Archives: April , 2013
ETF News, Tech Talk

PSX to Re-Launch as ETP Market in May

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tradersmagCourtesy of Tom Steiner-Threlkeld

Nasdaq OMX Group said it expects the re-launch of its PSX exchange as an exchange-traded fund marketplace to take place in May.

Final approval of the refashioning the “price size exchange” as a “price time” exchange focused on exchange-traded products must come from the Securities and Exchange Commission.

The exchange operator hopes to encourage trading in a wider variety of ETPs by created two types of market participants — Registered Market Maker and PSX Supplemental Liquidity Providers — which will take ”affirmative quoting” obligations.

PSX also intends to create competition among market makers, by offering the largest rebate to a Lead Market Maker. Other registered market makers can compete for that designation and while making markets in ETPs receive rebates, at a lower level.

Rebates to liquidity providers can be as high as $.0028 per added share, according to a PSX pricing page. Fees to remove liquidity start at $0.0030 per .

”PSX is a key piece of our larger strategy to better service the ETP industry with a platform designed to incent high-quality liquidity, market incentive programs and ETP-specific functionality.” said Eric Noll, Executive Vice President of Transaction Services U.S. and U.K. at Nasdaq OMX, in a statement Monday.

The relaunch of PSX will create a second market that is focused on ETPs. NYSE Euronext’s Arca exchange currently operates as an ETF-focused exchange. NYSE Arca has both the largest market share in exchange-traded trading among national exchanges and 93 percent of ETP listings.

The move comes roughly 2 1/2 years after PSX was created as a Price Size Exchange that would give priority to the size of an order over the speed of arrival.

Nasdaq OMX CEO Robert Greifeld at the time called this the “most fundamental change in market structure” since the launch of the all-electronic Nasdaq Stock Market itself in 1971.

But the idea that “size matters’’ never took hold. In February, PSX accounted for three-fourths of one percent of total equities trading in the United States.  For the entire story from TradersMagazine, please click here

ETF News

SSgA Launches World’s 1st Inflated-Linked ETF for EM Bonds

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Courtesy of Chris Flood at FT.com

State Street Global Advisors has launched the world’s first exchange traded fund that provides exposure to inflation-linked debt inimages emerging markets, a rapidly growing asset class that is attracting interest from international investors.

The SPDR Barclays EM Inflation-Linked Local Bond Ucits ETF has been listed on the Deutsche Börse, with a further listing on the London Stock Exchange expected shortly. Scott Ebner, global head of product development for SSgA, said the new ETF would provide a simple solution for investors keen to access a previously difficult segment of the fixed income market.

“Investors are increasingly looking for ways to diversify their emerging markets exposure beyond traditional equity allocations and are cognisant of prospective inflationary pressures,”said Mr Ebner. SSgA surveyed 128 pension professionals and asset managers across Europe in March and found that three-quarters expected global inflation to rise over the next three years. Nearly 70per cent said that inflationary pressures would be higher in emerging markets than in the developed world.

Fewer than a fifth (19 per cent) of those surveyed by SSgA said that it was easy to access EM inflation-linked bonds. However, almost half (47 per cent) said that they planned to increase their exposure to emerging market debt over the next three years.

The market for EM inflation-linked debt has grown strongly over the past 10 years. The outstanding total of debt is at almost $600bn, providing sufficient size, depth and liquidity for an index-based investment approach. The new ETF tracks the Barclays EM inflation-linked 20% capped index, which includes inflation-linked sovereign bond issued by Brazil, Mexico, Chile, South Africa, Poland, Turkey, Israel, Korea and Thailand.

ETF News, People Profiles

ETF Titan Trader Joins Spartan Race To Battle Leukemia & Lymphoma; Obstacle Course Competition To Raise Cash For Cures

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mccormondlls
Spartan Andrew McOrmond

Editors Note: MarketsMuse is not just an ETF and Options market news aggregator, as we take pride in spotlighting the off-market activity of trading Industry professionals who “do good by giving back.”

