Wolverine Launches New Vega Trading App for Options

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Traders looking to execute multiple options trades at one time are about to get a new applet to help them do so – and quicker.

Chicago-based agency broker Wolverine Execution announced the launch of WEX Vega Trader, a new trading applet that allows users to specify a target amount of vega to execute across a range of option expirations and strikes.

The option’s vega is a measure of the impact of changes in the underlying volatility on the option price. Specifically, the vega of an option expresses the change in the price of the option for every 1% change in underlying volatility.

Options tend to be more expensive when volatility is higher. Thus, whenever volatility goes up, the price of the option goes up and when volatility drops, the price of the option will also fall. Therefore, when calculating the new option price due to volatility changes, traders add the vega when volatility goes up but subtract it when the volatility falls.

This new application is only available on the WEX Trading Platform (WTP), Vega Trader helps traders manage risk by allowing them to efficiently take volatility positions.

“With our extensive background and knowledge of options and volatility trading, we built Vega Trader to meet the growing demand from clients for more sophisticated tools for volatility strategies,” said Kevin Kernan, director of WEX Product Development. “Vega Trader expands our volatility and hedging product suite to allow for lists of options to be traded, monitored, and hedged through one simple mechanism.”

According to WEX, Vega Trader meets the evolving needs of volatility traders, including dispersion strategies; event-driven volatility strategies; volatility arbitrage and hedging strategies. Vega Trader’s benefits include: defining a target Vega amount for a specific underlie, automating trading to control the amount of Vega bought or sold for the targeted range of options, the ability to limit the exposure on any one strike by setting a maximum amount of Vega per strike and automatic hedging.

WEX Vega also assists traders loading up to 40 strikes for the underlier by expiration, root, or delta range, gives them monitoring tools that provide an overall status on the achieved Vega, hedge quantities, and P&L.

Lastly, it gives users the ability to select custom algorithmic trading routes, including WEX Sweep for options and WEX Best X for hedging.

Banks Set for Swaps-Rule Win in Broader Deal to Fund Government

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(Bloomberg) — Wall Street is poised to win a big victory in its lobbying campaign against the Dodd-Frank Act as lawmakers move to repeal a derivatives rule as part of a bill to fund the government.

Congress will vote this week on a bill that lets JPMorgan Chase & Co., Citigroup Inc. and other lenders keep swaps trading in units with federal backstops. House and Senate negotiators agreed yesterday to give the break along with funding increases for the Commodity Futures Trading Commission and Securities and Exchange Commission.

The change, which is included in a broader funding bill, has been criticized by Democratic senators including Elizabeth Warren of Massachusetts and Sherrod Brown of Ohio.

Middle-class families are still paying a heavy price for the decisions to weaken the financial cops, leaving Wall Street free to load up on risk, Warren said in a statement. Congress should not chip away at important reforms that protect taxpayers and make our economy safer.

Lawmakers included the swaps provision in Dodd-Frank to protect taxpayers against bank losses after souring derivatives trades spurred a U.S. rescue of the financial industry in 2008. The Federal Reserve and Office of the Comptroller of the Currency provided a two-year delay in 2013 on the condition that banks take steps to move swaps to affiliates that dont benefit from federal deposit insurance and discount borrowing.

JPMorgan and Citigroup both held 99 percent of their notional-value derivatives trades in insured banking units, according to OCC data from the second quarter.

Agency Budgets

The spending plan agreed to by lawmakers will provide $250 million for the CFTC, up from $215 million, and $1.5 billion for theSEC, an increase of $150 million. The spending measure funds the agencies through Sept. 30, 2015.

The bill was introduced by appropriations committees in the House and Senate and still must be passed by both chambers.

Bank lobbyists have pressured lawmakers for the last four years to do away with the swaps rule, saying it doesnt reduce risk to the financial system and increases complexity. The House has passed legislation before doing away with the swaps pushout, while the Senate hasnt voted before on the change.

