Archives: January , 2013
People Profiles

Buy-Side Traders Making Peace With Computers; Re-Embracing High-Touch.

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Solid  WSJ article courtesy of reporter Telis Demos (Jan 27 WSJ).. MarketsMuse has taken liberty and extracted most interesting observations..

wsjlogo“…. In recent years, a computer typically would have swiftly matched such an order with a buyer, sidestepping trading floors altogether…..But more recent soft trading volume has left many traders unable to move stock as quickly as they might like…”

A decade of promoting electronic stock dealing has reduced banks’ costs. Even so, financial firms are facing renewed profit pressure, as market volumes sink and new rules crimp financial firms’ capacity to deploy capital and take risks. ..”

One response has been to bring humans, long on the defensive in the stock-trading business amid cost-cutting and productivity-boosting efforts, back into the loop in a bid to move shares that otherwise might sit untouched.

As a result, banks are combining electronic and live trading businesses in a way they haven’t before….

Banks say clients still will have to opt into hybrid trading services that combine human eyes and electronic systems, and can continue to use separate functions if they prefer. Cheyenne Morgan, analyst at Tabb Group, a consulting firm, said banks are “working with clients to figure out what the right balance would be” between electronic and traditional trading…”

Commenting on the WSJ article, a senior trading specialist at WallachBeth Capital, a boutique execution firm specializing in ETFs, single stock block trading and options execution for institutions and hedge funds stated, “Its nice to know that the media has re-affirmed our firm’s business model, which has always been based on what we call the HT-Squared principle;  a combination of high-touch human intervention coupled with leveraging advanced trading system technology.”

That trader added, “The notion of relying exclusively on computers and algos has certainly proven popular during the past number of years. The obvious concern is whether relying on robots is appropriate for those obliged to secure real best execution, which means capturing market color not available on screens, and prices that will never be displayed on a screen, but are attained through discrete navigation.”

ETF News, Strike Price

Credit Suisse Lists Covered-Call Gold ETN; $GLDI w Exposure to $GLD

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indexuniverseCourtesy of Cinthia Murphy and Olly Ludwig

Credit Suisse on Tuesday launched its Credit Suisse Gold Shares Covered Call ETN (NasdaqGM: GLDI), a strategy that provides long exposure to physical gold coupled with an overlay of call options.

The ETN, comes with an annual expense ratio of 0.65 percent, will have notional exposure to the bullion ETF SPDR Gold Shares (NYSEArca: GLD) while notionally selling monthly “out of the money” call options, the fund’s prospectus said.

The strategy is designed to enhance current cash flow through premiums on the sale of the call options. Those premiums will be received monthly in exchange for giving up any gains beyond 3 percent a month. In other words, the premiums would soften the blow if GLD were to face a sell-off, but that’s the extent of the fund’s downside protection.

There’s still growing uncertainty in the market on whether the 12-year-long gold rally has run its course, which makes Credit Suisse’s launch of GLDI timely, as the ETN represents a somewhat neutral view on gold.

ETNs are senior unsecured obligations; in this case, of Credit Suisse’s Nassau branch. Unlike ETFs, they have no tracking error, but, also unlike ETFs, they represent a credit risk. For example, if Credit Suisse ever faced bankruptcy, holders of GLDI would likely lose their entire investment.

Strike Price, Tech Talk

CBOE Looks to Broaden Appeal of VIX Products

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tradersmagazine logo Courtesy of Peter Chapman, Traders Magazine

CBOE Holdings, buoyed by the phenomenal success of options and futures contracts based on its Volatility Index, is ratcheting up its efforts to broaden their appeal.

“The volatility business is only eight years old, but we see terrific growth,” Ed Tilly, CBOE’s president and chief operating officer, told a gathering of reporters in New York recently. “We see hedge funds, prop trading firms, (commodity trading advisors), insurance companies and other institutional users migrating to the product. It’s very important for us.”

As part of its marketing, CBOE is emphasizing to money managers and traders the growth of liquidity in the instruments and the attractiveness of adding a volatility component to their portfolios.

The exchange operator also plans to provide European institutions with direct access to CBOE matching engines, 24 hours a day, 5 days a week.

The Volatility Index, or VIX, is a measure of the market’s expectation of stock market swings over the next 30 days, as determined by the performance of options on the Standard & Poor’s 500 Index. Trading in both contracts has soared in the past three years, with growth in the futures product especially dramatic.

Last year, average daily volume in VIX futures—traded at the CBOE Futures Exchange—reached 95,000 contracts, up from 5,000 in 2009. Average daily volume in VIX options—traded at the Chicago Board Options Exchange— reached 443,000 contracts, up from 132,000 in 2009. All this while overall options volume fell in 2012 and volatility itself was relatively muted. Continue reading →

Tech Talk

New Kid on the Trading Block Promises Sell Side Revolution

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marketsmedia logoCourtesy of  MarketsMedia

A new trading venue, which is set to launch across Europe at the end of the first quarter, claims it will revolutionize how sell-side firms can execute block trades.