MarketsMuse is pleased to extend a Bravo! and a “bid on” to WallachBeth Capital Managing Director and ETF Execution Specialist Andrew McOrmond as he completes his rigorous 8-week training  in advance of his race to raise money and awareness for the Leukemia & Lymphoma Society Team, as they compete in the June 2  Spartan Race in Tuxedo, NY.

For those not familiar with the Spartan Race format, think “Special Forces on Steroids”;  these are 5 kilometer events in which competing Spartans race against the clock over a military-style obstacle course replete with mud pits, rope climbing, rock climbing, and barbed wire barriers, before crossing the finish line.

Noted McOrmond, “From a competition standpoint, this is going to be a real fight to the finish, but we’re fighting to help save lives–particularly the hundreds of thousands of people who are diagnosed with blood cancer. ” McOrmond says that his take-away objective from this event is “to raise at least $12,500, and be able to get out of bed the next day!” So far, courtesy of friends, co-workers and even trading desk competitors, McOrmond’s “pre-market order book” has already reached $7500 in commitments. MarketsMuse encourages our visitors to click on this link and “bid on”

[youtube http://www.youtube.com/watch?v=KvJQDHPQzGM&w=280&h=160]

ETF News

BlackRock Opens Bond ETFs Aimed at Institutional Clients

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bloombergCourtesy of Bloomberg LP

BlackRock Inc. (BLK), the largest provider of exchange-traded funds, is opening four fixed-income ETFs today with defined maturity dates to appeal to institutional investors such as bank treasurers.

BlackRock’s iSharesBond ETFs, which invest in a basket of investment-grade corporate bonds, have set expiration dates when the portfolios will be liquidated and payouts made to investors, according to Matt Tucker, head of iShares’ fixed-income strategy team at New York-based BlackRock. The funds, maturing in 2016, 2018, 2020 and 2023, provide monthly income and may be favored by clients with specific liquidity needs in a climate of low yields and volatile interest rates, according to the firm.

“For some institutional investors, the idea that an ETF never matures or liquidates has been a hurdle,” Tucker said in a telephone interview yesterday. “These funds have the pricing and liquidity of an ETF plus the finite life you get with an individual bond portfolio.”

BlackRock, whose $3.9 trillion in assets make it the world’s biggest money manager, said first-quarter profit rose 10 percent as investors flocked to its equity iShares products. President Robert Kapito said in February the firm will continue to grow through fixed-income ETFs, which represent less than 0.5 percent of the $98 trillion global bond market. BlackRock created a series of lower-fee ETFs in 2012, and in March it announced a partnership with Fidelity Investments to sell more iShares funds directly to retail investors.

For the full story from Bloomberg LP, please click here

ETF News, Global Macro Strategy, People Profiles

Wall St. Traders Take a Break to Jump Through Hoops; Bloomberg LP Shout-Out for Autism Speaks Raises Big Bucks

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According to Nielsen Ratings, Bloomberg LP’s 1st Annual Market Madness 3-on-3 Charity Basketball Tourney, which took place on April 8th at Pier 36’s Basketball City, did not draw as many eyeballs as the NCAA Men’s National Basketball Championship held on the same night, but the event did bring out 25, 3-man teams representing the top trading and broking desks on Wall Street in a one night event that attracted 200 spectators and raised tens of thousands of dollars for Autism Speaks™.

bloomberg3x3
Bloomberg LP’s April 8 Market Madness at Basketball City in NY

In a post-event 360, Carrie Cliggett, the Bloomberg LP Market Madness event coordinator stated, “We’re thrilled to have had Wall Street’s top firms participate and so many fans turn out for what we look forward to be the first of many charity-focused seasons for Market Madness.” Ms. Cliggett was unable to comment as to whether Bloomberg TV might carry next season’s tournament on its broadcast network.

derschbloomberg
Former UVa Champ and WallachBeth Mgn.Dir. Willie Dersch

Mixed in among squads from the “6-Pack firms”, there were more than a dozen trading and brokerage desks on the court, including 2 squads from ETF and options broker WallachBeth Capital. The team’s 6’6 player-coach Willie Dersch, a former co-captain of University of Virginia’s men’s basketball team (’00) was side-lined for the event due to injury, but inspired his team from the bench by offering tips to WB’s senior squad members Gene Cushman, Dana Martin, and Scott Saunders.

