Why Stock Market Volatility Isn’t Really as Low as It Appears; An Exceedingly ‘Worrisome’ Discrepancy; Euro Trading Calm Belies Risk of Lehman-Like Volatility Spikes

Feb 3, 2017

Lead Stories

Why Stock Market Volatility Isn’t Really as Low as It Appears
Joseph Ciolli – Bloomberg
Correlation, it’s sometimes said, equals volatility. An index can’t swing very much unless a lot of its members are going the same way. So if you’re wondering why the CBOE Volatility Index has been so quiet lately, that’s part of it, according to Dean Curnutt, chief executive officer at Macro Risk Advisers. Stocks are charting independent courses under Donald Trump, and it’s holding broad measures of turbulence down.

An Exceedingly ‘Worrisome’ Discrepancy
Seeking Alpha
As one bank puts it, investors no longer know “what is and is not impactful – and as a result volatility has approached multi-year lows.”. Multi-year lows in equities, that is. But most assuredly not in rates or in FX. And therein lies the problem – and a worrying disconnect.

****SD: It’s like another version of cognitive dissonance.

Euro Trading Calm Belies Risk of Lehman-Like Volatility Spikes
Vassilis Karamanis – Bloomberg
A look at the euro’s intraday swings suggests traders are having it easy. Well, look again. Even as the average daily trading range for the euro-dollar pair shrank last year to 91 pips, the second-smallest since the global financial crisis, violent eruptions of volatility capable of wiping out days of gains have become more frequent.

****SD: Sometimes you’re feeling good with two men on base and no outs — then you ding one into an easy double play and kill all the momentum.

Trump Leads to Record Trading of Leveraged VIX Securities: Chart
Cecile Vannucci – Bloomberg
With the CBOE Volatility Index heading for its biggest weekly gain of the year, securities tracking its futures are seeing record trading. More than 20 million shares of the ProShares Ultra VIX Short-Term Futures and VelocityShares Daily 2x VIX Short Term ETN changed hands each day on average in the past four days, set to lead to the busiest week ever for the products.

****SD: Everytime I think of leveraged ETNs/ETFs, I’m reminded of this Themis Trading blog from a while ago – Introducing The 4x ETF

Ed Thorp: the man who beat the casinos, then the markets
John Authers – Financial Times
Thorp, a sprightly 84-year-old, is uniquely placed to judge. A mathematical prodigy, he worked out how to “beat the dealer” at blackjack while a postdoctoral student at MIT. After he published a book in 1962 revealing how to count cards, he became so famous that casinos banned him from playing — he says one even resorted to drugging him. Many changed their rules to thwart people using his counting system.

****SD: FT profiles like this are always fun.

Currency Volatility on Trump’s Tweets Fades as Traders ‘Bored’
Stefania Spezzati and Vassilis Karamanis – Bloomberg
Falling volatility in currency markets suggests traders are getting used to the rhetoric in U.S. President Donald Trump’s tweets. Euro-dollar volatility, a measure of expected swings, has fallen to levels seen before the election in November, after spiking to a five-month high on Trump’s victory.

****SD: Bored?! Already?! How?!

Why Citadel’s Ken Griffin Can’t Keep His Star Hires
Matthew Leising and Annie Massa – Bloomberg
Ken Griffin isn’t a people person. The billionaire founder of hedge fund Citadel has proved himself an adept reader of markets and a savvy investor, thriving in areas of finance where an otherworldly mastery of electronic markets takes precedence over personal relationships. Back on earth, Griffin is notoriously hard to work for.

****SD: Delicate issue that isn’t mentioned in the article, but does, in my mind, play into the overarching storyline – his divorce that was local news for a while.

Exchanges and Clearing

Intercontinental Exchange’s Volumes in January 2017 Reveal Mixed Performance
Finance Magnates
Intercontinental Exchange, a global network of exchanges and clearing houses, has reported its January 2017 volumes, which saw positive flows across various segments, but also reflected a weak performance when weighed against the same period of 2016, according to an ICE statement.

Accenture, CME Group and TMX Group join blockchain startup
Automated Trader
The Chamber of Digital Commerce, the blockchain trade association, has accepted three new public companies to its membership to help educate, promote and accelerate the adoption of blockchain-enabled technologies.

US exchanges see drop in January trading volumes
Merle Crichton – FOW
CME, OCC and CBOE said their January trading volumes were down on 2016
Some of the major US futures and options markets are the latest to report a slowdown in trading last month in contrast to Dubai’s exchanges which saw growth, according to new data. Chicago-based giant CME Group reported an average daily volume for January 2017 of 16 million contracts, down 12% from a strong January 2016. Interest rate volumes averaged 8.4 million contracts per day, representing a 6% decrease from last year.

CME Earnings: Surge In Trading Volumes And International Expansion Favor Growth
CME Group (NASDAQ:CME) performed impressively in Q4 2016, reporting 12% growth in revenue and beating the market’s expectations as well as the prior quarters’ growth. The revenues from trading business, after showing moderate growth for most of the year, grew nearly 13% in the fourth quarter. Increased volatility in the stock market resulting from the recently concluded U.S. presidential elections and improved macro factors such as GDP and employment rate led to a significant surge in trading volumes across all asset classes.

