Archives: August , 2014
Strike Price

Options Exchanges Prepare For Worst Cases; “Algos Gone Wild”

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NEW YORK (Reuters) – A year after Goldman Sachs <gs.n> bungled a software upgrade and lost tens of millions of dollars from unintended trades, the 12 U.S. stock options exchanges have crafted new rules for dealing with erroneous transactions, according to draft documents seen by Reuters.

Under the proposed rules, unintended trades placed by professional traders will usually have their prices adjusted to levels as close to their fair market value as possible, while wrong trades by retail customers will be mainly be undone, five sources with knowledge of the matter told Reuters.

The rules are meant to protect investors from algorithms gone wild and other sources of market turmoil. Regulators and exchange operators across equities, commodities and other markets have been taking steps to prevent mistaken trades from spiraling into collapses, a rising concern as trading grows increasingly automated.

Tech Talk

Broker Dealer News: African Bank Down Fall

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marketmuse.com blog post courtesy of extract from moneyweb.com and Robert Brand and Mike Cohen of Bloomberg

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South African companies’ borrowing costs risk increasing after African Bank Investments Ltd.’s failure exposed flaws in the continent’s biggest corporate bond market that prevented investors from selling the lender’s debt.

Continue reading →

ETF News, Global Macro Strategy

Macro Musing: Brother, Can You Spare A Dollar? $DXY A Rareview Sight Beyond Sight

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Below courtesy of extract from a.m. edition of Rareview Macro’s “Sight Beyond Sight”…   MarketsMuse Editor note: notwithstanding the ‘caveat’ immediately below re: focus on FX, for those who are chewing on Apple ($APPL), MarketsMuse editorial team recommends a full read of below

Neil Azous, Rareview Macro LLC
Neil Azous, Rareview Macro LLC

An astute friend and mentor once said: “Deciphering the tea leaves of macro is an art developed over time, not purchased in an online tutorial”. In our humble opinion, today’s edition of Sight Beyond Sight is a good example of reading the tea leaves.

The majority of today’s note is related to Foreign Exchange but has implications across all assets going forward. If you are not a dedicated FX investor and not interested in making or saving money read no further.

On a risk-adjusted return basis the overall trading ranges across regions and asset classes are narrower than normal. This is prime example of indecision or neutrality after a strong relief rally in risk assets, especially in Equities.

The one outlier is the US Dollar, which continues its march higher towards regaining its status as an “asset” currency once again. The US Dollar is stronger relative to 9 of the 10 currencies in the G10.

The Dollar-Yen (USD/JPY) and New Zealand Dollar (NZD/USD) both broke key technical levels overnight – the Yen as a result of Japan’s trade deficit widening by more than expected, on an unexpected rebound in imports, and the Kiwi because of another disappointing milk auction that will weaken the country’s Terms of Trade, as well as negative Producer Price Index (PPI) data, and a growth downgrade by its Treasury yesterday.  Continue reading →

ETF News, People Profiles

What’s Next? ETF for Wall Street Women

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MarketsMuse post courtesy of extract from Investors Business Daily..Editors clipped original headline: “Wall Street Women Touch Each Other: BrokerDealer ETF Gals Form “WE”

Linda Zhang, Windhaven Investment Mgt.
Linda Zhang, Windhaven Investment Mgt.

“When you put 40 smart and gorgeous women together, great things will just happen,” said Linda Zhang, senior portfolio manager at Windhaven Investment Management in Boston.

Earlier this year, Zhang helped to found Women in ETFs (WE), a platform for women in the industry to connect, support and inspire each other. The idea came about after she ran into an old colleague — Joanne Hill, head of institutional investment strategy at ProShare Advisors — during an Inside ETFs conference in Florida in 2013.

“We looked around this huge conference, there were very few of us who were women,” said Zhang, who is WE’s vice president. “We were convinced there were other people like us. We thought perhaps we can start something.”

Zhang and Hill discussed their idea with Sue Thompson, head of institutional asset management and RIA for BlackRock. Thompson, an industry veteran, responded excitedly. Soon, others came on board: Michelle Mikos, ETF business development director at Invesco PowerShares, and Deborah Fuhr, managing partner at ETFGI, a research firm in London.

On July 31, WE announced its nine-member board of directors. Besides Zhang, it includes Thompson and Hill as co-presidents, Fuhr as external organization liaison, and Mikos as secretary. Industry legend and securities attorney Kathleen Moriarty — nicknamed “SPDR Woman” for her role in the SPDR S&P 500’s ( SPY ) debut in 1993 — also serves on the board.

In recent months, WE has organized professional development events and launched a website as well as a LinkedIn group . The organization now has chapters in Boston, Chicago, New York, Philadelphia, San Francisco, Washington DC, Toronto, London, Paris and Frankfurt.