Noted Dersch, “Nobody can discount the talent that came out to compete; the best part was helping a really important cause.” WallachBeth also courted a junior team of rising Wall Street stars, comprised of 6’5 options desk associate Luke Greene, 6’2 power forward and ETF trader David Shaw, and trading desk guards Derek Sellhausen and Lee Blieberg.

Bloomberg LP underwrote all of the costs associated with producing the event and each team contributed a minimum of $1000 to participate. Bloomberg’s Cliggett would not comment on rumored matching contributions made by Bloomberg LP, its founder and New York City Major Michael Bloomberg, or Bloomberg CEO Daniel Doctoroff, but it is widely-known that Bloomberg executives have a propensity to ‘bid on’ in connection with company-endorsed philanthropic programs. The final tally raised for Autism Speaks ™ is therefore expected to be in the tens of thousands for this single-night program.

ETF News

Did You Say “Biotech!”? Unheralded and Under The Hood

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benzinga-logoCourtesy of SeekingAlpha and Benzinga.com ETF Professor

Another day, another set of fresh all-time highs for the major biotechnology ETFs. Biotech investors were treated to the same feat in late March, but as healthcare has continued to be a market-leading sector, faster-moving biotech funds have flourished.

Heading into the start of trading Thursday the Market Vectors Biotech ETF (BBH) was leading the way with a year-to-date gain of over 21 percent. The iShares Nasdaq Biotechnology Index Fund (IBB), the largest biotech ETF by assets, has not been a slouch with a gain of 20.5 percent while the First Trust NYSE Arca Biotechnology Index Fund(FBT) has returned 19.7 percent this year.

The SPDR S&P Biotech ETF (XBI), an almost equal-weight play on the sector, has jumped 15.2 percent.

All are higher by at least 1.3 percent in midday trading and all are touching new all-time highs. With performances like that combined with the notion that four biotech ETFs are probably enough, it is easy for other funds to get lost in the shuffle.

Such is life for the PowerShares Dynamic Biotechnology & Genome Portfolio (PBE), though that does not mean PBE is a bad ETF. Quite the contrary. PBE was up 14.8 percent year-to-date at the start of trading Thursday. Less than months shy of its eighth birthday, PBE also joined the new all-time high club today.

In a crowded field of biotech ETFs, a fund such as PBE that does not reside among the previously mentioned big four needs to stand out in some way. PBE does that. For starters, PBE is not dominated by the big four biotech stocks. Those being Amgen (AMGN), Biogen (BIIB),Celgene (CELG) and Gilead Sciences (GILD). Continue reading →

ETF News

Where to Swim In Advance of Rising Rates: Floating Rate ETFs

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seekingalphalogo Courtesy of ETF Trends’ John Spence and Tom Lydon

ETFs that focus on floating rate notes and senior bank loans have been gathering a lot of cash lately as fixed-income investors position for rising interest rates and inflation.

For example, iShares Floating Rate Note ETF (FLOT) has more than tripled in size since the beginning of the year to $1.4 billion in assets.

On Monday alone, the BlackRock ETF had large inflows reaching nearly $500 million, according to WallachBeth Capital. The floating rate note fund ranks second on the list of best-selling ETFs the past week. “Suppressed interest rates and central bank asset purchases have seen bank loan ETFs grow in popularity, as investors look for ways to adjust with inflation,” said Chris Hempstead, WallachBeth’s Head of ETF Execution in a recent note to the firm’s clients.

Similarly, PowerShares Senior Loan Portfolio (BKLN) has been extremely popular so far in 2013 as investors look for bond ETFs that provide protection from rising interest rates.

BKLN has experienced net inflows of $1.7 billion year to date, according to IndexUniverse data, taking total assets to $3.2 billion.

