JLN Options: Wall Street Equities Traders Face Worst Year Since 2006

Oct 3, 2012

Lead Stories

Wall Street Equities Traders Face Worst Year Since 2006
Michael J. Moore, Bloomberg
Wall Street banks’ equities-trading units aren’t getting much relief from the strongest stock rally since 2009, as sinking volume and already thin margins threaten to make their annual performance the worst in six years.
Third-quarter equities-trading revenue probably fell 14 percent from the same period in 2011, the fifth straight drop of more than 8 percent, according to estimates by Kian Abouhossein, a JPMorgan Chase & Co. (JPM) analyst. Full-year revenue at the five largest U.S. investment banks may be the lowest since 2006, UBS (UBSN) AG’s Brennan Hawken wrote in a Sept. 19 note to clients.

Calm stock market? Not according to two option gauges
Doris Frankel, Reuters
The options market is showing signs of increasing worry about the path of the stock market over the next few months — and some traders are bidding up puts to protect their assets in case of a decline in equities.
While the CBOE Volatility Index shows a relatively low level of anxiety, two lesser-known gauges of options pricing are showing signs of heightened worry among institutional investors, said Jason Goepfert, president of SentimenTrader.com.

Get ready for a roller-coaster ride
Commentary: October has historically been most volatile of the year
Mark Hulbert, MarketWatch
Fasten your seatbelts, investors, and get ready for a wild ride.
I say this not because I think the stock market will necessarily decline for the month, though it could. But the judgment of history is that, regardless of how stocks behave in October, the path the market takes between now and Halloween is likely to be a particularly volatile one.

To Survive, Derivatives Market Must Change Dramatically: Report
Justin Grant, Advanced Trading
The derivatives market will be forced to change more dramatically than what’s being required under the new regulations because otherwise it would cease to exist, Tabb Group analyst Adam Sussman argues in his latest research report.
In the report, entitled ” The Death of a SEF: The Coroner’s Report ,” Sussman argues that there are multiple scenarios that could make newly formed swap execution facilities obsolete.

Average daily volume of 10.2 million contracts at Eurex Group in September
The international derivatives markets of Eurex Group recorded an average daily volume of 10.2 million contracts in September 2012, down from 12.4 million contracts in September 2011…
At Eurex Exchange, the equity index derivatives segment totalled 68.9 million contracts (September 2011: 112.6 million). The single largest contract was the future on the Euro Stoxx 50 Index with 30.6 million contracts. The option on this blue chip index totalled 23.5 million contracts.

Trading activity in VIX futures spurs CFE to busiest month ever
The CBOE Futures Exchange (CFE) says September 2012 was the most active trading month ever for futures on the CBOE Volatility Index (VIX).
The record trading activity in VIX futures drove total volume at CFE to a new all-time high.
During the month, several new trading records – for both VIX futures and CFE – were set.


CFTC’s Gensler to push on with position limits
Douwe Miedema and Huw Jones, Reuters
Gary Gensler, chairman of U.S. regulator the Commodity Futures Trading Commission (CFTC), vowed to push ahead with a new rule to curb speculation in commodity markets after a court threw out the CFTC’s plans last week.
Gensler, who was travelling in Europe, told Reuters in an interview that the U.S. Congress had issued a clear mandate to the CFTC to introduce limits on the positions commodity traders can hold.

Trading Errors Show Uneven Testing Policies, NYSE Executive Says
Nina Mehta and Whitney Kisling, BloombergBusinessweek
Not every trading firm has the same commitment to ensuring their systems are sound, a NYSE Euronext (NYX) official said at a meeting called by the Securities and Exchange Commission on technology breakdowns in markets.
The cycle of coding, testing and implementing software encompasses plans that start as notes on napkins to formal approaches “where an idea has to pass through a set of filters” before it’s converted into computer code, Lou Pastina, executive vice president for NYSE operations at NYSE Euronext, said at the SEC meeting yesterday.

Government likely to consider FCRA bill tomorrow (India)
The Economic Times
The government is likely to take a decision tomorrow on a bill that seeks to provide more powers to commodity market regulator Forward Markets Commission (FMC) and introduction of products like options.
“The Cabinet is likely to take up the Forward Contract Regulation Act (Amendment) Bill tomorrow,” a senior Consumer Affairs Ministry official said.


ISE Enhances “Kill Switch” Risk Management Tool
Press Release
The International Securities Exchange (ISE) today announced the implementation of its electronic “Kill Switch” functionality in PrecISE Trade, ISE’s innovative, front-end execution system. The Kill Switch has already been available for exchange members that are connected to ISE via a Direct Trading Interface (DTI) or FIX connection. By extending this functionality to PrecISE, this segment of ISE’s membership community now has the ability to utilize the Kill Switch to cancel all open orders and prevent new order submissions for more comprehensive risk management. In addition, if a DTI or FIX user is unable to access their system during a session, PrecISE serves as an alternative means of enabling the Kill Switch.


Don’t Fret Low Options Trading Volume — Feast On It
Ken Trester, InvestorPlace
Yesterday, the Options Clearing Council reported that total options trading volume for the month of September was down 16% compared to the same month last year, and total contract volume year-to-date was down 14%.
That might sound like bad news, but, as always when it comes to options, there was a way to play it to your advantage — with credit spreads.

VXX: A Reverse Split Of Shares On This Volatility Product – What Does It Mean For You?
Christopher F. Davis, Seeking Alpha
iPath, which offers a variety of ETFs, announced September 21, 2012 that it is going to conduct a reverse share split on the iPath S&P 500 short term VIX futures ETN (VXX). The VXX along with products such as the ProShares Ultra VIX Short Term Futures ETF (UVXY) and the Velocity Shares Daily 2X VIX Short-Term ETN (TVIX) are popular products used to gain exposure to volatility, as measured by the CBOE VIX, which is not directly investable. Recently, UVXY underwent a 1 for 10 reverse split. Now the most popular of these products to gain exposure to VIX futures, the VXX is facing the same adjustment.

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