How to Analyze and Supervise a Managed Futures
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Did Spillovers from Europe Indeed Contribute to the 2010 U.S. Flash Crash?
No. 622 / January 2019 Did Spillovers From Europe Indeed Contribute to the 2010 U.S. Flash Crash? David-Jan Jansen Did Spillovers From Europe Indeed Contribute to the 2010 U.S. Flash Crash? David-Jan Jansen * * Views expressed are those of the authors and do not necessarily reflect official positions of De Nederlandsche Bank. De Nederlandsche Bank NV Working Paper No. 622 P.O. Box 98 1000 AB AMSTERDAM January 2019 The Netherlands Did Spillovers From Europe Indeed Contribute to the 2010 U.S. Flash Crash?* David-Jan Jansen a a De Nederlandsche Bank, Amsterdam, The Netherlands This version: January 2019 Abstract Using intraday data, we study spillovers from European stock markets to the U.S. in the hours before the flash crash on 6 May 2010. Many commentators have pointed to negative market sentiment and high volatility during the European trading session before the Flash Crash. However, based on a range of vector autoregressive models, we find no robust evidence that spillovers increased at that time. On the contrary, spillovers on 6 May were mostly smaller than in the preceding days, during which there was great uncertainty surrounding the Greek sovereign debt crisis. The absence of evidence for spillovers underscores the difficulties in understanding the nature of flash events in financial markets. Keywords: flash crash, spillovers, financial stability, connectedness. JEL classifications: G15, N22, N24. * This paper benefitted from discussions with Sweder van Wijnbergen as well as from research assistance by Jack Bekooij. Any errors and omissions remain my responsibility. Views expressed in the paper do not necessarily coincide with those of de Nederlandsche Bank or the Eurosystem. -
Cracks in the Pipeline 2
MEDIA CONTACT: Lauren Strayer | [email protected] 212-389-1413 FINANCIAL PIPELINE .o rg Series CRACKS IN THE PIPELINE 2 HIGH FREQUENCY TRADING by: Wallace C. Turbeville his is the second of a series of articles, that increase the inefficiency of Capital Intermediation and entitled “The Financial Pipeline Series”, its cost. The increased volumes in the traded markets are examining the underlying validity of the largely a result of high-speed, computer driven trading assertion that regulation of the financial by large banks and smaller specialized firms. This article markets reduces their efficiency. These illustrates how this type of trading (along with other activ- articles assert that the value of the finan- ities discussed in subsequent articles) extracts value from cial markets is often mis-measured. The the Capital Intermediation process rendering it less efficient. efficiency of the market in intermediat- It also describes how the value extracted is a driver of even ing flows between capital investors and more increased volume creating a dangerous and powerful capital users (like manufacturing and service businesses, feedback loop. individuals and governments) is the proper measure. Unreg- Tying increased trading volume to inefficiencies runs ulated markets are found to be chronically inefficient using counter to a fundamental tenet of industry opponents to Tthis standard. This costs the economy enormous amounts financial reform. They assert that burdens on trading will each year. In addition, the inefficiencies create stresses to the reduce volumes and thereby impair the efficient functioning system that make systemic crises inevitable. Only prudent of the markets. regulation that moderates trading behavior can reduce these The industry’s position that increased volume reduces inefficiencies. -
The Future of Computer Trading in Financial Markets an International Perspective
The Future of Computer Trading in Financial Markets An International Perspective FINAL PROJECT REPORT This Report should be cited as: Foresight: The Future of Computer Trading in Financial Markets (2012) Final Project Report The Government Office for Science, London The Future of Computer Trading in Financial Markets An International Perspective This Report is intended for: Policy makers, legislators, regulators and a wide range of professionals and researchers whose interest relate to computer trading within financial markets. This Report focuses on computer trading from an international perspective, and is not limited to one particular market. Foreword Well functioning financial markets are vital for everyone. They support businesses and growth across the world. They provide important services for investors, from large pension funds to the smallest investors. And they can even affect the long-term security of entire countries. Financial markets are evolving ever faster through interacting forces such as globalisation, changes in geopolitics, competition, evolving regulation and demographic shifts. However, the development of new technology is arguably driving the fastest changes. Technological developments are undoubtedly fuelling many new products and services, and are contributing to the dynamism of financial markets. In particular, high frequency computer-based trading (HFT) has grown in recent years to represent about 30% of equity trading in the UK and possible over 60% in the USA. HFT has many proponents. Its roll-out is contributing to fundamental shifts in market structures being seen across the world and, in turn, these are significantly affecting the fortunes of many market participants. But the relentless rise of HFT and algorithmic trading (AT) has also attracted considerable controversy and opposition. -