The industry had already won concessions during the drafting of Dodd-Frank in 2010. Instead of requiring that all derivatives be traded in outside affiliates, the law only pushes out equity, commodity and non-cleared credit swaps.

For the CFTC, the agreement would boost funding for an agency that has warned in recent years that it lacks the budget to adequately enforce new rules for the swaps market.

The fact is that, without additional resources, our markets cannot be as well supervised; participants cannot be as well protected; market transparency and efficiency cannot be as fully achieved, CFTC Chairman Timothy Massad said in a Nov. 18 speech.

As Clearing Issues Grow Costly, the Buyside Is Pushing Back

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Large buyside institutions and trading desks that utilize OTC derivatives, most notably interest rate swaps, are waking up to an uncomfortable new reality in the post-Dodd-Frank world – the coming cost of mandatory clearing of OTC derivative products.

As a result, conversations over clearing costs are migrating to the forefront of the ongoing debate over OTC derivative clearing, even changing how the buyside looks at these instruments. More importantly, the buyside also is searching for ways to alleviate these costs, and may have hit upon one – pressure the smaller banks and brokerages they do business with to offer clearing services, thereby increasing competition in the marketplace and lowering costs overall.

“Buysiders have been reaching out to smaller firms, urging them to get involved in clearing,” said Steve Grob, director of group strategy for Fidessa, a U.K.-based software and trading systems service provider. “Because now that the buyside is being forced to clear, they want more choices.”

By all appearances, the buyside is working diligently to shape the newly emerging trading regime in OTC derivatives into a model that works for them. In addition to pressuring smaller banks and brokerages into entering the clearing fray, the buyside is urging the disparate groups of swaps clearinghouses and large financial institutions that facilitate most of the trading – the so-called Futures Commission Merchants (FCMs) – to provide more commoditized service and uniform post-trade data so that traders can more easily move their swap transactions among a group of financial agents or clearing servicers. Also, the buyside wants clearinghouses and other clearing servicers to allow for more off-setting of common derivative contracts, essentially zeroing-out some risk and decreasing margin requirements. Because of all these efforts, several market analysts and observers said, the buyside is paying far more attention to post-trade execution and costs in the OTC derivative market than ever before.

Grob said he’s observed when dealing with buyside clients that it’s clear they are looking closely at clearing and its associated costs, sometimes even more than they are looking at this or that particular swap or other product. “From a tech perspective, it’s really interesting,” he explained. “We’re adding the clearing conversation to the transaction, and the buysider is having to develop a sort of multi-directional mindset with derivative trades.”

It’s little surprise, because if left unmonitored, these clearing costs can quickly become a real pull on an institutional fund manager’s bottom line, according to some estimates. Sapient Global Markets analyzed the cost of hedging with OTC derivative swaps in the post-Dodd-Frank environment in a June 2013 study and found that costs could drag down a portfolio’s alpha between 20 and 62 basis points for cleared trades and up to 91 basis points for traditional, uncleared bilateral trades. “Once all the proposed post-Dodd-Frank regulations are in place, hedging using centrally cleared instruments…will be cheaper than [doing so with] uncleared OTC instruments,” the study stated. “Therefore, we expect market participants to choose this option and move to central clearing, regardless of trading costs.”

No doubt, this new reality has seeped into the buysider’s usual tunnel vision that most often had been focused on product price and annual return. “They’re not just automatically trading the best price on the screen anymore, but are now looking for the most beneficial trade margin-wise,” Grob said, adding that Fidessa, which counts the largest buy- and sellside firms among its clients, is seeing first-hand the changes the new derivative regulation is bringing, especially to the buyside mindset. “It is very interesting to see the conversation the buyside is having on clearing efficiency,” he added. “Simply because they didn’t have to think about this before.”

And he is not alone in noticing this change. According to a recent white paper published by Sapient Global Markets, financial institutions, especially smaller banks and brokerages, are facing increasing pressure from buyside clients to offer clearing services. This leaves these banks and brokerages in a tight squeeze with limited choices – either begin offering a risky, cost-heavy and low-margin service like clearing to clients, or face losing those clients to bigger banks that already offer those services.