BKLN is designed for investors “who may be looking for floating-rate bonds to protect against rising interest rates,” Morningstar analyst Timothy Strauts writes in a report on the ETF. “Most investors’ portfolios are dominated by fixed-rate bonds. The biggest risk that fixed-rate securities face (aside from default) is the potential for rising interest rates. An easy way to minimize this risk is to diversify a bond portfolio by adding exposure to floating-rate securities.”

BKLN has a 30-day SEC yield of 3.94%. Continue reading →

ETF News

Is a #Bitcoin ETF Next??

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etftrends logo imagesCourtesy of ETF Trends’ Tom Lydon

Bitcoins, a type of highly encrypted digital currency, are surging on a wave of speculation and demand for alternative currencies as central banks continue to print.

Could we soon see the launch of a Bitcoin ETF? It’s an interesting idea, but experts say don’t hold your breath.

Bitcoins, which trade hands online, have surged over 14% in the past week, reports Jeff Cox for CNBC. The digital currency has jumped to $250. The Bitcoin is a type of decentralized digital currency based on a peer-to-peer network and can be exchanged through computers internationally without a financial intermediary. The system was first introduced by developer Satoshi Nakamoto in 2009.

As the digital currency gains momentum, some have floated the idea of a ETF backed by Bitcoins. Alternatively, Bitcoins could be a candidate for the exchange traded note structure, but the sponsoring bank would have to be willing to back the appreciation or depreciation of the Bitcoin currency. What started off as a joke, may not seem like a joke at all.

“With global BitCoin exposure north of $2 billion and global currencies on the verge of a valuation war one has to wonder how this new asset is going to make its way into our lives,” said Chris Hempstead, director of ETF execution services at WallachBeth Capital.

Nevertheless, Hempstead does not believe Bitcoins can be structured to fit the ETF vehicle. For instance, if a Bitcoin ETF were to act like another currency offering, it would require futures contracts.

“You’d need securities that are based in Bitcoins,” Hempstead said. “Since the Bitcoin is unregulated and no futures exist, an ETF is not possible today.”

For the full article from ETF Trends, please click here

ETF News

Credit Suisse ETF sale sparks outflows

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ftimesCourtesy of FT’s Madison Marriage

 

BlackRock’s move to buy Credit Suisse’s exchange traded fund arm has triggered heavy outflows from the unit, experts say.

In January, the US fund house announced it had entered into an agreement to buy Credit Suisse’s ETF business for an undisclosed amount, subject to regulatory approval.

However, Credit Suisse registered $655m (€511m) of outflows from its ETFs over January and February, data from consultancy ETFGI show – the heaviest withdrawals of any ETF provider in Europe during that period.

The redemptions were more than triple the total ETF outflows ($208m) the Swiss company experienced over the entire 2012. Credit Suisse Asset Management has €13.5bn of ETF assets.

Experts say the withdrawals are a result of uncertainty generated by the BlackRock deal, as well as investor demand for provider diversity and declining interest in Credit Suisse’s gold ETFs.

Deborah Fuhr, managing director at ETFGI, says: “[The outflows] are really down to the fact that [Credit Suisse] announced it is selling the business. “Based on the uncertainty of what will happen, people decided not to put more assets in. It is not surprising that they would redeem from these products.”

BlackRock and Credit Suisse both declined to comment on the outflows.

For the entire story from FT, please click here (subscription may be required)

ETF News

A Kosher ETF Courtesy of Market Vectors

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benzinga-logoCourtesy of Benzinga.com ETF Professor/SeekingAlpha

Van Eck’s Market Vectors unit, the fifth-largest U.S. ETF issuer by assets under management, has filed plans with the Securities and Exchange Commission to possibly introduce the Market Vectors Israel ETF.

The prospectus filed with the SEC includes ticker and expense ratio information, indicating Market Vectors could be close to bringing the fund to market. The Market Vectors Israel ETF will trade on the New York Stock Exchange under the ticker “ISRA” and have an annual expense ratio of 0.59 percent, according to the filing.

ISRA will compete directly with the iShares MSCI Israel Capped Investable Market Index Fund (EIS), which recently turned five years old.