By John W. Labuszewski, Managing Director Research and Product Development
RESEARCH AND PRODUCT DEVELOPMENT By John W. Labuszewski, Managing Director Research and Product Development To contact CME Group with questions or comments about Managed Futures CLICK HERE cmegroup.com How Clearing Models Manage Risk THE BEST RISK MANAGEMENT StArtS With a central counterparty model, the clearing house is the buyer to every seller and the seller to every buyer. So, if Trader A defaults, the WITH SECURITY default is contained between Trader A and the clearing house, protecting everyone in the green circles below. In today’s market environment, effective risk management requires an KiX[\i8KiX[\i8 KiX[\i9KiX[\i9 ;\]Xlckj;\]Xlckj 9lp`e^]ifd9lp`e^]ifd ever-greater emphasis on limiting counterparty credit risk. At CME Group, feKiX[\feKiX[\ KiX[\i8KiX[\i8 we believe our financial safeguards system, designed for the benefit and protection of all participants in our markets, is second to none. CME Group’s benchmark futures and options contracts, backed by our centralized counterparty clearing model and comprehensive set of risk KiX[\i8:ljkfd\ijKiX[\i8:ljkfd\ij KiX[\i9:ljkfd\ijKiX[\i9:ljkfd\ij Gifk\Zk\[Gifk\Zk\[ Gifk\Zk\[Gifk\Zk\[ management services, offer powerful solutions for navigating confidently :\ekiXc:flek\igXikp:\ekiXc:flek\igXikp through an uncertain world. :fekX`ej;\]Xlck:fekX`ej;\]Xlck • Central counterparty guarantee of CME Clearing that ensures the financial integrity of every trade The over-the-counter market’s bilateral model works differently. If Trader A defaults, neither Trader A, Trader B, nor the others they • Segregation of customer funds and a $7 billion financial safeguards transact business with are protected from the default, leaving everyone in the orange circles at risk. -
Ai: Understanding and Harnessing the Potential Wireless & Digital Services Ai: Understanding and Harnessing the Potential White Paper
AI: UNDERSTANDING AND HARNESSING THE POTENTIAL WIRELESS & DIGITAL SERVICES AI: UNDERSTANDING AND HARNESSING THE POTENTIAL WHITE PAPER CONTENTS INTRODUCTION ..............................................................................................................................................................................02 1. THE PRODUCTIVITY CONUNDRUM: WILL AI HELP US BREAK INTO A NEW CYCLE? ...........................................................05 1.1 Global productivity growth is faltering ...................................................................................................... 05 1.2 AI has the potential to drive productivity improvements and hence economic growth .................................... 06 2. AI FUTURES ........................................................................................................................................................................11 2.1 Replacing the smartphone with a ubiquitous voice assistant ....................................................................... 11 2.2 Your AI powered personal digital assistant ............................................................................................... 12 2.3 Is AI the missing piece for a truly smart city? ........................................................................................... 14 2.4 City of the future ................................................................................................................................... 16 2.5 Giving medics more time to care ............................................................................................................ -
Vision Financial Markets LLC: Understanding Professionally
RISK DISCLOSURE STATEMENT TRADING FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS NOT SUITABLE FOR ALL INVESTORS. THERE ARE NO GUARANTEES OF PROFIT NO MATTER WHO IS MANAGING YOUR MONEY. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY INTERESTS CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. IN CONSIDERING WHETHER TO TRADE OR TO AUTHORIZE SOMEONE ELSE TO TRADE FOR YOU, YOU SHOULD BE AWARE OF THE FOLLOWING: IF YOU PURCHASE A COMMODITY OPTION YOU MAY SUSTAIN A TOTAL LOSS OF THE PREMIUM AND OF ALL TRANSACTION COSTS. IF YOU PURCHASE OR SELL A COMMODITY FUTURES CONTRACT OR SELL A COMMODITY OPTION YOU MAY SUSTAIN A TOTAL LOSS OF THE INITIAL MARGIN FUNDS OR SECURITY DEPOSIT AND ANY ADDITIONAL FUNDS THAT YOU DEPOSIT WITH YOUR BROKER TO ESTABLISH OR MAINTAIN YOUR POSITION. IF THE MARKET MOVES AGAINST YOUR POSITION, YOU MAY BE CALLED UPON BY YOUR BROKER TO DEPOSIT A SUBSTANTIAL AMOUNT OF ADDITIONAL MARGIN FUNDS, ON SHORT NOTICE, IN ORDER TO MAINTAIN YOUR POSITION. IF YOU DO NOT PROVIDE THE REQUESTED FUNDS WITHIN THE PRESCRIBED TIME, YOUR POSITION MAY BE LIQUIDATED AT A LOSS, AND YOU WILL BE LIABLE FOR ANY RESULTING DEFICIT IN YOUR ACCOUNT. UNDER CERTAIN MARKET CONDITIONS, YOU MAY FIND IT DIFFICULT OR IMPOSSIBLE TO LIQUIDATE A POSITION. THIS CAN OCCUR, FOR EXAMPLE, WHEN THE MARKET MAKES A ‘‘LIMIT MOVE.’’ THE PLACEMENT OF CONTINGENT ORDERS BY YOU OR YOUR TRADING ADVISOR, SUCH AS A ‘‘STOP- LOSS’’ OR ‘‘STOP-LIMIT’’ ORDER, WILL NOT NECESSARILY LIMIT YOUR LOSSES TO THE INTENDED AMOUNTS, SINCE MARKET CONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE SUCH ORDERS. -