Called Squawker, the new London-based negotiation venue aims to allow sell-side firms to execute block trades anonymously using social-networking technology by helping firms find liquidity.

“Squawker is all about introducing buyers and sellers together and putting them into a private negotiation to agree trades,” said Christopher Gregory, co-founder and chief executive of Squawker.

And in its latest move, Squawker has just signed a partnership with financial data vendor SIX Financial Information to provide real-time pan-European market data via SIX’s Market Data Feed, allowing Squawker participants to execute pan-European block trades always at the consolidated mid-price and consolidated volume-weighted average price (VWAP).

Squawker, which will be classed as a ‘discretionary system’ and regulated as an investment firm under MiFID rules—and not as a multilateral trading facility—claims it will be unique in its ability to provide best execution for the sell side at the consolidated mid-price and consolidated VWAP.

On Squawker, sell-side firms will be able to negotiate and trade large blocks of shares without causing ‘information leakage’ and exposing the trades to predatory high-frequency trading firms who would thus move the market against such orders.

“Squawker has the potential to redefine the way the market trades block sizes,” said Martin Cole, managing director of SIX Financial Information.

“No longer will firms need to slice up their large trade sizes and drip them slowly into the market over a period of time, risking impact cost or the unwanted attention from detrimental algorithmic flow.”

For the full story, please visit MarketsMedia

ETF News

BlackRock Chief Says Investors Using ETFs to Buy Stocks

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etftrends logo imagesCourtesy of Tom Lydon

Exchange traded funds are one of the most popular vehicles that investors are using to buy stocks. Passive funds tracking U.S. stocks are gaining popularity as equity markets are on the mend, according to BlackRock’s chief executive.

“What we are seeing, and the industry overall, are still a majority of flows moving more into passive,” Larry Fink, CEO of New York-based BlackRock (NYSE: BLK), said in a recent report. [BlackRock Sees Secular Shift to ETFs]

BlackRock’s ETF suite iShares had attracted $759 billion in ETF inflows. Stock ETFs for iShares drew in $30.1 billion in inflows over the fourth quarter of 2012 alone, reports Alexis Leondis for Bloomberg. Active stock funds lost $5.4 billion over the same time period. [ETFs Boost BlackRock Profit]

Last week, equity based mutual funds drew in $17.8 billion in new money, the highest since 2007. The U.S. equity market had been dodged since the financial crisis in 2008. Institutional investors generally favor ETFs, while retail investors still favor mutual funds. This pattern is expected to tilt with more individual investors using ETFs as the tax benefits and lower fees become more evident.

“Analysts agree the big sums moving into stock-based mutual funds represent a change from last year, when investors yanked a total of $129 billion out of equity funds while pouring $258 billion into fixed-income funds,”Johanna Bennett wrote for Barron’s.

“I’m not here to say people are bullish and rerisking,” Fink said. “If they’re not bearish on the world, but not bullish, they probably have overallocation to bonds, and they’re probably looking and re-orienting that.” Continue reading →

ETF News

A Gun-ETF? Don’t Shoot the Messenger..

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247images

Editor Note: MarketsMuse strongly advocates President Obama’s recently-proposed gun control legislation. The following article is consistent with our focus to remain fair and unbalanced while re-distributing relevant, 3rd party news stories impacting the ETF and options marketplaces.

They say that there is an exchange traded fund for just about every investment strategy out there. So how about a “pure gun” ETF? There are aerospace and defense ETFs, but not an ETF geared mostly around guns, bullets, and accessories for them. This may seem silly on the surface, going into efforts from the White House and legislation for stricter gun control and an assault weapons ban. If not an ETF, what about a closed-end fund? In all seriousness, this investment strategy could have some merit, regardless of how gun control plays out.

For starters, a Wall Street Journal poll showed that President Obama’s efforts (or Vice President Biden’s efforts) face a very tough road ahead in Congress. What if no ban at all passes through the House and Senate? Many democrats are said to be mixed on this issue, and Republicans are generally (and arguably) considered to oppose gun control efforts.

One thing that really stands out is that this is not formally gun control, at least that is how to think of it if you only listen to words rather than interpreting words and phrases. After all, Obama and Biden are more than careful in avoiding the phrase “gun control” in each and every speech and each and every statement. That is called spin, and is really no different from avoiding the term “global warming” in favor of the newer term “climate change.”