Regulation & Enforcement

Trump to issue directives targeting Dodd-Frank, retirement advice rule
Ayesha Rascoe and Sarah N. Lynch – Reuters
U.S. President Donald Trump on Friday will scale back major regulations that resulted from the financial crisis, directing a review of the Dodd-Frank Act and putting the brakes on a retirement advice rule.

Interim SEC Boss Goes Beyond Caretaker Role to Revisit Rules
Benjamin Bain – Bloomberg
Republican economist Michael Piwowar plans to use his role as interim leader of Wall Street’s top regulator to lay the groundwork for revamping financial industry rules, possibly including those governing the stock market and corporate disclosures.

MiFID II helps Virtu bag buy-side
Joe Parsons and Hayley McDowell – The Trade
Virtu Financial has European buy-side firms lining up for its market making and technology services ahead of MiFID II, according to chief executive officer Doug Cifu.

****SD: In other Virtu news – High-speed trader Virtu backs ‘pro-growth’ Trump

RBS to pay $85 million penalty over attempted benchmark manipulation
Royal Bank of Scotland (RBS.L) will pay a $85 million (GBP67.98 million) penalty to resolve civil charges that it attempted to manipulate a global benchmark for interest rate products, U.S. derivatives regulators said on Friday.

NRIs can now access exchanges for hedging
Business Standard
The Reserve Bank of India (RBI) on Thursday allowed non-resident Indians (NRIs) access to the exchange traded currency derivatives (ETCD) market, which would allow them to directly hedge their exposures through the exchanges, in addition of going to banks to do it on their behalf.

Black vs. White in Binary
Finance Magnates
With the recent closure of Banc De Binary, one of the largest binary options brokerage firms, the online marketing community is in a state of turmoil. It’s hard to immediately reconcile the fallout after one of the biggest names in the industry.


Buy Side Cross-Asset Trading Technology: Putting the Pieces Together
Brad Bailey – Traders
Celent has released a new report titled Buy Side Cross-Asset Trading Technology: Putting the Pieces Together. The report was written by Brad Bailey, a Research Director with Celent’s Securities & Investments practice. In this report, Celent looks at the forces driving the buy side to “desilo” trading desks to maximize effectiveness across asset classes. The buy side is remapping their trading desks in order to leverage the growing similarities in market structure across equities, options, derivatives, fixed income, and foreign exchange.

Across Time and Space: MiFID, MAR, Dodd-Frank and Universal Time
George Bollenbacher, Capital Markets Advisors – Tabb Forum
In today’s markets, both the buyer and seller – the liquidity maker and the taker – increasingly turn executions over to technology. As a result, market regulators are suddenly concerned about the accuracy and synchronization of the markets’ clocks. But answering the question, ‘What time, exactly, is it?’ can be a fraught and expensive proposition.


Volatility swoon opens up options market opportunities
Saqib Iqbal Ahmed – Reuters
Whether you believe the rally in U.S. stocks has run out of steam or expect shares to soar on to new highs, the recent slump in stock market volatility has opened up big opportunities for traders in the options market.

DIY Guide to Technical Analysis: Indicators & Oscillators
Ryan Campbell – The Ticker Tape
Identifying trend, support and resistance levels, and price patterns leaves a lot up to the discretion of the trader. Some traders prefer less-discretionary trading methods. This is because emotions can cloud a trader’s judgement. Using indicators and oscillators is one way to reduce the degree of discretion required in technical analysis.

When Is a Synthetic Call the Best Play?
Skip Raschke – TheStreet
A synthetic call is a tactical setup in which you are long a stock and long a put. That setup is known as a one-to-one, implying that you are long, on a ratioed basis, 100 shares of stock and long 1 put. Implied is that the long puts are at the money. A synthetic call is, in all respects, totally equal to the actual call.


CBOE to Present at Credit Suisse Financial Services Forum on Wednesday, February 8
CBOE Holdings, Inc. (NASDAQ: CBOE) announced today that Edward T. Tilly, Chief Executive Officer, will present at the 18TH annual Credit Suisse Financial Services Forum in Florida on Wednesday, February 8, at 9:30 a.m. (Eastern Time).


You Can’t Understand 2008 Without Understanding the Eurodollar Market
Jeffrey Snider – RealClearMarkets
If you want to understand the last decade (or three), and I mean really understand, there are very few places you can turn to. Since the panic in 2008, an enormous amount of time and effort has gone into identifying causes and trying to preview possible future solutions. All that did was to prove that the amount of attention paid to something is not proportional to the level of understanding it attains.

****SD: If the new policy is “America First” shouldn’t it be renamed the Dollareuro?

Buy an artwork — fund an artist’s pension
James Pickford – Financial Times
Painting through the night in a tumbledown studio in Montmartre, Paris, the young Pablo Picasso was sometimes so strapped for cash he would exchange his paintings for food or fresh supplies of canvas and paint.

****SD: Included not only because it’s a pretty cool idea, but because Dan Galai was a co-founder.

Hedge Fund Investor Letters Show Managers Are Stumped By Trump
Simone Foxman – Financial Advisor Magazine
The masters of the universe are sharpening their pencils to write about Donald Trump. The problem? Many of them aren’t sure what to say.

****SD: “By the power of Greyskull, I have no idea!”

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