Ironically, the paper pointed out that the bigger banks may not want the business either; several of the largest banks are winding down their clearing operations on OTC derivatives and other products because of the increased cost and up-front capital required by new banking industry regulations.

Phil Matricardi, a manager at Sapient Global Markets and co-author of the paper, said the changes in OTC derivative clearing since the financial crisis have really upended the landscape for firms that offer clearing services. “Big banks have already been offering clearing, but now they are under pressure to really cut costs, and offering clearing services can be very costly,” Matricardi said. “On the other hand, smaller banks would have to start up clearing operations from scratch, and that investment in personnel and technology might be too much for them to take on.”

In the past – at least before the financial crisis – clearing of OTC derivatives was a completely different world. Much of it was done by the largest banks as secretive, bi-lateral transactions between two parties, a method that was very profitable for the Wall Street banks that facilitated much of the trading in that asset class. Then – after the financial crisis and the ensuing regulations – everything changed. Gone was allowing bi-lateral deals and “voluntary” clearing; now, clearing was mandatory, and was to be done through a third-party system of central counterparties (CCPs) throughout the world. Almost immediately, regulatory bodies from the U.S. and Europe began squabbling over which region’s clearing standards and regulatory model would become the global template.

While there is evidence the ice may be thawing among global swaps regulators on both sides of the Atlantic, it is uncertain if the buyside desks that trade these products are as comfortable as they want to be, and they may be seeking reassurance from their financial agents. And often, that reassurance comes in a form that could cost those agents plenty in terms of capital outlay. “The buyside sees a limited number of clearing facilities, and because of that, they see the execution costs as too high,” said Virginie O’Shea, senior analyst at Aite Group. “So the buyside wants to see more of their banks and brokerages offering clearing services so there is more competition, and that will drive down costs.”

But in a way, O’Shea explained, the buyside may be trying to wring water from a stone – or at least trying to wring full service from already cash-strapped smaller regional banks and brokerages. “The costs to enter into clearing services is very high, and was made more so by the post-crisis regulations,” she said. “In addition, the clearing party would have to hold a lot of capital as a buffer against default.”

The buyside is also letting its financial agents know that in addition to offering clearing, it wants them to offer a certain type of commoditized service and post-trade data trail. “In the pre-crisis days, banks trading and clearing of swaps was a highly bespoke and secretive system,” said Sapient’s Matricardi. “Each financial institution developed different standards and methods for doing business. Now, however, these customers want uniformity in their trades and a template for post-trade reporting that will be the same wherever they go.”

Worse yet for the under-pressure banks or brokerages, those that decide not to get into the clearing game could be shut out of the OTC derivative market altogether, especially if part of their corporate financing strategy has been to bundle an interest rate swap into a client company’s planned offering of floating-rate debt, as explained in the Sapient white paper. “[B]anks that have traditionally done a good business in corporate finance are very concerned that a key component of their structured finance offering is missing now that they have lost access to the swaps market,” the paper stated.

Those financial institutions may be left with little choice but to go to FCMs – the massive global banks like JP Morgan, Barclays and Citigroup that are the intermediary members of swaps clearinghouses – to get the interest rate swap component of their customer’s deal done. The smaller bank’s end result of passing through its best customers like that, of course, is that the larger, deeper-pocketed FCM could simply poach those customers, since the FCM, unlike the smaller bank, offers swaps clearing services.

It’s a predicament that leaves the smaller banks and brokerages tying themselves into knots to please their buyside clients. “Some of these banks will bend over backwards for clients, and begin offering too much proprietary service just to keep them happy,” said Adam Kott, a Sapient senior associate and co-author of the white paper. “Eventually that level of service gets too costly for the smaller bank to sustain.” And that ultimately could leave the buyside with fewer options if too many of these smaller players simply decide to throw in the towel on clearing and derivatives altogether.

