All posts by MarketsMuse Staff Reporter

ETF News, Tech Talk

Nasdaq OMX Plan: Convert PSX Exchange to ETF Exchange

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Csecurities technology monitorourtesy of Tom-Steinert-Threkeld

Nasdaq OMX Group plans to re-launch its PSX exchange as a “better trading venue” for exchange-traded funds, notes and other related products, as early as next month.

The exchange will execute trades in all National Market System securities, but will give special incentives to retail and institutional investors to participate as well as special benefits to firms that register as market makers, committing to make continuous two-sided quotes on exchange-traded products.

Neither a filing with the Securities and Exchange Commission nor a Nasdaq official with its Transaction Services division describe the incentives that will be given to investors to place orders on PSX nor the benefits that will be provided market makers.

“The unique features that will make PSX compelling we can’t go into today,’’ the Transaction Services executive said Tuesday afternoon. “We are keeping that under our hats for a couple weeks.”

Nasdaq OMX PHLX, the formal name of the exchange, filed a document dated March 8, 2013, describing its plan to changeover PSX to an exchange that “in all material respects” has rules for handling buy and sell orders that mirror those at Nasdaq OMX’s other two exchanges.

These are the Nasdaq Stock Market, which handles about 16.5 percent of all equities trading in the United States, and Nasdaq BX, which has as its differentiating factor the payment of rebates to market participants who remove liquidity from its market.

The move to match rules among all three Nasdaq exchanges means that orders at PSX will be handled in what is known as price-time priority. This favors the speed at which orders arrive. Continue reading →

ETF News, People Profiles, Strike Price

New High For $SPY Despite Mixed Market Signals; Corps Issue $20 Bil In Debt So Far This Week..and, its Only Tuesday !

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MischlerLogo Nov 2012Refreshing Market Commentary courtesy of Ron Quigley, Mgn.Dir./Head of U.S. Syndicate Desk & Primary Sales for Mischler Financial Group.

With Washington in full-out gridlock, Americans should be turning to the best national news, namely corporate profits.  Corporations are driving the resurgence in equity markets posting overall fabulous earnings.  The flight to under-owned equities has also helped the DOW reach what today represented a new all-time high when it screamed past the previous record high of 14,164 set back on October 9, 2007 at the open.  The DOW closed today’s session at 14,253 or 89 points above its previous record.  The S&P meanwhile, is closing in on its all-time high of 1,565 also set on October 9, 2007, sitting a mere 26 points away ending the session at 1,539.

Today’s pair of economic data releases conveyed a mix message about the shape of the U.S.A.  On one hand, the Institute for Supply Management’s (ISM) Non-Manufacturing Business Survey painted a bright picture indicating that segment of the nation’s economic activity grew for the 38th consecutive month.  It was the highest such reading since the 56.1 registered in February of 2012.  Construction is showing some signs of improvement as are financial and insurance companies among others.  However, in the push-me/pull-you that characterizes much of the data we see, today’s Economic Optimism Index dipped by 5.1 points versus the prior while remaining over 5 points behind its annual average.  Readings above 50 point to optimism, below it – pessimism.  The Index is comprised of three component parts namely, a six-month economic outlook, a personal financial outlook and confidence in federal economic policies.  All three categories posted declines. This month 60% of respondents indicate they believe the economy is in a recession.

So there it is…..more contradictory information to make our day a little brighter.  Heck, my barometer of optimism is if I get all my work done in one day, can start from a clean slate the next and read a bed-time story to my six year-old daughter well then, things are looking good.

On another note, Hugo Chavez is dead and you all know what that means……..you can now go ahead and buy gas at your local Citgo station.  Pleasant driving people!

Here a re-cap of today’s economic data releases: Continue reading →

ETF News, Strike Price

Generating Income with ALPS’ New Put-Write ETF ($HVPW)

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etftrends logo imagesCourtesy of Max Chen

ALPS Portfolio Solutions has launched a new exchange traded fund that provides investors with income through selling put options on the largest U.S. stocks with the highest volatility.

