JLN Options: SEC Poised to Vote on Broad Stock Surveillance System

Jul 10, 2012

Lead Stories SEC Poised to Vote on Broad Stock Surveillance System
Nina Mehta, Bloomberg
The 32-year wait for a comprehensive record-keeping system to monitor trading across U.S. equity and options markets is approaching a conclusion.
The Securities and Exchange Commission is meeting tomorrow to consider adopting a proposal issued three weeks after the stock rout of May 6, 2010, to build a single system to track all order and trading data. The so-called consolidated audit trail will enable the reconstruction of market crises and analyze trading on 13 equity exchanges, 10 options markets and more than 200 broker-dealers that execute stock away from public venues.
http://jlne.ws/MiUO2K PFGBest mess raises systemic issues for futures industry
Daniel P. Collins, Michael McFarlin, Futures Mag
The PFGBest revelation raises serious questions about the safety of the U.S. Futures industry. One of the themes that had been struck throughout the MF Global mess is that the safety of segregated funds had been absolute up until that “one-off” event. Now, apparently customer segregation has been violated twice in nine months.
In a complaint filed this morning against PFG and Russell Wasendorf Sr. by the Commodity Futures Trading Commission (CFTC) alleging fraud, misappropriation of customer funds, violation of customer fund segregation Laws and making false statements, the Commission alleges that “from at least February 2010 through the present, PFG and Wasendorf failed to maintain adequate customer funds in segregated accounts as required by the Commodity Exchange Act and CFTC Regulations.”
http://jlne.ws/MiVIw9 Hedge funds post modest gains, trailing stock market
Melvin Backman, Reuters
Hedge fund performance once again trailed the stock market in June, continuing a pattern for the year.
In June, the average hedge fund posted a meager 0.05 percent gain, according to the broadest industry index maintained by Hedge Fund Research Inc.
http://jlne.ws/MiUEs5 VIX Bounces on Poor Earnings, Europe
John Nyaradi, Wall Street Sector Selector
VIX, the CBOE Volatility Index, also known as the “fear index,” jumped today on worries over Europe and earnings.
VIX jumped 5.15% today to close at 17.98, below its long term average and 50 day moving average as it bounces off near term lows set last week.
At current levels, VIX is at extreme lows entering earning seasons compared to prior recent years.
http://jlne.ws/PNps9x OptionMonster Daily Volatility Report with Jamie Tyrrell of Group1 Trading:

Exchanges

Direct Edge Announces New, Low-Cost Market Close Order Type
Press Release
As part of our commitment to providing innovative, value-added services to our Members, Direct Edge will introduce the Edge Market CloseSM (EMC) order type, a new, low-cost alternative to participating in the market close. We intend to launch the EMC on the EDGX Exchange (EDGX) in the fourth quarter of 2012, pending approval by the Securities and Exchange Commission (SEC).
The EMC is being designed in response to Member demand for a low-cost alternative to the closing price auctions of NASDAQ and the New York Stock Exchange (NYSE). Direct Edge intends to inject needed price competition in the market for closing price executions.
http://jlne.ws/O1gdv6 Sebi grants MCX-SX equity trading licence (India)
Anirudh Laskar, LiveMint
The capital market regulator allowed MCX Stock Exchange Ltd (MCX-SX) to become a full-fledged bourse, ending a two-year-long tussle that saw the two sides lock horns in court over ownership rules governing such bourses…
The exchange can start trading in equities, equity derivatives and other asset classes like its rivals BSE and the National Stock Exchange (NSE).
“Sebi has granted MCX-SX permission to deal in equity and equity futures and options, interest rate futures and wholesale debt segments,” it said. MCX-SX only offers trading in currency futures contracts currently.
http://jlne.ws/PNqORN

Regulation

US swaps regulators to finalize key reform trigger
Alexandra Alper, Reuters
The U.S. swaps regulator geared up on Tuesday to finalize a key definition that will start the clock ticking on a host of reforms for the murky $650 trillion over-the-counter global swaps market.
The Commodity Futures Trading Commission is slated to vote on the definition of a “swap,” which triggers a countdown on compliance requirements for other rules such as registration and reporting for major swaps players.
The Securities and Exchange Commission unanimously approved its parallel swap definition rule during a closed-door vote on Monday.
http://jlne.ws/MiYzFl Finra Issues Investor Alert on Risks of Exchange-Traded Notes
Matt Robinson, Bloomberg
Investors need to understand the risks involved in “complex” exchange-traded notes, after a security tied to stock-market volatility plummeted in March, according to the Financial Industry Regulatory Authority…
Zurich-based Credit Suisse AG on Feb. 21 stopped issuing shares of an ETN (TVIX) tied to the VIX, as the Chicago Board Options Exchange Volatility Index is called. A month later, the TVIX note began diverging from its underlying index to trade at a premium of as much as 89 percent.
http://jlne.ws/PNuvXN CFTC PFG Complaint 07-10-2012
(CFTC official complaint filing against PFG Best)
http://jlne.ws/M12311 (PDF)

Strategy

How to Trade Options Around Volatile Events
Profit from trades ahead of “time-specific” events such as elections and central-bank pronouncements. 
Bill Luby, Barron’s
In recent years, many investors have been overwhelmed by events that impact the global financial system.
Some of these threats have unfolded incrementally according to their own fuzzy timetable and have cast long shadows of uncertainty for extended periods without any sort of final deadline in sight. The euro-zone debt crisis is one example, as are the prospects of a hard landing in China as well as concerns about Iran’s nuclear weapons capability.
http://jlne.ws/NHULgF VXX: Where Wealth Goes to Die
Daniel Putnam, InvestorPlace
Few ETFs have caused wealth destruction on the scale of the Barclays Bank PLC iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX). Since its inception on Jan. 29, 2009, VXX has declined an astounding 96%. This year alone it’s down more than 57%.
But for some reason, investors just aren’t getting the message. VXX has logged an average daily trading volume of more than 51 million shares per day, which is more than all of the other 24 volatility ETFs combined.
http://jlne.ws/MiV15S Calm Before Storm? What Low VIX May Mean for Stocks
Jeff Cox, CNBC
Despite all the wild fluctuations in the stock market, investors remain remarkably complacent, which could come back to bite them if recent trends repeat themselves…
The index has been in historically tame territory this summer, even as June offered three separate trading days of 200-point losses in the Dow and as geopolitical turmoil continues to circle.
http://jlne.ws/MiVZPM Covered Call Writing And Stock Option Expiration Cycles
Alan Ellman, Seeking Alpha
When performing our covered call writing calculations we must view an options chain. When we look at the different expiration months available for our stock opt ions, we note that different stocks have different expiration months. How can that be? We want uniformity, not chaos. Like most things, there is a reasonable explanation.
http://jlne.ws/MiWl96 Options Basics: How To Get The Best Entry And Exit Prices On Your Option Trade
W. Edward Olmsted, Seeking Alpha
Very often the success of an options trade will be strongly influenced by how carefully the entry and exit prices are negotiated. The gain or loss of $.10 per share in a stock trade is usually insignificant, whereas in an option trade it can make a huge difference. Suppose that you buy an option for $2.00 per share and later sell it for $3.00 per share. The profit of $1.00 per share represents a nice 50% return on your investment. If you could have shaved your entry price by $.10 to $1.90 and managed to pad your exit price by $.10 to $3.10, then your profit of $1.20 per share represents a dramatically improved 63% return.
http://jlne.ws/PNtezT

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