The Chicago chapter will launch in conjunction with the fifth annual Morningstar ETF Conference in that city on Sept. 17.
Read more: http://www.nasdaq.com/article/women-in-the-etf-industry-launch-a-group-of-their-own-cm381955#ixzz3AvkOuzeh

 

ETF News

Junk Bond Outflows VWEHX: Garbage To Some; A Gem To Others

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etfcomlogoAs Junk Bond ETF outflows accelerated in the past 6 weeks, MarketsMuse editor team has been intrigued by two most recent articles profiling where and whether it makes sense (and hence dollars) for high-yield bonds (and respective ETFs) within a portfolio.

Per articles today from RIA Larry Swedroe via ETF.com and front page of WSJ story by Katy Burne, profiling select institutional investors who are jumping in while retail investors jump ship, the yearn for yield remains a hotly-debated topic.

Swedroe says Nyet!: “Historically, the additional risk of high-yield bonds hasn’t been well-rewarded. And today, with credit spreads at historically low levels, the outlook doesn’t look promising. For the best risk-adjusted returns, investors are better off sticking with high-quality bonds.” Continue reading →

Global Macro Strategy

Macro-Strategist Speaks Out Re Summer Sleepiness?: A Rareview with Sight Beyond Sight

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Below extract courtesy of this a.m. edition of Rareview Macro LLC’s daily publication “Sight Beyond Sight”

Editor Note: Performance Speaks Louder Than Words, and the SBS model portfolio as of Aug 15 is a noteworthy +3.72% YTD (and 0.33% WTD) when compared to the universe of macro strategists who, according to news media, have been struggling (whether because of mis-timed moves, over-reaction to events, or completely missing the geo-political mark)

Neil Azous, Rareview Macro LLC
Neil Azous, Rareview Macro LLC

Many in the professional community have rebalanced their long positioning out of Europe or remain short on it against another region. The underbelly of the macro strategy is very weak and many are forgetting that unless the inflation metrics really weaken from here, there are multiple steps that will need to be taken before full-scale European style QE can be introduced. That means part of the recent spread compression, where investors bought on the view QE was imminent, needs to come out of the market. The same can be absolutely argued about Gold, since the backdrop of relative peace and the traditional correlation of the metal to Brent Crude Oil should bring the price down.

Interestingly, this de-escalation of risk is not a result of diplomacy by any party to the Ukraine or Iraq conflicts. Instead, it is the result of ongoing military progress on both regions. Continue reading →

ETF News

ETF Industry’s Spiderwoman Spins New Web To Advance Bitcoin ETF

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Spiderwomanmarketmuse.com blog post courtesy of extract from bloomberg.com and Christopher Condon

Tyler and Cameron Winklevoss are fighting for approval from regulators for their proposed bitcoin exchange-traded fund. They stand a chance because Spiderwoman is on the case.

So nicknamed for her work on State Street Corp.’s “Spider,” the first ETF when it came to market in 1993, Kathleen Moriarty is the lawyer attempting to shepherd the Winklevoss Bitcoin Trust through the U.S. Securities and Exchange Commission. The twins, famous for their dispute with Facebook Inc. founder Mark Zuckerberg, aim to roll out the first ETF that invests in a virtual asset, an idea that has its skeptics.

“She brings instant credibility to a less-than-credible investment product,” Todd Rosenbluth, director of mutual fund and ETF research at S&P Capital IQ. Continue reading →

ETF News, Strike Price

China To Add ETF Options to Menu of Shanghai Exchange Listed Products

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Below extract courtesy of Futures & Options World Aug 11 article by William Mitting  FOW_logo_-_The_Global_Derivatives_Magazine

 

ETF options could be launched in China as soon as this month as the country gears up for the full launch of options trading, a leading lawyer has said.

China is undergoing a widespread reform of its financial markets as it seeks to build Shanghai as a global financial centre and develop its capital markets.

The launch of options is seen as a key step in that development and the country’s main derivatives exchanges have been running mock trading since 2012.

Natasha Xie, a partner at the JunHe law firm and a key figure in the local derivatives market, said that some Chinese observers believe that ETF options could be launched this month.

In a recent press conference, Dang Ge, the press secretary of the China Securities Regulatory Commission, said that ETF options will be launched on the Shanghai Stock Exchange (SSE) imminently. Continue reading →

ETF News, Tech Talk

Technology Company Seeks to Shake Up the Way Corporate Bonds Trade

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Below extract courtesy of Wall Street Journal, as reported by Katy Burne 

Institutional equities-trading platform Liquidnet is preparing to launch a credit-trading network in the fall, following regulatory approval last week of its acquisition of high-yield bond platform Vega-Chi.