One possibility for the smaller banks and brokerages to stay in the clearing game would be to band together to form a sort of “industry utility” that would share the costs of technology, personnel and capital required to run a clearing operation, Kott said. In fact, Sapient executives are in talks with a number of smaller and regional banks and other financial institutions to establish such a utility, he added, declining to name the specific banks or set a time frame for when this could become a reality.

For the buyside, however, whether it’s dealing with large FCMs, clearinghouses or smaller banks banded together into a clearing utility, it still comes down to cost and whether that cost is getting too high to maintain.

In the past, one large, risk-adverse buysider could simply trade derivative products with another large, risk-adverse buysider, managing their risk at little cost, Fidessa’s Grob explained. Now, they have to have everything centrally cleared, the costs go up, and you have to ask whether there are going to be unintended consequences of increasing the costs of managing risk, he said.

“It’s like having fire insurance on your house,” Grob said. “You have it to manage the risk of a fire, but if the monthly premiums keep going up and up and up, after a while you might just take your chances with the risk of the fire.”

Cantor Fitzgerald Algos Tap IEX Smart Order Router

Editorial Staff
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Traders accessing order flow using Cantor Fitzgerald algorithms can now find liquidity in IEX, the buyside-owned trading venue.

Cantor now offers users IEX’s smart order router and technology and liquidity – as the broker’s customized equity algorithmic trading strategies in its Connect Clean suite now have access to the venue.

Connect Clean Algo Suite includes access to IEX’s SOR and a dark liquidity seeking strategy which is designed to route an outsized portion to the IEX ATS and split the balance to other independent dark pools. According to IEX, IEX’s SOR routinely captures an average of 98% of the displayed liquidity across all Reg NMS “protected” market centers, helping to minimize the opportunity for quotes to fade while routing orders across all exchanges.

Also included in the suite are scheduling strategies such as VWAP and POV leveraging the IEX SOR. These strategies will take advantage of the fill rates achieved by the IEX SOR, which strives to minimize interaction with speed-driven predatory strategies.

The end result, according to both Cantor and IEX is that clients now have greater control over their orders and can better achieve best execution.

As Cantor explained, through its Connect Clean Algo Suite, the buyside can now focus on searching independent venues and leveraging IEX’s anti-gaming technology – thus enhancing fill quality and sourcing block trades. Additionally, Cantor wants to help users prevent information leakage and maintain anonymity.

“We are excited to provide clients with customized algorithmic strategies and to partner with IEX,” said Shawn Matthews, chief executive officer of Cantor Fitzgerald & Co. “By including IEX’s smart order router and trading venue in Connect Clean Algo Suite, we strive to improve fill rates and seek the best possible execution for each client.”

Clients will be able to access IEX’s SOR and ATS through the Cantor Connect Clean Algo Suite or via the cash equity desk immediately.

SEC Takes Aim at Funds Fighting Too-Big-to-Fail Label

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(Bloomberg) — The U.S. Securities and Exchange Commission is preparing a sweeping set of rules to police mutual funds that have increasingly moved into complex and harder-to- sell investments, the agencys chairman said.

Managers of mutual funds will face new requirements that limit how much they can invest in less-liquid assets and use derivatives to boost returns, SEC Chair Mary Jo White said today at a conference in New York. Regulators also will require funds to provide investors with more information about their use of derivatives and their practice of lending out securities to earn a profit.

We are now embarking on a new period of regulatory change, driven by long-term trends in the industry and the lessons of the financial crisis, White said at the event, which was sponsored by the New York Times DealBook.

The SEC first disclosed in November that its working on regulations to ensure mutual funds are prepared to meet client redemptions and money managers have plans in place should a fund fail. The SEC also plans new rules for large asset managers to stress test their funds, according to the regulators policy agenda.

In remarks to reporters after her speech, White declined to say when the agency will propose the rules, saying 2015 will be a very active year for those rules.