The U.S. Equity High Volatility Put Write Index Fund (NYSEArca: HVPW) tries to reflect the performance of the NYSE Arca U.S. Equity High Volatility Put Write Index, which tracks a portfolio of exchange-traded put options on the largest capitalized stocks that have listed options with the highest volatility, according to ALPS. HVPW has a 0.95% expense ratio.

The ETF will sell 60 day listed put options every two months on 20 stocks. HVPW will also distribute out 1.5% of the ETF’s net assets at the end of each 60 days.

Rich Investment Solutions, LLC is the subadvisor to the ETF, which was launched under the ALPS ETF platform.

Kevin Rich of Rich Investment Solutions in a telephone interview said the ETF sells puts that are 15% “out of the money.” The fund tries to earn income through the options premiums. The ETF should do well when markets are trending higher or sideways, but could underperform in strong rallies and sell-offs. “It’s definitely an income strategy,” Rich explained. Continue reading →

ETF News, People Profiles

ETFs Spike Above 30% of Market Trading as Euro Fears Return: ETF Trends

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etftrends logo imagesCourtesy of John Spence, ETF Trends

The percentage of ETF trading relative to overall volume tends to shoot higher in headline-driven markets when asset classes are moving together on macroeconomic or political events.

That’s exactly what happened on Monday when global markets swooned on fears parliamentary elections in Italy will result in political gridlock. After months of simmering on the back burner, Europe’s debt crisis roared back into the news. [Italy ETF Swings Lower on Berlusconi, Election]

On Monday, ETFs accounted for 32% of overall dollar volume, and there have been multiple sessions in the past week when the share rose above 30%, says Chris Hempstead, director of ETF execution services at WallachBeth Capital.

Chris Hempstead WallachBeth Sep 2012 321
Chris Hempstead, WallachBeth Capital

“It’s rare when ETF volume goes above 30%,” he said in a telephone interview Tuesday morning.

Hempstead said he has seen the figure approach 40% on some days during the past few years.

“ETF trading spikes when people think events are highly correlated and macro in nature,” he noted. “When stock pickers are having a tough time and market correlations rise, that’s when we see the ETF percentage of overall volume start to creep up.”

For example, trading volume in volatility-linked ETFs soared in Monday’s risk-off attack as investors looked for shelter and hedges. The CBOE Volatility Index has jumped 54% in a week. [Volatility ETF Trading Surges on Market Jitters, VIX]

“When the percentage of ETF trading in markets pops, a lot of it is people putting on trades to hedge bets. It’s not buy-and-hold,” Hempstead said. Continue reading →

ETF News

Healthcare ETFs–Free Prescriptions Here…

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seekingalphalogobenzinga-logo   Courtesy of “The ETF Professor”–his work appears courtesy of Benzinga.com, and is also re-distributed through leading publishers

Conservative investors and risk-takers alike have been rewarded for owning U.S. health care stocks and ETFs focusing on those names in recent years.

The data supports that assertion. A look at three major health care ETFs, all of which do things a little bit differently, shows significant out-performance of the S&P 500 over various time frames.

For example, the Health Care Select SPDR (NYSE: XLV) is up 30.3 percent in the past five years compared to 12.3 percent for the S&P 500.

Since December 2011 when it became a Market Vectors fund, Market Vectors Pharmaceutical ETF is up almost 20 percent. The iShares Nasdaq Biotechnology ETF (NASDAQ: IBB) has nearly doubled in the past five years.

Bottom line: Investors have done well when staying at home with U.S. health care stocks, but that does not mean there are not global opportunities worth considering. After all, some of the biggest health care companies in the world are not U.S. firms.

France’s Sanofi (NYSE: SNY) and Israel’s Teva Pharmaceuticals (NASDAQ: TEVA) stand as just two examples.

