• 15 Oct 2013 at 4:45 PM

Shutdown Watch, Day 15: It’s A Glitch!

The CBOE hasn’t had the easiest time extending VIX trading hours, but, for once, the further delay is not its fault. Read more »

The CBOE is extending VIX futures trading hours later this month, but not before curtailing them in the sort of unplanned, glitchy way we’ve come to know and love from our securities exchanges. Read more »

Are circumstances making you a little uncomfortable about 30-day volatility bets? Thinking that the next two-and-a-half weeks may bring some mayhem that requires serious fine-tuning of your portfolio? Well, the CBOE has a timely new product for you, set to debut in less than an hour!

The owner of the biggest U.S. options market today introduced the CBOE S&P 500 Short-Term Volatility Index that tracks nine-day options on the Standard & Poor’s 500 Index. The company’s most famous gauge, the CBOE Volatility Index, or VIX, measures 30-day options on the S&P 500….

Starting this month, VIX futures will be available for trading from 3 a.m. to 4:15 p.m. New York time every weekday, with an additional session from 4:30 p.m. to 5:15 p.m. on Monday through Thursday, CBOE said yesterday. A software update to prepare for the shift caused a malfunction that shut CBOE’s main market for 3 1/2 hours in April, prompting the company to delay the trading-time changes.

The price of the short-term index announced today will be revealed once daily at 4:15 p.m. New York time, with updates every 15 seconds beginning later this year, CBOE said.

The company created the nine-day VIX, based on weekly S&P 500 options that expire every Friday, amid surging demand for volatility products as U.S. stocks climb to record highs. Once options and futures linked to the index are made available, traders will gain another way to speculate on — or hedge their assets in advance of — short-term events.

Unless you are currently vacationing at a national park, it looks like you’re taking the shenanigans in Washington in stride. And if you happen to be a non-essential, furloughed government employee, the new owner of the Washington Post has a jobs program that could keep about 10% of you busy should this thing extend into 2014. Read more »

“Self-regulation is a unique and fundamental component of federal securities regulation in the United States,” the SEC begins its order against the CBOE announced today, but it’s also a little silly. It’s right there in the name! If you’re doing it yourself, it’s not regulation; it’s just some stuff you’re doing. Regulation is being forced to do what you don’t want to do. And who better to force you to do what you don’t want to do than a voluntary organization that relies on your business to pay its salaries? Lots of people probably.

“CBOE agreed to pay a $6 million penalty and implement major remedial measures to settle the SEC’s charges,” from which you’d think there was a lot of terrible malfeasance. But not really? The order is more like a list of minor harmless-ish lawlessness by CBOE, albeit a long and varied list. As best I can tell it grew out of a sequence of events something like the following:

  • A CBOE member firm, optionsXpress, engaged in a mildly complicated naked short selling scheme in violation of Regulation SHO.1
  • CBOE didn’t catch it because, basically, they were dolts at Regulation SHO. From the order:2

Read more »

  • 24 May 2013 at 3:25 PM

Citadel Would Like The Fees It Wrongly Paid Back

We’re going to guess that the options exchanges being sued by Citadel and three other firms plan to dispute the following statement. Read more »

  • 13 May 2013 at 2:41 PM

S&P Keeps Monopoly On Way To Count

The Dow Jones Industrial Average is a very stupid measure of the stock market for at least two reasons, which are (1) it is an average of only 30 big stocks and (2) it is weighted by share price, an entirely arbitrary number, rather than market cap or equal weighting or anything at all sensible. Was Mr. Dow an idiot? Probably not? He was just a guy inventing indices in 1896, when computers couldn’t fit in your pocket and were pulled by horses.1 Back then, to get a stock market average, some schmuck had to actually go look at a ticker tape for each stock price and then do the averaging on a … I’m gonna say an abacus? (Slide rule? HP 12C?) So “add up 30 stock prices and divide by 30″ seemed like a good plan; “take the float-adjusted market-cap-weighted average of 500 stock prices” did not. You can’t really fault Mr. Dow for the choices he made at the time he made them.

It is now 117 years later and nobody really uses the Dow anymore except, like, everybody, but people do use the S&P 500 index, which has the advantage that it’s a reasonable enough index of the thing it is an index of. But as with the Dow, a certain sense of “ooh the clerk is working so hard to calculate all these averages” still clings to the S&P, even though that’s obviously false. The clerk is a computer and it’s so bored calculating stock indices that it’s mining bitcoins on the side just to feel something.

I think that has something to do with this CBOE vs. International Securities Exchange dispute over S&P 500 (and DJIA!) index options. The CBOE lists such options; the ISE doesn’t but wants to. So the CME and McGraw-Hill, which together own the S&P 500 index, and the CBOE, which licenses it for options trading, sued in Illinois courts and got an injunction saying nobody else could use the index to list options. And today the CBOE finally totally won its case when the Supreme Court refused to hear it, leaving the Illinois court’s injunction in place, and thus leaving CBOE with a monopoly over derivatives on the S&P 500.2 Here’s CBOE’s gloating.

There’s no opinion from the Supreme Court and there’s a lot of goofball copyright preemption law involved; the Illinois court decided the case not on (federal) copyright law, but on … I dunno, this: Read more »

  • 07 May 2013 at 5:09 PM

CBOE Taking Its Time To Figure Things Out

The CBOE is going to move a little less expeditiously on extending the trading day to avoid further unplanned truncations of the trading day. Read more »

This is getting tiresome. Read more »