The initiative is the latest example of a technology company seeking to shake up the way corporate bonds trade, amid a challenging fixed-income trading environment and an increasing willingness by debt investors that traditionally use the telephone to buy and sell on electronic systems.

Liquidnet is privately held, with a majority interest owned by founder and Chief Executive Seth Merrin. Its purchase of Vega-Chi, announced in March, is scheduled to close Friday following approval of the deal in late July from the Financial Industry Regulatory Authority. Continue reading →

Tech Talk

Broker-Neutral Trading Technology Firm Offers New Suite of Sweet DMA Tools

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Below extract courtesy of Wall Street Letter, as reported by WSL staff columnist Sean Creamer

wall-street-letter-logoOMEX Systems, a provider of web-based, broker-neutral and FIX-compliant front, middle, and back office platforms for broker-dealers and buyside firms, will craft a direct market access offering to aid broker-dealers in choosing algo providers, according to John Houlahan, chief operations officer.

New York City-based OMEX , which introduced its OEMS (Order and Execution Management System) in 2009, is creating newly-enhanced functions for traders interested in setting up direct market access to allow brokerages to place and modify orders on a faster basis, noted Houlahan.

John Houlahan, OMEX Systems

“We are also building out functionality to facilitate direct market access clients via internal algorithmic parameter metrics,” said Houlahan. “We are building a DMA tool to allow broker-dealers to pick and choose various algo providers to place, modify, and monitor trades for intraday modification for cash desk, options, fixed income and futures.”

OMEX is also preparing to make its trading and execution functions available across the pond, so that global broker-dealers can have access to the offering, Houlahan said. The expansion comes on the heels of the firm being certified for use in the Mexican exchange network, he added.   Continue reading →

ETF News, People Profiles, Tech Talk

Agency BrokerDealer Enhances Offering for ETF Multi-Basket Trading

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Below courtesy of Aug 6 edition of Wall Street Letter, article written by staff reporter Sean Creamer 

wslWallachBeth to enhance multi-basket trading

 

WallachBeth Capital, a New York City-based agency brokerage, will enhance its existing portfolio and multi-basket trading in exchange-traded funds and other equities to make greater use of OMEX Systems, according to executive members of both companies.

The firm currently uses OMEX for trading in equities, including ETFs, and options, as well as critical middle and back office functionality but it will take on additional functionality from the vendor in order to propel the firm even further into multi-basket trading, according to Michael Wallach, CEO.

“What we are doing with OMEX is attempting to customize the trading technology so that we can have enhanced pre-and post-trade abilities and analytics for multiple basket orders and portfolio management,” said Wallach.

David Beth, President, WallachBeth Capital
David Beth, President, WallachBeth Capital

David Beth, President and Chief Operating Officer at WallachBeth, noted that add-ons would bolster the current system used for trading baskets.

“We are looking for state of the art analytics, coupled and bolted to the [execution management system] for pre- and post-trade analytics, as well as including the ability for traders to quickly be able to change strategies or algos during and after executing an order,” said Beth.

In preparation for this change, last month the firm hired Matthew Rowley as its chief technology officer, a veteran of Crédit Agricole and Fidessa, who will oversee the firm’s technology push and to enhance existing applications.

Wallach noted that adding this functionality won’t be burdensome, but will involve a re-routing of some client network connections.

For the full coverage, please visit the Wall Street Letter website (subscription required, but FREE TRIAL is available)

Continue reading →

ETF News

International ETF Launches Lead Growth of Exchange-Traded Funds; A Chinese Menu

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etfcomlogoBelow courtesy of extract from today’s ETF.com and their reporter Heather Bell.

Year-to-date through the end of July saw 118 fund launches versus 86 during the same time period last year. However, what’s notable about the increase in launches is the fact that it is driven almost entirely by international equity ETF. In the first seven months of 2014, 55 ETFs targeting that space made their debut versus a mere 25 international equity funds in the first seven months of last year. Among this year’s launches, there are some very clear themes in international equities.

At least 18 of those international equity ETFs could be considered smart-beta or factor-based funds, ranging from the Market Vectors International Quality ETF (QXUS) to the iShares MSCI Europe Minimum Volatility ETF (EUMV) to the JPMorgan Diversified Return Global Equity ETF (JPGE).

Currency Hedging In Vogue Continue reading →

Tech Talk

Chit Chat: BD’s Put Cross-Hairs on Bloomberg IM; Perhaps Perzo?

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Below courtesy of BrokerDealer.com blog post

As an instant update to the July 31 BrokerDealer.com profiling Blabber, the instant chat and messaging application created by Goldman Sachs as a possible industry replacement for the ubiquitous Bloomberg LP IM/chat service, we thank Silicon Valley Business Journal contributor Jason McCormick for his coverage below.

perzo imPerzo Inc., an instant-messaging service based in Palo Alto, is in negotiations for a possible sale to a group led by Goldman Sachs Group Inc., according to the Wall Street Journal.