Here is a look at some international developed market health care ETFs to see if going global with this sector is a better idea than staying domestic.

Read more: http://www.benzinga.com/trading-ideas/long-ideas/13/02/3357973/are-global-health-care-etfs-worth-prescribing#ixzz2LfCheYiO

 

ETF News

Franklin Templeton Planning First ETF, IndexIQ Files For Two US Equity Funds

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etfdb images Courtesy of Carolyn Pairitz

While the U.S. markets continue their bull run to baffle even the best investors on Wall Street, the ETF market has started to take off in the last two weeks, with a number of new funds entering the space. After the slow down of new funds since mid-January, the solid economic data being released from around the world has helped issuers recognize that now is a great time for new funds. For some institutions its their first time venturing into the industry, while others are just adding to their army, as both Vanguard and IndexIQ have  filed interesting proposals with the SEC [see ETF Database Launch Center].

California-based mutual fund firm, Franklin Templeton has filed for their very first ETF to meet the growing needs of their investors:

  • Franklin Short Duration Government ETF: This actively-managed ETF will own U.S.-issued debt, ranging from Treasuries to mortgage-backed securities to create a shorter duration portfolio of bonds. Focusing on shorter duration bonds could prove to be a very popular investment theory, as many investors are starting to hedge their funds against the eventual rise in U.S. interest rates.
IndexIQhas laid the groundwork for two new domestic equity ETFs focused on driving growth and innovation:
  • IQ Fastest Growing Companies ETF: This ETF will invest in 50 quickly growing U.S. companies, to be determined by a number of factors including sales, net income, cash flow growth and total return. This strategic exposure to companies that not only currently have high growth indicators but also have featured high returns in the past, may interest investors who are looking for a bit of a riskier play on the U.S. equities market.
  • IQ Innovation Leaders ETF: Using a rule-based proprietary benchmark, this ETF is intended to invest in 100 companies that are seen as innovative based on their sales growth, research and development of assets and expenses, along with retained earnings growth. Another requirement of inclusion, these growing firms need to have a market cap of at least $300 and be a U.S. firm.
ETF News

Benzinga Asks: Is This ETF Home to Buffett’s Next Target?

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benzinga-logoCourtesy of the ETF Professor at Benzinga.com

The $28 billion purchase of ketchup king H.J. Heinz (NYSE: HNZ) by Warren Buffett’s Berkshire Hathaway (NYSE: BRK-A) and Brazilian financier Jorge Paulo Lemann has had a predictable result. Traders and investors want to know who is next; what company will be Buffett’s next elephant?

Buffett has an enviable problem: Berkshire’s cash hoard. Even after committing $12.1 billion for Heinz, Berkshire still has $15 billion left to go shopping with, and that number grows by the month according to Bloomberg.

By his own admission, Buffett’s thirst for big deals, or “elephants” as he calls them, is not quenched. That likely means traders and investors are already trying to figure out what company could be next on Berkshire’s shopping list.

As has been previously noted, ETFs ranging from the Market Vectors Coal ETF (NYSE: KOL) to the Industrial Select Sector SPDR (NYSE: XLI) are home to some potential Berkshire targets.

Following the Heinz deal, another ETF has jumped to the forefront of the Berkshire deal speculation conversation. That ETF is the PowerShares Dynamic Food & Beverage Portfolio (NYSE: PBJ). Shares of PBJ, which is home to almost $111 million in assets under management, have jumped 2.2 percent in the past week and are now trading at an all-time high.

The ETF’s recent bullishness is due in large part to the Heinz deal because that stock is is PBJ’s largest holding, accounting for 5.7 percent of the fund’s weight. To be fair, some of PBJ’s recent upside has come by way of Constellation Brands (NYSE: STZ), another top-10 holding in the ETF, making a deal with AnheuserBusch InBev (NYSE: BUD) that gives the former rights to sell Corona and other Grupo Modelo beer labels in the U.S.