White disclosed the plans as federal banking regulators and groups such as the International Monetary Fund question whether some money managers have gotten too big or herded into illiquid investments. The IMF in October said mutual funds large holdings of junk bonds, leveraged loans and other assets that trade infrequently could compromise financial stability if regulators dont address it.

The Financial Stability Oversight Council, a panel of regulators who decide which companies pose the biggest risk to the financial system, considered this year whether BlackRock Inc. and Fidelity Investments should be classified as systemically important. White is a member of the council, whose chairman is Treasury Secretary Jacob Lew.

Deutsche Bank, Barclays FX Algorithms Said Probed by N.Y.

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(Bloomberg) — New York regulators have found evidence that Barclays Plc and Deutsche Bank AG may have used algorithms on their trading platforms to manipulate foreign- exchange rates, a person with knowledge of the investigation said.

The practice suggests there may be a systemic problem involving automated tools that goes beyond individuals colluding to rig currency benchmarks and take advantage of less sophisticated clients.

The algorithms use is being scrutinized by the New York Department of Financial Services, said the person. The investigators are looking into the practice at each bank and it isnt clear if theres a link between the two, according to the person, who asked not to be named because the matter isnt public. The algorithms were embedded in Barclayss BARX trading platform and Deutsche Banks Autobahn system, according to the person.

The two services provide electronic marketplaces for the banks customers to trade currencies. Rather than directly matching one clients buy order with anothers request to sell, the systems aggregate all requests from the banks clients to create prices that are displayed to customers. The banks profit from the spread or the difference in the price at which currency is sold and bought.

Autobahn, BARX

Autobahn, which is offered to Deutsche Banks companies and institutional investors, was ranked top in a market-share survey by Euromoney magazine earlier this year. BARX allows customers to trade more than 80 currencies, according to the London-based banks website.

Barclays was up 0.2 percent at 238.10 pence at 10:48 a.m. in London trading while Deutsche Bank was up 1.3 percent to 25.68 euros in Frankfurt.

Deutsche Bank and Barclays werent among the six firms that agreed to pay $4.3 billion to U.S., U.K. and Swiss authorities last month in the first settlements in the global probe. London- based Barclays dropped out of negotiations on the eve of the announcements after DFS Superintendent Benjamin Lawsky balked, viewing the penalties as too lenient, people with knowledge of the talks said at the time.

Bank Monitors

Lawsky, who is investigating about a dozen banks, has ordered a monitor to be installed at Deutsche Bank and already has one in place at Barclays. Renee Calabro, a Deutsche Bank spokeswoman, declined to comment, pointing to an earlier statement on the firms cooperation with the probes.

Caitlin Ferrell, a spokeswoman for Lawskys office, declined to comment, as did Mark Lane, a spokesman for Barclays.

Royal Bank of Scotland Group Plc, HSBC Holdings Plc, Citigroup Inc., JPMorgan Chase & Co., UBS AG and Bank of America Corp. were part of the Nov. 14 settlements with authorities including the U.K. Financial Conduct Authority, the U.S. Commodity Futures Trading Commission, Office of Comptroller of the Currency and the Swiss Financial Market Supervisory Authority. Criminal and antitrust authorities are continuing to investigate practices in the foreign-exchange market.

When the settlements were announced, the FCA said it ordered about 30 other banks, including Deutsche Bank, to overhaul their practices. The FCA isnt planning to fine those firms.

Citigroup, Deutsche Bank, Barclays and UBS are the top four currency dealers, according to Euromoney Institutional Investor Plc.

WSW 2014: ConvergEx’s Ordonez’s Secret to Success is Adaptability

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WSW 2014: ConvergEx’s Ordonez’s Secret to Success is Adaptability

Industry Trailblazer Award

Bea Ordonez

Firm: CONVERGEX

The secret to Bea Ordonez’s success is simple – stay relevant. Do whatever needs to be done, adapt to whatever change occurs around you or get left behind. It’s as simple as that.

And when it comes to adaptation, Ordonez has moved throughout her career to new places and challenges. Literally. She grew up in London, England and wanted to be a lawyer – a far cry from algorithms, accounting and Wall Street. Her journey would take her across the Atlantic with several stops before ending in Manhattan.