So what would a pure gun ETF actually look like? For starters, the stock ticker GUN is not taken. Other possible tickers that are not taken include NRA, SHOT, MOW, RIFL, ARAK, AKAR, KILL, SEMI and SNYP. There are three aerospace and defense sector ETFs: PowerShares Aerospace & Defense (NYSEMKT: PPA), iShares Dow Jones U.S. Aerospace & Defense (NYSEMKT: ITA) and SPDR S&P Aerospace & Defense (NYSEMKT: XAR). This might sound a lot like being close enough to a gun ETF, but if you review the top 10 holdings of each ETF there are literally no companies that are deemed to be mostly “gun” companies.

Smith & Wesson Holding Corp. (NASDAQ: SWHC) is a pure-play gun stock. It was founded in 1852 and its brands and products are known as Smith & Wesson, the M&P, the Thompson/Center and Walther. Its fiscal 2012 sales were $412 million and net income from operations was $44.9 million, with a final net income of $16.1 million.

Sturm, Ruger & Co. Inc. (NYSE: RGR) was founded in 1948 and is based in Southport, Connecticut. This is another pure play in the gun industry with the Ruger name. Fiscal sales were almost $329 million in 2011, with income from operations and net income of $40 million.

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Tech Talk
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marketsmedia logoCourtesy of MarketsMedia.com

Just 18 months after it shut down its nascent Twitter-based hedge fund, Derwent Capital Markets is back with its new offering—with the launch of what it says is the first social media-influenced trading platform.

The new spread-betting platform, called DCM Dealer, which went live from this week, includes a feature that calculates a real-time sentiment rating for individual stocks based on the millions of tweets that are generated on Twitter every day.

This scraping of social media sites to help traders predict the direction of markets is beginning to take off in the finance world, although London-based DCM says that theirs is the first such trading platform to be launched.

“Investors have already accepted for some time that financial markets are driven by greed and fear,” Paul Hawtin, founder and chief executive of DCM Capital, told Markets Media.

“What it will effectively do is allow a trader and investor for the first time to see underlying sentiment in that instrument in real time.”

Of the 8,000 equities, FX and commodities instruments that it follows, DCM Dealer gives each a rating of between zero and a maximum of 100.

“If someone is interested in Vodafone shares, we search for every single tweet with anything to do with Vodafone in it,” said Hawtin. “So the keyword is Vodafone, or any of the senior management team, and then what we do is we have a waiting system.

“So tweets that have more relevant keywords have a higher rating than tweets that would be less relevant—such as someone tweeting about their poor Vodafone reception, for instance, which would have a low rating. Continue reading →

ETF News

ETFtrends: Are High-Yield Bond ETFs Overvalued After Big Run?

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etftrends logo imagesCourtesy of John Spence

Junk bond ETFs have enjoyed four solid years of returns while investors’ hunger for income-producing assets has pushed the sector’s yields down near record-low levels. As 2013 gets underway, some investors are again wondering if high-yield corporate debt is overvalued after such a strong run.

The only problem is that investors don’t have too many other options when it comes to finding yield with the Federal Reserve committed to keeping rates low for a couple more years.

“With record fund inflows in 2012, investors clearly have an appetite for high-yield bond funds,” says Morningstar analyst Timothy Strauts. “The strong investor demand lowered credit spreads, and the high-yield category returned over 14% last year. While yields have been falling, high yield is the only bond category with a 12-month yield still above 5%.”

SPDR Barclays High Yield Bond (NYSEArca: JNK) and iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) are the largest ETFs that invest in high-yield corporate debt. The funds were big sellers in 2012 and allow investors to buy a basket of high-yield bonds with one trade and low fees.

The sector’s rally has pushed the average yield on speculative grade bonds below 6% for the first time ever. [Junk ETFs Highest Since 2008]

Fed-fueled bubble?

“One of the aims of the Federal Reserve interest rate policy is to increase risk-taking across the capital markets. High yield is one of the main beneficiaries of the Fed’s current policy. With yields of investment-grade securities below 3%, investors have been forced to look elsewhere for income. Many institutional investors that in the past only chose investment-grade bonds have been buying high yield to meet their return targets,” says Strauts at Morningstar. Continue reading →

Strike Price

Options Market Poised For Pick-Up; Institutional Managers Re-Focus Risk Strategies for 2013

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tabb forum logoThe Outlook for 2013

Uncertainty around the elections, low volatility and anemic volumes in the equity markets drove the first year-over-year decline in options trading volume since 2002. But bright spots such as weekly and mini options portend a stronger 2013.

Despite the options market doldrums in 2012, TABB Group believes the volume retreat is a temporary phenomenon, especially when compared to trading activity in the “abnormal” market environment of 2011. The use of US-listed options by institutional investors remains in its infancy, and their adoption will only expand in the future. Latent demand from institutional investors that are just beginning to explore the role of equity options as a part of their portfolio strategies will drive volume in 2013 and beyond.