Still, near-term ebullience pertaining to PBJ is likely to be fueled by speculation that the ETF is home to another Buffett acquisition candidate. Including Heinz, PBJ is home to 30 stocks. Of the remaining 29 stocks, eliminating unlikely Berkshire targets is not difficult.

Read more: http://www.benzinga.com/trading-ideas/long-ideas/13/02/3345461/is-this-etf-home-to-buffetts-next-target##ixzz2LNs9azVR
People Profiles, Strike Price

Laszlo Birinyi Now Says “Equities Markets are Headed…

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nytlogo379x64

Courtesy of Jeff Sommer, New York Times

THE economy may be lurching into another crisis, but you wouldn’t know it from the stock market, where an epic party is under way.

Yet this effervescence belies some ominous developments in politics and the economy. After the State of the Union address by President Obama on Tuesday — and the negative reaction to it among many Republicans in Congress — it seemed quite possible that $1.2 trillion in automatic government spending cuts might begin in just a few weeks, delivering yet another blow to an already lackluster economy. Most economists had expected minimal growth this year, even without a new shock from Washington — or from Europe or anywhere else.

These apparently conflicting pictures pose a quandary for market strategists. Which signals should an investor emphasize: the signs of disharmony in Washington and the negative indicators for the economy, or the upward trend of the stock market?

For Laszlo Birinyi, the veteran strategist and longtime market bull, the contest isn’t close. He says he starts by assuming that the market is smarter than any analyst. “We focus on the market itself, on what it is actually telling us,” he said.

In September 2009, when very few strategists were overtly bullish, Mr. Birinyi, president of Birinyi Associates, the stock market research firm in Westport, Conn., told me that we were in the early stages of a classic bull market. That analysis was prescient. The S.& P. 500 has returned more than 50 percent since then.

In a conversation last week, he said we were Continue reading →

ETF News

Biggest Buyers Stampede From Junk Bonds on Loss:

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bloombergCourtesy of Lisa Abramowicz

The biggest buyers of junk bonds are in retreat as exchange-traded funds suffer unprecedented withdrawals with the debt facing its first losses in eight months.

The outflows sent the combined value of the five biggest junk-debt funds down 7 percent from a four-month high in January to $29.8 billion, according to data compiled by Bloomberg. State Street Corp.’s $11.9 billion fund reported withdrawals of about $988 million in the 12 days ended Feb. 13, the longest stretch since August 2011.

A pullback three times bigger than that for mutual funds which cater to individuals suggests investors such as hedge funds and banks are cherry picking rather than investing in the broader market, said Peter Tchir of TF Market Advisors. Almost six years after the first high-yield ETF was created, the funds have been drawing the interest of institutions seeking rapid entries and exits with securities that traditionally were traded over the counter.

Investors who poured $8 billion into junk ETFs in 2012 when the securities gained 15.6 percent are fleeing as Morgan Stanley strategists predict the debt will return 3.1 percent this year, less than its coupon. Dollar-denominated junk bonds lost 0.4 percent in the week ended Feb. 6, when the funds reported an unprecedented $1.1 billion of withdrawals, according to Bank of America Merrill Lynch index data.

Prices are dropping from a record 105.9 cents on the dollar on Jan. 25 as concern deepens that values are unable to go much higher with interest rates rising from record lows and after four years in which average annualized returns reached 21.6 percent, compared with 3.6 percent losses in the preceding period.

For the complete Bloomberg LP story, please click here

Tech Talk

NYSE Adds #Social-Sentiment to Data Feed–Wacky or Wily?

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securities technology monitorCourtesy of Laton McCartney at Securities Technology Monitor

Editor note: this story is from the Believe It or Nuts aka If you’re a twit you should tweet Dept.

NYSE Technologies said it will begin distributing sentiment statistics based on social media postings, through its SuperFeed market data service.