“Working on Wall Street was never part of my plan,” she told Traders. “I didn’t think when I was growing up that I would someday be in New York in the financial services industry.”

See A Slideshow of All The Winners

Upon graduating from the University of Nottingham, Ordonez became a tax accountant at Arthur Andersen and spent almost two years at the prestigious firm. Intrigued by the mergers-and-acquisitions craze that enveloped the financial word during the mid- to late ’90s, she moved to rival PricewaterhouseCoopers, where she also spent nearly two years before the road came calling.

“It was here that my career made a hard right turn,” Ordonez recalled. “I had had enough of London and wanted to go work overseas, spend time there, do something and then return to London.”

She wound up in Bermuda. It was 1998.

Her search ended when she was hired as CFO of G-Trade, then a unit of Credit Lyonnais. The days were long, and learning the business was tough.

“It was extremely hard work building a business,” she said. “But I was part of something completely different and new, and that was what made it exciting.”

G-Trade was sold to The Bank of New York in 2002. Later, she relocated to Orlando, Fla., where she oversaw the firm’s move to consolidate operations globally. With a small group of people, she built an entire global operations headquarters from the ground up – hiring talent, overseeing technology build-outs and training staff. The firm would eventually become ConvergEx in 2006, and later she would be appointed COO based out of the global brokerage’s New York corporate headquarters.

“This was challenging, but a lot of fun,” she reminisced.

Then in 2011, she moved yet again, but back to her big-city roots – New York. As her leadership role expanded from tactical to strategic, Ordonez had to be closer to senior management. Her love of Wall Street and business grew, only to be rivaled by her love of the Big Apple.

So where does she see herself in the next three to five years? Ordonez is uncertain as she told Traders she doesn’t have a master plan, but she is certain she’s moving in the right direction.

“If you’re not growing or driving in new directions, you get left behind,” she said. “Each day presents new challenges, and I try to learn something new every day ? only then will you remain relevant.”

St. Jude’s Wall Street Taste of NY Gallery Part 2

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Once again, Traders is pleased to present more photos from theannualSt.Jude Childrens Research Hospital “Wall Street Taste of New York” galathat raised nearly $2 million.

This year’s event honoredCathy Rosen of Zweig DiMenna Associates and Michael Lynch of Bank of America Merrill Lynch. They both received the St.Jude Children’s Research Hospital Humanitarian Award for outstanding leadership and support of the initiative.NBC and MSNBC television presenter Willie Geist hosted the VIP reception.

Check out our gallery of representatives from major Wall Street firms such as UBS, Bank of America ML, ClearBridge Investments, Barclays Capital, Morgan Stanley, Lazard Securities and other heavy hitters.In its 25-year history,the event has raised more than $40 million for St.Jude.

Wall Street Taste of New Yorkfeatured chefs tastings from 18 of NYCs best restaurants. Attendees also were treated to a taste of St.Jude’s Chef Miles McMath who served the hospitals beloved Cosmic Mac n Cheese.

Last week Traderspresented Part 1 of our gallery St. Jude’s Wall Street gala.


To check out other financial industry slideshows, please visit ourTraders Photo Gallery.

Temasek Buys Stake in High-Frequency Trader Virtu Financial

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(Bloomberg) — Temasek Holdings Pte will pay about $180 million for a minority stake in Virtu Financial Inc., the U.S. high-speed trading firm that postponed an initial public offering, according to a person familiar with the transaction.

Singapores state-owned investment company will purchase a portion of the equity investment held by Silver Lake Partners LP, Virtu said in a statement today. The statement didnt give a price.

Temasek bought about a 10 percent stake, another person with knowledge of the transaction said, asking not to be named as that information is private. Aedan Lai, a Temasek spokesman, declined to comment.