Weekly options will continue to expand their footprint in 2013 , and the pending March launch of mini options is also expected to drive volumes into 2013, especially from smaller retail accounts that have been largely absent from the options market in recent years. After initially launching for a handful of high-priced stocks, exchanges can be expected to quickly expand the list of names in the program. Trading interest from retail accounts will attract the interest of institutional accounts, especially accounts using relative value and quantitative strategies.

To read the full article from TABB Group, please click here

ETF News

BlackRock To Buy Credit Suisse European ETF Business

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reuters(Reuters) – BlackRock Inc has won the bidding for Credit Suisse Group AG’s European exchange-traded fund business, according to a source familiar with the situation.

The deal is expected to be announced shortly, said the source, who declined to be identified because the deal is not yet public. The value of the deal could not be determined.

A BlackRock spokeswoman and a Credit Suisse spokeswoman declined to comment.

Credit Suisse put its $17.6 billion ETF unit up for sale in October, sources told Reuters at the time.

In November, Credit Suisse said it was integrating its private banking and asset management divisions into a new wealth management unit.

BlackRock and State Street Global Advisors, the asset management arm of State Street Corp, were among the companies bidding for the business, but State Street dropped out of the bidding in December.

Credit Suisse is the fourth largest ETF provider in Europe, with 58 ETFs and a 5.3 percent market share as of December 31, according to ETFGI, a London-based ETF research firm.

BlackRock is the largest ETF provider in Europe, with more than 42 percent of the $331 billion European ETF market. Its 202 European iShares ETFs had $139.6 billion in assets as of December 31, the research firm said.

Credit Suisse’s ETF business would be the second international ETF business BlackRock has acquired in the past several months.

BlackRock bought Toronto-based Claymore Investments, a Canadian ETF operation, from Guggenheim Partners LLC, in March.

“This acquisition shows BlackRock’s further commitment to being the dominant player in ETFs in every market they are in,” said Dave Nadig, director of research at IndexUniverse LLC, a San Francisco-based firm that tracks ETFs.

In October, BlackRock Chief Executive Laurence Fink told Reuters it was looking at a “fill-in ETF acquisition in another country.

(Reporting By Jessica Toonkel; editing by Carol Bishopric)

ETF News

China Approves Government Bond ETF to Grow Debt Market

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bloombergCourtesy of Bloomberg LP

China approved the introduction of its first exchange-traded fund of government bonds as policy makers seek to expand the nation’s debt market.

Guotai Asset Management Co.’s exchange-traded fund of Chinese sovereign debt will be listed on the Shanghai Stock Exchange and benchmarked against an index of five-year government bonds, according to a statement posted to the website of the China Securities Regulatory Commission yesterday.

The fund will be “a bridge” that allows individuals to invest in government debt traded on China’s interbank market, from which they are barred, Pei Xiaohui, fixed-income head at Guotai, was cited as saying by news website Sina.com.

China’s interbank market had 22.2 trillion yuan ($3.6 trillion) of outstanding debt at the end of November, according to Chinabond, the nation’s bond clearinghouse. That compared with 449 billion yuan of debt on stock exchanges where retail investors are allowed to trade, according to Chinabond.

Policy makers may allow more types of bonds to be traded on stock exchanges in a bid to boost volumes on the bourses, the Shanghai Securities News reported Dec. 26. That may include depositary receipts that allow debt currently tradable only on China’s interbank market to also be traded on exchanges, according to the report.

To contact Bloomberg News staff for this story: Aipeng Soo in Beijing at asoo4@bloomberg.net

ETF News, People Profiles

ETF Trading Desk Head Says: “Risk is On…Today..”

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Courtesy of the ETF Professor at Benzinga.com

U.S. equities and other riskier assets are in rally mode in the first trading session of 2013 after lawmakers finally got around to agrbenzinga-logoeeing on legislation that steered the U.S. away from the dreaded fiscal cliff. News that a deal was in the works ignited a rally on Monday while news that the cliff will be dodged has done the same today as the Dow Jones Industrial Average is up about 230 points at this writing while the Nasdaq Composite is sitting on a gain of 2.3 percent.

The tenor of Wednesday’s U.S. trading session is clearly risk on, so much so that before 10:30 AM Eastern time, the overall value of equities and ETFs traded was $73 billion, according to data provided by ETF execution firm WallachBeth. New York-based WallachBeth noted that only trading day in all of 2012 – December options expiration – saw equity value traded exceed $70 billion in the first hour of trading.

Chris Hempstead, WallachBeth Capital
Chris Hempstead, WallachBeth Capital

In a note to clients, WallachBeth Director of ETF Execution Services Chris Hempstead highlighted intense buying activity “on the ask” in several marquee broad market ETFs. Buying on the ask could be described as “panic buying” to some extent as traders that are willing to buy on the ask price being shown are indicating they are willing to pay up to acquire shares of a particular stock or ETF. The more times the ask price is hit, the more intense a rally becomes.

Read the full story at Benzinga.com