ISRA will track the BlueStar Israel Global Index, which is a rules based, modified capitalization, free-float adjusted weighted index intended to give investors a means of tracking the overall performance of publicly traded companies that are generally considered to be Israeli companies, according to the filing.

There will be at least one major difference between the new Market Vectors Israel ETF and EIS: Weightings. Teva Pharmaceuticals (TEVA) accounts for 22.2 percent of the total weight in EIS, but no stock accounts for more than 12.5 percent of ISRA’s index.

For the full story at SeekingAlpha, please click here

ETF News

Beware of Index Funds That Aren’t

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wsjlogoCourtesy of Michael Pollock, Wall Street Journal

Index funds aren’t always what you think they are. And your innocence could cost you.

To most investors, of course, index funds are passive investments, providing returns that basically mirror the market they are designed to follow. They charge low fees and carry no hidden costs.

But the old definition is starting to change. Unlike simpler, earlier generations of index and exchange-traded funds, new variations are morphing into products that risk putting many investors afoul of the old rule about not investing in things you don’t understand.

As more money flows toward indexing, some fund firms are trying to capture a share of it by creating complex ETFs that blend active management and indexing. The fees charged by some of these funds can be several times those charged by traditional index funds. And, because they sometimes specialize in very narrowly defined, less-active markets, they can wrack up hidden trading costs.

Consider one newer, complex index fund, IQ Hedge Multi-Strategy Tracker, a four-year-old ETF from IndexIQ Advisors LLC that tries to duplicate the returns of hedge-fund investments. For example, when hedge funds go “short” in a certain market, betting that prices will decline, IQ Hedge mimics that activity by taking a short position in an ETF that focuses on that market. Hedge funds follow lots of complex strategies in many different markets, however, and IQ Hedge tries to copy many of them simultaneously.

It requires considerable expertise to know how to use such an index fund effectively in a diversified portfolio. “Investors who aren’t sophisticated in sector rotation and asset allocation might be making a mistake to invest in some of these new, complex products without understanding what’s inside each fund,” says Anthony Hohmann, who oversees ETF analytical products at S&P Capital IQ, a unit of McGraw-Hill Cos.

That doesn’t mean the newer funds aren’t worth looking at. But before you buy, here are some things to consider.

For the balance of the WSJ article, please click here

Strike Price

California Pension Fund Manager Catches On to Options To Plug Gaps; Covered Call Writing Boosts Returns 50%

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tradersmagazine logo  Courtesy of Peter Chapman

MarketsMuse Editor Note: This is a late post; the original article was published Mar 21. Given the use of options as a means to enhance returns for pension funds has remained ridiculously under-explored by fiduciaries since listed options were introduced 4 decades ago, now that public pension plans are struggling, perhaps Sacramento will prove to be a pioneer.

For the past 18 months, the City of Sacramento has been writing covered calls and buying the occasional put. It trades options primarily to enhance its yield, but also to preserve principal.

John Colville is the city’s portfolio manager. “A big objective of our portfolio is fixed-income interest and dividend payments,” Colville explained. “We needed to augment that. And you can’t do it in bonds or the stock market.”

Colville manages about $300 million of the city’s $2 billion in pension assets. Of that, about $135 million is invested in equities. The rest is comprised of fixed-income securities.

Of that $135 million in equities, Colville writes calls against $70 million to $90 million during any given month. He uses a mixture of options on indexes, exchange-traded funds, and individual stocks.

The decision to incorporate options into his investment strategy was not taken lightly. Most pension plans abhor options because they are not well understood and conjure up images of gambling. But a yawning gap between the plan’s assets and liabilities gave Colville’s investment board the courage it needed to take the plunge.

Based on data provided by Colville, in the 18 months from July 2011 to December 2012, Sacramento’s options program proved successful. The yield in its large portfolio jumped 50 percent, from 2 percent to 3.2 percent, as a result. The yield on its international portfolio more than doubled to 4.8 percent Continue reading →

ETF News

Nasdaq Sets Q2 Launch for ETF Market-Maker Incentives

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tradersmag  Courtesy of Tom Steinert-Threkeld

Nasdaq OMX Group said Wednesday that it will be able to launch its planned program for paying market makers to trade in particular exchange-traded funds.

