Options Exchanges Seek To Evaluate And Manage Role Of HFT Traders

With the role of HFT in stocks being actively investigated thanks to Senator Kaufman's ongoing crusade against a two-tiered market, the spotlight has shifted toward High Frequency Trading strategies in options, where now the exchanges themselves are evaluating whether HFT traders are benefiting from their two-tiered role as both a preferential customer and a market maker, however one, having no obligations to create a market, when things turn ugly. A report by Dow Jones titled "Influx Of High-Frequency Traders Prompt New Rules In Options" notes that "options exchanges are drafting new policies to address the ever-expanding role of high-frequency traders in their markets. The policies aim to eliminate some of the advantages that high-frequency traders currently have over professional options market-makers, representing an attempt by the exchanges to level the playing field between these two huge players in the options market and to maintain the orderly functioning of the market." As more transparency is shone on every market dominated by this now-pervasive paradigm, especially with regulators woefully behind the curve, the latest development in the ongoing unmasking of various HFT strategies will only benefit the broader markets.

Federal Reserve Balance Sheet Update: Week Of December 16 - Record Highs

The Fed's balance sheet assets are back to all time highs at $2.2 trillion, while the "collateralization" of the dollar with MBS/agencies hits an all time low of 89.7%. Look for the dollar to be backed by increasingly less valuable securities.

How To Lose 14% In Less Than Three Days?

Just listen to CNBC

Guest Post: Thoughts On The Long-Term Equity Cycle

My thoughts on the long-term debt cycle (trying to ignore the impact of the credit crisis specifically). The idea is that if you follow the cycle of the relationship of debt to equity, a better understanding of how debt and equity lead and lag one another through the cycle. Furthermore, I think it can highlight how risk aversion at the tails may put a floor on spreads in the short-term and implicitly a cap on equity valuations. This chart can be done in P/E ratio-land (but given the current silliness in valuations provides little insight), though we suggest trying to build the same chart with the Shiller longer-term P/Es (hint hint).

Greece Default Risk Surges

Greece 5 Year CDS up 28 to 269 bps. The all time high for the country was on January 20 at 292 bps, which was before Bernanke decided to have US taxpayers bailout the world.

Update: S&P just slashed the banks which Citigroup Crameresquely tells its clients to Buy, Buy, Buy.

Bernanke Reconfirmation Vote Passes 16:7, Full Vote Count

Vote passes 16 to 7. Jeff Merkley breaks ranks with the Majority and deserves the praise of those 79% who believe Bernanke should be fired.We will shortly analyze why Senator Corker's real estate interests may have been quite a conflict of interest in his vote.Full Vote Count Below.