The statistics, developed in conjunction with Social Media Analytics, will be distributed through NYSE Euronext’s Secure Financial Transaction Infrastructure, which reaches market participants in the United States, Europe and Asia.

The Sentiment Signature Feed can be fed into trading analyses and automated decision-making processes, the companies said. The feed will draw on a feed from Twitter, known as the “fire hose,” which generates 500 million Tweets a day.

As part of the agreement, NYSE Technologies’ subscribing customers can access data from SMA’s social media monitoring engine. SMA’s engine extracts, evaluates and calculates data in real-time to attempt to generate directional and volatility indications on individual stocks, exchange-traded funds, sectors of the economy, and indices by measuring the level and quality of social media interactions on social media sources compared to historical levels.

SMA’s engine seeks to create a social media “signature,” consisting of seven statistical indicators generated by the comparisons: a score, an average, a change, the volatility, the buzz and the “dispersion” of the social media commentary.

Social Market Analytics is a Naperville, Ill.,firm founded last year by financial Professionals who create databases and ways to analyze their contents for hedge funds, money managers, and investment banks. The company has a patent pending on its social media monitoring engine.

Start- up SMA is headed by former Thomson Reuters executives, Fady Harfoush and Joseph Gits. Last year it began beta tests of a set of products designed to convert social media data, Twitter posts into quantifiable and actionable indicators for traders and trading algorithms to use as part of their strategies. Continue reading →

ETF News, People Profiles

James Grant: Short $LQD Before Bonds Fall

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indexuniverseCourtesy of Olly Ludwig

Sooner or later the bond market is going to start falling, and a perfect exchange-traded vehicle to play the unraveling of the more than three-decade rally in fixed-income markets is “LQD,” a corporate bond fund that happens to be one of the largest fixed-income ETF in the world, James Grant told attendees at IndexUniverse’s Inside ETFs conference this week.

But Grant, the editor and publisher of Grant’s Interest Rate Observer, said that while he is short the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSEArca: LQD), it’s terribly difficult to time such trades, as markets are “unreliably efficient” and “reliably inefficient” and, moreover, the Federal Reserve’s loose-money policies since 2008 essentially mean that interest rates are not in a free market.

Grant’s comment about LQD came in response to a question from IndexUniverse Chief Executive Officer and founder Jim Wiandt, who introduced Grant and asked what investors—faced with the prospect of the end of a secular bull market in bonds since the early 1980s—should now do.

“Short,” said Grant. “I’m short something called LQD.”  The ETF, the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSEArca: LQD) is quite liquid and has $24 billion in assets under management.

Grant, a longtime critic of the Fed and a proponent of a return to the gold standard, was the grand finale at the 6th Annual Inside ETFs conference, which took place in Hollywood, Fla. from Feb. 10-12. The event, which has become the see-and-be seen event in the world of ETFs, was attended by nearly 1,300 people, most of them financial advisors and fund sponsors. Continue reading →

ETF News, Strike Price

Hedge Is The Word For 2013-ETFs For the Risk-On Risk-Off Universe

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seekingalphalogo

Courtesy of Brad Zigler. This article first appeared in the February 2013 issue of REP/WealthManagement.com.

In 2013, the market for alternative investment exchange-traded products seems to revolve around one word. That word is “hedge.” Judging by their proportion of regulatory filings and launches last quarter, product sponsors are keen on risk-controlled equity and bond plays.

No surprise there, really. After all, we’re just emerging from one of the most volatile periods in market history. Investors – and their advisors – are still a little dizzy after being buffeted by the frets of an impending “fiscal cliff,” a meltdown of the eurozone, further ballooning of the federal deficit and fears of potential asset bubbles.

Overall, the prospects for 2013 are mixed at best. Stocks, while not the raging bargains they were during the recent recession, may still be attractively priced, but their dynamics have changed. The recent equity rebound has largely been market driven. Value plays, starting in early 2009 as corporate profits widened, are now becoming sparse. Currently, the market is reacting more to political influences such as Fed policy and the deficit debate, causing some pundits to forecast an even riskier environment ahead. With such prospects, they say, a little hedging and bond buying seems prudent. Exchange-traded product manufacturers are happy to oblige.