Virtu shelved plans to go public this year amid the furor caused by Michael Lewiss book Flash Boys, which portrayed high-speed traders, Wall Street brokerages and exchanges as collaborating to rig the stock market. The firm was questioned by New York Attorney General Eric Schneiderman as part of his investigation into electronic trading.

This is quite a different field of finance that Temasek would have traditionally been involved in, Jason Hughes, head of CMC Markets in Singapore, said. While high-frequency trading has had negative headlines in recent months amid allegations that they are taking advantage of other investors, overall a lot of these firms have added liquidity into the markets, he said.

Silver Lake will continue to be a minority shareholder in New York-based Virtu, according to the statement.

The share of Temaseks investments in North America and Europe has increased to 14 percent of its portfolio as of March 31, up from 12 percent in the previous year, according to its latest annual report published in July.

Among Temaseks acquisitions of U.S.-listed firms this year was a stake in Thermo Fisher Scientific Inc., a manufacturer of scientific instruments and chemicals. It also bought a stake in financial-data provider Markit Ltd. and information-technology firm Cognizant Technology Solutions Corp., one of the largest providers of outsourcing services.

BofA, Citigroup Signal Another Down Year for Trading Revenue

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(Bloomberg) — Bank of America Corp. and Citigroup Inc. said trading revenue will probably fall this quarter, providing fresh evidence Wall Street is headed for its fourth annual decline in the past five years.

Citigroup expects trading revenue to slide about 5 percent from the fourth quarter of 2013, Chief Executive Officer Michael Corbat said Tuesday at a conference hosted byGoldmanSachs Group Inc. in New York. Bank of America forecast a decline in trading revenue from both the third quarter and a year ago, CEO Brian T. Moynihan said at the same conference, without giving an estimate for the size of the drop.

Wall Street trading revenue has been squeezed by the rise of electronic trading and periods of low volatility that crimped spreads, as well as new rules that limited bond inventories and restricted firms ability to speculate for their own accounts. Trading revenue at the 10 largest global investment banks dropped by $70 billion, or 38 percent, from 2009 to 2013, according to data from industry analytics firm Coalition Ltd.

What wed love to see is a trending market with sustained, reasonable levels of volatility, Corbat said. Markets today lack trend, lack direction and I think they lack a uniformity in terms of view.

Some investors were blindsided in the first two weeks of October as stocks and corporate debt sold off and interest rates dropped because of concerns that global growth was slowing. While most markets rebounded in the second half of the month, oil tumbled into a bear market and reached a five-year low last week as the U.S. shale boom added to a worldwide glut amid slowing growth in demand.

Fed Taper

Traders have been trying to predict the path central banks will take to higher interest rates as the global economy recovers from recession. The Federal Reserve began tapering its bond purchases in December 2013 and has said it will respond to new economic data when setting monetary policy.

If investors became comfortable with the path rates were taking higher, it could create volatility that generates wider big-to-offer spreads, Corbat said. But its that one-off nature, some of this volatility we are seeing today, that I think is quite difficult to trade.

Trading revenue at New York-based Citigroup dropped 9 percent to $12.1 billion in the first nine months of the year, while Bank of America posted a 2 percent increase to $10.8 billion. JPMorgan Chase & Co., the biggest trading firm globally, reported an 11 percent drop in revenue.

Revenue Headwind

Bank of America, based in Charlotte, North Carolina, said in a presentation that trading is among its revenue headwinds after generating $3.27 billion in the third quarter and $2.97 billion in the fourth quarter of last year.

Chief Operating Officer Tom Montag has cut costs in the markets division, reducing the amount of trading revenue needed to break even to $2.5 billion a quarter from $3.5 billion a few years ago, Moynihan said.

When activity ebbs and flows, we dont try to replace that activity with non-customer-driven business, Moynihan said. We stick to our knitting.

Citigroup also said today it will report $2.7 billion of legal costs in the fourth quarter and $800 million in expenses tied to headcount and real estate. The shares dropped 2 percent to $55.25 at 12:09 p.m. in New York trading. Bank of America slipped 1.8 percent to $17.34.

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