The Market Quality Program will launch by the end of June, Nasdaq OMX said Wednesday. The Securities and Exchange Commission in March approved the plan on a pilot basis.

Under the program, sponsors of exchange-traded funds will be able to contribute funds to Nasdaq, which in turn can be used to pay market makers to incent them to handle particular funds.

The sponsor will pay Nasdaq OMX an annual fee of $50,000 to $100,000 per ETF, in addition to standard listing fees. The market quality program fee can get rebated, under certain circumstances. Rebates will be made quarterly.

Payments, according to a note to traders, will be made if a market marker:

  • Maintains quotes at or better than the National Bid and Best Offer (NBBO) for 25% of the trading day for 500 shares;
  • Posts a market with a bid no less than 2% away from the best bid and an offer that is no greater than 2% away from the best offer 90% of the trading day; and
  • Provides an aggregate of 2,500 shares of displayed liquidity on the bid side and an aggregate of 2,500 shares of displayed liquidity on the offer side.

An ETF is no longer in the program when trading achieves average volume of 1 million shares a day for three months in a now. Continue reading →

Tech Talk

Trading Technology Vendor Touches ETF Space; Game-Change Create/Redeem Widget for APs and Execution Desks

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MarketsMuse team picked up on recent news release from broker-neutral OMEX Trading Systems that included a brief mention of a new feature [built by special request] that analyzes whether its cheaper to effect a “create” vs. executing in the ETF cash market, and implements the create through a basket-trade application.

Other new system enhancements from this boutique trading system and DMA provider include an assortment of new FIX connections to various clearing and custodian destinations, an updated menu of algorithms, a widget for multi-custodian trade allocation, DMA to futures markets, more listed options trading tools (including unlimited-leg option spread orders), updates to charting and Level II displays, and a range of updates to the OMEX back-office, accounting, compliance and risk management modules.

According to OMEX Chief Operating Officer John Houlahan, “Its becoming harder for us to stay “below-the-radar”, only because we are increasingly displacing various trading system vendors who merely offer components, as opposed to an all-in-one solution that delivers uniquely robust front-end DMA, OMS and EMS functions, as well comprehensive risk management tools, compliance, reporting and accounting modules for broker-dealers, as well as for select hedge funds and RIAs.”  Keep reading for the link to the release.. Continue reading →

ETF News

The Risk On Rally That Keeps on Ticking: Benzinga

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benzinga-logo Courtesy of Marketwatch/Benzinga.com

It seems like whenever the rally in the S&P 500 is discussed, at least when it is talked about in positive terms, it is associated with favorite Wall Street vernacular such as “risk on” and “animal spirits.”

With the SPDR S&P 500 SPY -0.39% up almost 41 percent in the past three years, including dividends paid, it is not illogical to think risk on has ruled the roost over that time.

A closer examination of sector ETFs paints a different picture. As was highlighted on Monday, the Consumer Discretionary Select Sector SPDR XLY -0.62% has been the standout of the nine sector SPDRs funds over the past three years. Thing about XLY is the ETF has a beta of one against the S&P 500 and annualized volatility of 16.88 percent.

Said another way, XLY is not the most volatile, nor is it the riskiest ETF out there. Simply put, this has been a risk off rally and it has been that way for three years. Returns accrued by sector ETFs prove as much.

High Beta Disappoints…Sort Of. Here is a trivia question: Excluding XLY, which is the only sector SPDR that is perceived as a high-beta play to outpace SPY over the past three years? Answer: The Energy Select Sector XLE -0.13% . XLE has topped SPY by 350 basis points over that time while being 660 basis points more volatile.

The 23.1 percent gain for the Materials Select Sector SPDR XLB -0.85% only look good in comparison to the 19.4 percent gain for the Financial Select Sector SPDR XLF -0.49% . Those ETFs have betas of 1.22 and 1.23, respectively, against the S&P 500. Continue reading →