The group of financial firms, including JPMorgan Chase & Co. and Bank of America Corp., is seeking an alternative to Bloomberg LP’s messaging service, which has become a dominant way for Wall Street traders to communicate.

The Journal reported that the group is mulling an investment between $40 and $50 million in the company, created by communications executive David Gurle. The company already has financial backing from Merus Capital, which was founded by former Google Inc. executive Sean Dempsey.

The talks come following a push by Goldman to ban its traders from using some instant-messaging services offered by Bloomberg and others, according to The Wall Street Journal.

Bloomberg is facing pressure after reports surfaced that journalists in its employ used the service to check on the activities of its users.

 

ETF News, People Profiles

ETFs with a Feminine Flair; $WIL She or Won’t She (Use these ETNs)?

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wsjlogoMarketsMuse Editor Note: We so greatly enjoyed today’s WSJ column from Daisey Maxey, we felt compelled to provide extracts below (The entire column can be found by clicking on logo to your left)

Catalyst Inc., a nonprofit focused on increasing opportunities for women in business, issued a report that shows that from 2004 to 2008, Fortune 500 firms with three or more female directors had an 84% better return on sales and a 46% better return on equity.

Call it the XX factor for investing.

It is an intriguing concept: investing in stocks of companies with female leadership. Backed by studies that say such companies perform better, fund companies are stepping in with investments that snub male-dominated companies, and bet on women

Barclays Women in Leadership ETN ($WIL). Investors pay for the privilege. The Barclays ETN charges an annual fee of 0.45% compared with a 0.10% fee for the SPDR S&P 500 ETF. SPY5.LN +0.10% Morningstar is generally not a fan of ETNs, says Mr. Goldsborough, citing credit risks and fees that can be hard for investors to understand.

“Everyone is talking about women in leadership,” says Barbara Byrne, vice chairman in investment banking at Barclays. The London bank has 80-plus ETNs, so the notes were the logical framework, and its research shows market demand, she says.

women inleadershipBarclays isn’t the only firm leaning in. Ellevate Asset Management LLC, owned by Sallie Krawcheck, former high-profile executive at Bank of America Corp. , teamed with Pax World Management LLC in June to launch Pax Ellevate Global Women’s Index Fund. It invests in companies that seek to advance women. The fund is the successor to Pax World Global Women’s Equality Fund, which was merged into it.

There are caveats to ETNs (which are unsecured debt) and to women-focused investing strategies. Female leaders are often appointed in times of poor company performance, so their posts may be precarious, say Michelle Ryan and Alex Haslam, professors at the University of Exeter in the U.K. That “glass cliff” could make such companies less attractive to investors, the researchers say. Continue reading →

Global Macro Strategy, People Profiles

The Bears Are Coming! The Bears Are Coming! The Bears Are Here!!

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wsjlogoBelow courtesy of excerpt from Mark Hulbert’s column in the WSJ Weekend Journal (Aug2-Aug3)

Over the past 45 years, the stock market has lost more than 20% each time three warning signs flashed simultaneously.

After a selloff this past week dragged the Dow Jones Industrial Average into negative territory for the year, it’s worth noting that all three are flashing today.

The signals are excessive levels of bullish enthusiasm; significant overvaluation, based on measures like price/earnings ratios; and extreme divergences in the performances of different market sectors.

They have gone off in unison six times since 1970, according to Hayes Martin, president of Market Extremes, an investment consulting firm in New York whose research focus is major market turning points.

The S&P 500’s average subsequent decline on those earlier occasions was 38%, with the smallest drop at 22%. A bear market is considered a selloff of at least 20%, with bull markets defined as rallies of at least 20%.

In fact, no bear market has occurred without these three signs flashing at the same time. Once they do, the average length of time to the beginning of a decline is about one month, according to Mr. Martin.

The first two of these three market indicators—an overabundance of bulls and overvaluation of stocks—have been present for several months. As long ago as December, for example, the percentage of advisers who described themselves as bullish rose above 60%, a level Investors Intelligence, an investment service, considers “danger territory.” Its latest reading, as of Wednesday, was 56%.

Also beginning late last year, the price/earnings ratio for the Russell 2000 index of smaller-cap stocks, after excluding negative earnings, rose to its highest level since the benchmark was created in 1984—higher even than at the October 2007 bull-market high or the March 2000 top of the Internet bubble.

The third of Mr. Martin’s trio of bearish omens emerged just recently, which is why in late July he advised clients to sell stocks and hold cash. That’s when the fraction of stocks participating in the bull market, which already had been slipping, declined markedly. Continue reading →