NIBA Journal

Insights, analysis, and updates from the National Introducing Brokers Association

December 7, 2016

Decoding the Myths of Managed Futures 2015

From presenting at more panel events, instructing workshops on alternative investments and teaching my managed futures/ global macro course at DePaul University in the last several years, I found it was time to update the original paper written in 2011 with additional myths added to the list. The demand for alternative investments continues to grow as investors are seeking more ways to decrease their correlation risk and tail risk of their portfolio. After the dot com bubble and the recession in the early 2000s more investors realized the need for wider diversification beyond stocks and bonds. More recently since the financial crisis the demand to reduce correlation risk and tail risk continues to grow. Managed futures (AKA Commodity Trading Advisors), a subset of alternative investments and sometimes categorized under global macro hedge funds continues to grow in popularity. However, many old myths still persist about the investment product, the managers...

Spreading European and U.S. Volatility Index Futures

It has been three years and twelve articles since I began writing the VSTOXX® newsletter. Timing seemed right (and perhaps 3 is a Fibonacci series inspired moment) to update the data of some of my past articles. Upcoming newsletters will include updated articles as well as new articles. This article updates Spreading European and U.S. Volatility Index Futures I wrote in August 2013. Liquidity is always important to an investor or trader. Table 1 gives readers an overview of the VSTOXX® Futures liquidity over the last years. Table 1: VSTOXX® Futures yearly volume and open interest as of March 2016. Source: Eurex’s Exchanges monthly statistics Zoom Chart 1: VSTOXX® and VIX daily spot prices and the VSTOXX® / VIX daily spot spread price 1 June, 1999 to 5 April, 2016. Source: Bloomberg data. In Chart 1, VSTOXX® spot trades at an average premium to VIX spot of 4.37 (with a...

Seasonality Of WTI Crude Oil Futures

Earlier this year, crude oil bounced off its multi-year low, and many market participants are now trying to determine where crude will head in the near future. Thus, it seemed timely to examine the seasonality of the front month of WTI Crude Oil futures to offer possible paths it may take. Chart 1 finds three important points of discussion regarding crude oil's historical seasonality: The 30-year average front-month futures contract has hovered between $40 and $45. The current price as of June 20, 2016, is around the 30-year average price $CL_F front month. So it is right on par with the 30-year average performance. The 30-year seasonality shows a tendency for the market to decline in the second half of the year. This doesn't mean the second half of the year will see a decline, but only a tendency for it to occur. Chart 1: 30-Year Seasonality of WTI Crude...

Correlation Of The U.S. Dollar To Commodities

I recently spoke at an ETF conference about commodities. During the panel discussion I mentioned that commodities includes a lesser known factor; currencies. An investor may view commodities partially as a currency play. Many commodities are quoted in U.S. dollars (spot $DXY). In the short-term the direction of $DXY may not impact commodities (S&P GSCI spot), however, over the longer-term a trending $DXY may impact commodities. For example, if the dollar is moving higher, commodities become more expensive to the rest of the world. Thus potentially reducing demand and potentially having an impact to suppress commodity prices. If the dollar weakens, commodities become cheaper around the world relative to other currencies. This could increase demand for commodities and potentially increase prices. The Long-term correlation of the $DXY to S&P GSCI is -0.3. However when analyzing the rolling 12-month correlation of the dollar to commodities we find the correlation has a...

Utilizing a European volatility index for Pan-European volatility

In past articles, I’ve discussed the negative correlation between the VSTOXX® Volatility index and the EURO STOXX 50® Index and how the volatility index tends to rally when equities decline (downside volatility). The recent passing of the Brexit vote on 23 June 2016 introduced immediate uncertainty and downside volatility to the global capital markets. The results of several upcoming European elections could introduce more uncertainty and volatility into the capital markets. According to Bloomberg News, 40 percent of the EU economy will be voting in 2017.[i] Market reactions to the Brexit vote are still being determined and several European elections right around the corner, this is a timely opportunity to examine various moments of global macro volatility and how several European equity indexes behaved during these moments. Does this discussion begin to identify a larger macro story of positive correlation behavior of several European equity indexes? If so, could investors...