Circuit Breakers and New Market Structure Realities
Circuit Breakers and New Market Structure Realities China’s dramatic and short-lived But there are questions about whether regulators have been able to keep up with today’s high-speed markets, with one experience with market circuit trader likening them to police on bicycles trying to catch breakers at the start of the New Year Ferraris.1 Regulators themselves have admitted as much. Testifying before the US Senate Committee on Banking after has revived debate about whether the Flash Crash of 2010, former SEC Chairwoman Mary such market interventions do more Schapiro said: “One of the challenges that we face in recreating the events of May 6 is the reality that the technologies used for harm than good, as regulators and market oversight and surveillance have not kept pace with the market participants around the world technology and trading patterns of the rapidly evolving and expanding securities markets.”2 continue to grapple with new market In response, a growing number of equity and equity-related structure realities and the law of markets (e.g., futures and listed options) around the world have introduced circuit breakers in the form of stock-specific and unintended consequences. market-wide trading halts as well as price limit bands in order to stabilize markets when, as the SEC has said, “severe market While many developments in modern equity markets have price declines reach levels that may exhaust market liquidity.”3 benefited investors in the form of greater efficiency and lower The 10 largest (by value traded) equity markets around the costs, they have also led to highly complex and fragmented world have already implemented or are planning to introduce markets. -
Managed Futures Division Consider the State of the Stock Market Over the Past 25-35 Years…
Managed Futures Division Consider the state of the stock market over the past 25-35 years… …Now imagine if over the past 5 worst period declines for stocks since 1987, you could Introduction make positive returns in your investment portfolio… …Or imagine if your investments could outperform stocks during the most critical events of the last 4 decades… As we continue, I will validate these findings and hopefully pique your interest regarding the use of Managed Futures in your portfolio. STRAITS FINANCIAL MANAGED FUTURES DIVISION | 1 Managed Futures is an investment class that may provide the opportunity for diversification not typically available in traditional stock and bond portfolios and used by investors seeking to diversify their portfolios for more than thirty years. The Managed Futures industry is comprised of professional money managers known as What are Commodity Trading Advisors (“CTAs”) who trade on behalf of investors using their own Managed Futures? unique trading system usually through analysis of fundamental or technical factors. Generally, a CTA takes a market position when, in their opinion, the potential for profit outweighs the risk of the trade. Each CTA must be registered as a Commodity Trading Advisor with the National Futures Association (“NFA”), the industry’s self-regulatory organization authorized by Congress in 1982, or the CTA must have filed an exemption with the NFA. STRAITS FINANCIAL MANAGED FUTURES DIVISION | 2 Commodity Trading Advisors may potentially offer investors benefits similar to those experienced with mutual funds and other investment advisors. These include: Professional 1. Full-time commitment to the markets and their trading programs Money Management 2. -
Circuit Breakers, Volatility, and the US Equity Markets
Circuit Breakers, Trading Collars, and Volatility Transmission Across Markets: Evidence from NYSE Rule 80A Michael A. Goldstein* Babson College Current version: April 7, 2015 * Donald P. Babson Professor of Finance, Babson College, Finance Department, 231 Forest Street, Babson Park, MA 02457-0310; Phone: (781) 239-4402; Fax: (781) 239-5004; E-mail: [email protected] The author would like to thank Mark Ventimiglia, formerly of the International and Research Division of the New York Stock Exchange, for providing the data for this study and Alejandro Latorre, formerly of the Capital Markets Function of the Federal Reserve Bank of New York for excellent research assistance. Additional thanks go to Robert Van Ness (the editor), Joan Evans, James Mahoney, and participants at the Second Joint Central Bank Research Conference on Risk Measurement and Systematic Risk in Tokyo, Japan. Much of this analysis was completed when the author was the Visiting Economist at the New York Stock Exchange. The views expressed in this paper do not necessarily reflect those of the New York Stock Exchange. An early version of this paper was entitled “Circuit Breakers, Volatility, and the U.S. Equity Markets: Evidence from NYSE Rule 80A.” Circuit Breakers, Trading Collars, and Volatility Transmission Across Markets: Evidence from NYSE Rule 80A Abstract The New York Stock Exchange’s Rule 80A attempted to de-link the futures and equity markets by limiting index arbitrage trades in the same direction as the last trade to reduce stock market volatility. Rule 80A leads to a small but statistically significant decline in intraday U.S. equity market volatility. -