Hedged Equity

Funds and notes geared to dampen market volatility have proliferated in the wake of the 2008-2009 crash. Some have enjoyed extraordinary success attracting assets. Witness, for example, the Invesco PowerShares S&P 500 Low Volatility Portfolio (SPLV), which has pulled in more than $3 billion since its May 2011 debut. SPLV is essentially a passive hedge. The fund mirrors a 100-stock portfolio, carved from the S&P 500 Index, representing issues with the lowest 12-month trailing volatility.

Invesco now offers investors a more sophisticated approach to managing volatility with its December 2012 launch of the PowerShares S&P 500 Downside Hedged Portfolio (PHDG). Like SPLV, the new PowerShares fund invests in U.S. stocks but hedges downside risk through futures contracts linked to that well-known “fear gauge,” the CBOE Volatility Index (VIX). Continue reading →

ETF News, People Profiles

Boutique ETF Broker Eyes Growth of ETF Market in Europe; WallachBeth International Brings US Approach to London

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marketsmedia logoCourtesy of MarketsMedia.com

The burgeoning exchange-traded funds sector in Europe is expected to grow still further in the coming years, after the industry recently celebrated its 20th birthday.

ETFs, which are funds that track baskets of shares, bonds or commodities and are traded like stocks, were invented in 1993 in the U.S. and have been on an upward growth trajectory ever since due to their low costs and simplicity since they generally track established indexes.

“ETFs started in the U.S. and they’ve certainly been embraced there by everyone from institutions to retail,” said James Ryan, vice-president, institutional sales and trading at WallachBeth International in London, a U.S. brokerage firm which brought its best execution ETF trading model to Europe last year.

jrETF team
James Ryan, WallachBeth International

“We set up in Europe for a couple of reasons. Firstly, we expect growth of the ETF market in Europe and second, we don’t think anyone is doing exactly what we do. You have other brokers, but our desk is ETF-centric.”

A recent study by ETF provider State Street Global Advisors (SSgA), the asset management unit of State Street, which surveyed 260 European corporate pension plans and 41 U.K. active fund managers, found that 39% had no holdings of ETFs at all while a further 32% held less than 10% of their portfolios in ETFs.

“Despite strong growth in the ETF business globally over the past 20 years, the European ETF business remains relatively small compared with the wider mutual funds and U.S. ETF businesses,” said Scott Ebner, global head of ETF product development at SSgA.

However, almost half of the European corporate pension plans surveyed by SSgA said that they planned to increase their allocations to ETFs over the next five years while 42% of the U.K. active fund managers indicated that they would also increase their ETF usage in future.

“The whole of Europe is starting to see more products and is embracing ETFs slowly,” said Alan Roldan, institutional sales and trading at WallachBeth International.

Alan RoldanWallachBeth International
Alan Roldan
WallachBeth International

“People like Vanguard [one of the largest ETF providers] have also set up over in Europe from the U.S.. That’s a good indication we are not the only ones who feel that way.”

The ETF sector is seen as more opaque in Europe, with as much as 70% of trades enacted over-the-counter. Trade reporting for ETFs in the U.S., in the form of a consolidated tape, is mandatory, although there are provisions for this to happen in Europe in the latest MiFID II proposals, but this is not likely to be enforced until 2015 at the earliest. And compared to the U.S., knowledge of ETF products generally is also seen as slightly lacking in Europe.

“Once education—getting acclimated to the product—and more transparency with the regulations happen, then that is going to be a massive catalyst,” said Roldan.

There also appears to have been a recent push by issuers of ETFs in Europe to target the retail sector, which has been relatively untapped so far.

“Once retail flow comes up that will also spur growth in the institutional market,” said Roldan.

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 →