Housekeeping, Reminders and Updates--November 2016

COMMODITY FUTURES TRADING COMMISSION Filing Period for CCO Annual Reports Extension The Commodity Futures Trading Commission (“CFTC”) announced the unanimous approval to modify CFTC Regulation 3.3. Until now, Regulation 3.3 mandated electronic filings to be completed no more than sixty (60) days after the registrant’s fiscal year-end. The modification changes registrants’ (futures commission merchants, swap dealers and major swap participants) deadline to file their chief compliance officer (“CCO”) annual reports with the CFTC to ninety (90) days after the registrant’s fiscal year-end. Additionally, the modification allows for the Director of the Division of Swap Dealer and Intermediary Oversight to grant extensions to the deadline. Additional details regarding the modification to Regulation 3.3 are available on the Ruddy Gregory, PLLC (“Ruddy Gregory”) website. The final rule has been published in the Federal Register.   Regulation 4 Amendments to CPO Financial Reporting As a result of a unanimous vote, the CFTC approved...

NIBA/DePaul Internship Joint Endeavor

The NIBA Internship Program is underway! The idea for this internship program was proposed and found strong support among NIBAs Advisory Group. Qualified students will be matched with members looking for candidates trained in a broad array of critical sectors, including Finance, Statistics, Media, Marketing, and Law. The goal of our program is to foster meaningful development - for both the interns and the member. NIBA and DePaul are currently working together to ensure a successful match of prospective interns with NIBA members. Please visit the NIBA Journal to view the current list of prospective interns. The prospective intern list will also be available on the new Member Portal very soon. The board asks all members- yes you- for constructive ideas toward strengthening the value of this program. NIBA members interested in learning more about the program or specific information on a prospective intern are encouraged to contact NIBA. Jerry...

Prospective Intern Profile

The following is a brief description of a DePaul student's credentials who is a prospective candidate for the NIBA Internship Program. The members portal will feature regular listings of qualified candidates to participate in the internship program:   "Current MS in Finance student at DePaul University, with expected graduation date in 2017. Has financial markets exposure through internships and coursework at school. Hardworking and adaptable person that has experience in teamwork based and fast paced environments, from previously working at a tech startup. Has passed the Series 3 Exam and proficient with Excel, Bloomberg and Morningstar Direct. Has strong interest and working knowledge of futures/options markets and managed futures programs/CTAs - would like to further that knowledge (learning technical & fundamental analysis, etc) and grow skills with this internship. This would help to achieve my goal of building a career in sales & trading/execution (and possibly marketing) at a firm...

NFA Announces New President and CEO

For Immediate Release November 18, 2016 For more information contact: Kristen Scaletta, 312-781-7860, kscaletta@nfa.futures.org Karen Wuertz, 312-781-1335, kwuertz@nfa.futures.org Thomas Sexton to succeed Daniel Roth as NFA President and CEO on March 1, 2017 November 18, Chicago—NFA announced today that its Board of Directors appointed Thomas Sexton, to serve as NFA's President and CEO, effective March 1, 2017. Daniel Roth, NFA's President and CEO, who announced his retirement in May 2016, will work closely with NFA's Board and Mr. Sexton during this important transition. This appointment is the culmination of an extensive search and selection process. In May 2016, NFA's Board of Directors authorized the formation of a search committee, chaired by Michael Dawley, NFA Board Chairman, and made up of existing Board members and other well-respected individuals with significant knowledge of the derivatives industry and NFA's important regulatory role. The search committee engaged an executive search firm with extensive experience...

Chairman Letter - November 2016

“The most successful people in life are generally those who have the best information” - Benjamin Disraeli (1804-1881) Benjamin Disraeli, 1st Earl of Beaconsfield, was the Prime Minister of Great Britain - twice. He is credited with the above quote in a speech given before Parliament during his second term. The “best information” is what NIBA is all about! This month members of the board of directors met with CFTC Commissioners and others in Washington, DC to inform them about NIBA members’ opinions on everything from proposed automated trading regulation to our concerns over the possible effects of the shrinking FCM community. A summary of those meetings appears in this newsletter. We have some follow-up work to do, and welcome everyone’s suggestions and assistance. On February 23, 2017, NIBA will hold its winter event in Newport Beach, CA. We will get the “best information” at this afternoon meeting during three...

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