Price Asset Management Brochure Rev-1-09.Indd
PRICE Asset Management Alternative Investments Group MANAGED FUTURES Portfolio Diversifi cation Opportunities Table of Contents Benefi ts of Managed Futures Page 1 Introduction to the Firm Page 6 Managed Futures Specialists Page 7 Portfolio Construction Process Page 8 This brochure is neither an offering document nor a solicitation. Investing in managed futures is speculative, involves a high degree of risk, and is not suitable for all investors. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. PRICE Asset Management Alternative Investments Group Introduction The Value of Diversifi cation The term managed futures describes an industry Today, a variety of academic research and evidence made up of professional money managers that demonstrates the potential benefi t of incorporating manage assets on behalf of their clients. Using managed futures to create better balance to a stock the global futures markets, they implement their and bond portfolio. systems to take positions based on expected profi t potential. Although futures investments involve substantial risk and are not suitable for everyone, the general conclusion Managed futures investments have been used by is that diversifi cation of non-correlated asset classes, individual investors for more than 25 years. More such as the introduction of managed futures to an recently, institutional investors such as pension investment portfolio, can both reduce portfolio risk funds, banks, endowments, trusts and family and enhance overall portfolio performance. offi ces have incorporated -
High Frequency Trading and Hard Information
Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. Machines vs. Machines: High Frequency Trading and Hard Information Yesol Huh 2014-33 NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. References in publications to the Finance and Economics Discussion Series (other than acknowledgement) should be cleared with the author(s) to protect the tentative character of these papers. Machines vs. Machines: High Frequency Trading and Hard Information Yesol Huh∗ Federal Reserve Board First draft: November 2012 This version: March 2014 Abstract In today's markets where high frequency traders (HFTs) both provide and take liquidity, what influ- ences HFTs' liquidity provision? I argue that information asymmetry induced by liquidity-taking HFTs' use of machine-readable information is important. Applying a novel statistical approach to measure HFT activity and using a natural experiment of index inclusion, I show that liquidity-providing HFTs supply less liquidity to stocks that suffer more from this information asymmetry problem. Moreover, when markets are volatile, this information asymmetry problem becomes more severe, and HFTs supply less liquidity. I discuss implications for market-making activity in times of market stress and for HFT regulations. ∗I would like to thank Stefan Nagel, Arthur Korteweg, and Paul Pfleiderer for their feedback and discussions on this paper. I would also like to thank Shai Bernstein, Darrell Duffie, Sebastian Infante, Heather Tookes, Clara Vega, and the seminar participants at the Stanford GSB, Federal Reserve Board, Vanderbilt University, and University of Rochester for helpful suggestions, and NASDAQ for providing the limit order book data. -
These Terms Are Synonymous with Expectations for An
These terms are synonymous with expectations A global macro strategy primarily bases its holdings for an improving market, industry, or security. on overall economic and political views of various countries (i.e., macroeconomic principles). An investor who expects a specific industry to increase in value would be “bullish” on that Holdings may include long and short positions in industry, and would likely “buy” or “go long” that various equity, fixed income, currency, and futures industry. markets. The strategy is typically based on forecasts and analyses about interest rate trends, the global flow of funds, political changes, government policies and These terms are synonymous with expectations for relations, and other global factors. a declining market, industry, or security. An investor who expects a specific industry to decrease in value would be “bearish” on that industry, and would likely “sell” or “go short” that Global macro maintains a long history of delivering industry. attractive returns and providing diversification benefits, including low correlation (but typically not negative) to traditional asset classes. The strategy also typically operates globally, which can increases geographic diversification to a client portfolio. Global macro requires either a talented manager (like long / short equity) or a very sophisticated process. Because there are so many moving parts, the “good ideas” or “winning trades” are often watered down or completely voided by the bad trades. In a managed futures account, Commodity Trading Advisors go long or short futures contracts for various assets dependent on market trends. For example, if soybeans have been trending lower for an extended period of time, a Commodity Trading Advisors will “go short” this contract.