusted basis, net income was $385 million and diluted EPS were $3.21. Please refer to the reconciliation of non-GAAP financial measures included in this press release for more information on adjusted net income and adjusted diluted EPS.
HKEx to launch Chinese exchange next year
Julie Aelbrecht – Futures & Options World
Hong Kong Exchanges and Clearing chief executive officer Charles Li has said the exchange group plans to launch a mainland China metals market in Qianhai before May next year.
Regulation & Enforcement
CFTC Issues Orders of Registration to Five Foreign Boards of Trade to Permit Trading by Direct Access from the U.S.
Press Release – CFTC
The U.S. Commodity Futures Trading Commission (CFTC) today issued Orders of Registration to the following Foreign Boards of Trade (FBOT):
Eurex Deutschland (Eurex)
CME Europe Limited (CMEEL)
ICE Futures Europe (IFE)
The London Metal Exchange (LME)
London Stock Exchange plc. (LSE)
Under the Orders, each of the FBOTs is permitted to provide identified members or other participants located in the U.S. with direct access to its electronic order entry and trade matching system.
The Election and Market Sector Volatility Part 2
Russell Rhoads – CBOE Options Hub
So, last week I looked at the implied volatility of various option markets that expired just before and just after next week’s election. You can read all about that here. Of course, as we all know, things changed a bit last Friday. When things change, I start running numbers. First I updated the table from last week where the IV for Nov 4th and Nov 11th options were compared for a variety of sectors, indexes, and one country fund.
Trick Now, Treat Later
Meredith Kelley Zidek – CBOE Options Hub
After having a pretty good week shorting anything with a ticker (no, not really – just a few select names) and getting away with it, I got caught with my shorts up on Friday afternoon. Who can predict green ticks higher than the Empire State Building that materialize while you’re waiting by the microwave for coffee to warm? So I decided to transmogrify the offending position into a Frankenstein’s monster of sorts, fitting for the candy festival otherwise known as October 31st.
Will Volatility Short Bets Trick Or Treat?
Johanna Bennett – Barron’s
Is the CBOE Volatility Index (VIX) really predictive? If it is, it’s getting spooky out there for investors who made big bets against volatility.The CBOE Volatility Index, known as the market’s fear gauge, rose 5% today to 16.99 , extending the gains posted Friday after the FBI announced that it was reviewing new evidence in the investigation of Hillary Clinton’s emails. In fact, Credit Suisse’s Mandy Xu writes that implied volatility rose across various asset classes last week.
Trading the Yen and Nikkei Ahead of BOJ Decision
Vikram Rangala – Nadex Binary Options
How do you trade the Nikkei 225 stock exchange or the Yen forex pairs versus the euro, Aussie, pound, and US dollar during the volatile period just before a rate announcement? The BOJ is expected to leave rates unchanged tomorrow, but traders have a variety of up and down moves in different time frames to take advantage of.
How to Use Options to Take Advantage of Volatility
Ellen Chang – The Street
Volatility could occur in the markets as investors wait for the outcome of the next Federal Reserve meetings and the U.S presidential election, but buying options can help hedge against big moves in the market.
While some investors shy away from volatility, others take advantage of the moves by playing defense and constructing hedges with options using a protective put or a protective collar, said Frank Tirado, vice president of education for the Options Industry Council, a Chicago-based industry cooperative. Traders who want to be offensive can buy straddles and strangles which helps them build a strategy for large movements in the market even if they do not have an opinion on either direction.