Observations & Insight
Data Day in the case of U.S. v. Jitesh Thakkar
Thom Thompson – John Lothian News
In an abbreviated third trial day, the U.S. Department of Justice rested its case against Jitesh Thakkar and Edge Financial Technologies. Thakkar is on trial for allegedly facilitating the criminally fraudulent spoofing trading of Navinder Sarao, who pleaded guilty to two criminal counts related to his spoofing of E-mini S&P futures in the first half of this decade.
Wednesday was software and data day. The software analysis as well as much of the data analysis were built on evidence obtained by the government through subpoenas and search warrants, mostly in the course of the investigation of Navinder Sarao.
To read the rest of this commentary, go here.
****SD: Big update from Thom – Judge Gettlemen acquitted Thakkar on the first count, conspiracy to spoof. The defense on the remaining aiding and abetting charges continued this morning and rested around lunchtime. The Judge said he considered the government’s case on the remaining charges to be “thin.”
The Need for a Better Dialogue with Regulators – Ed Tilly, Cboe
The SEC delayed its controversial Transaction Fee Pilot in the wake of litigation brought by Cboe, NYSE and Nasdaq, giving the exchanges a breather but not a full reprieve from the plan to test how rebates affect broker behavior.
In this video from JLN’s Industry Leader Series, Cboe Global Markets Chairman, President and CEO Ed Tilly talks about why the Transaction Fee Pilot is a misguided effort in search of a problem, specifically raising the issue of why such a plan does not address the boom in dark pool trading. Tilly also addresses Cboe nearing the end of the Bats technology integration and gives an outlook for the exchange’s asset classes in 2019.
Watch the video »
Eurex to test “speed bump” for equity options; German exchange looking for ways to increase order book liquidity
Bennett Voyles – MarketVoice
Eurex is preparing to test a “passive liquidity protection” mechanism to encourage more market making in its French and German equity options market. Beginning June 3, this mechanism will slow down all aggressive orders—transactions that are executable upon arrival at the matching engine—by three milliseconds for options on French equities and one millisecond for options on German equities. The test will continue for at least six months. During that time, executives at the Frankfurt exchange will monitor the impact on the market and tweak the delay times if they feel an adjustment is necessary. The pilot phase may be extended if they decide extra time is necessary to gather more data.
****SD: The response to Eurex’s speed bump announcement was way less visceral than the response to ICE’s speed bump announcement that preceded it by a few weeks.
Miami International Holdings and Templum Enter into a Strategic Partnership to List and Trade Digital Securities on a MIAX Exchange
Miami International Holdings, Inc.(MIH), the parent holding company of the MIAX Options, MIAX PEARL and MIAX Emerald options exchanges(the MIAX Exchange Group),and Templum Inc. (Templum), a leading innovating financial technology company and itssubsidiary, Templum Markets, providerof a regulated, end-to-end solution for raising capital and secondary trading for private digital securities, today announced a strategic partnership.
****SD: So much to keep track of over at MIAX these days! For more on Templum, see this excellent interview we did with Templum Markets CEO Vince Molinari.
Options-based funds offer succor to investors wary of volatility
Saqib Iqbal Ahmed – Reuters
The Federal Reserve’s pivot on tightening U.S. monetary policy this year and a change in a bond market gauge that is often viewed as a harbinger of a recession pose a dilemma for investors: how to stay in stocks without running the risk of losing one’s shirt when risk assets stumble.
Alternative mutual funds that use options to maintain exposure to stocks even as they tamp down volatility could provide the buffer between mild gains and massive losses.
****SD: Nice to see succor in a title. Next up, rancor.
Market Signals Suggest Oil Rally Has Momentum
Amrith Ramkumar – WSJ (SUBSCRIPTION)
Closely watched indicators in the oil market are boosting confidence that prices can continue to rebound, sparking bullish bets by investors ahead of the summer driving season.
****SD: “Open interest, or the number of contracts outstanding, for bullish options tied to U.S. crude hitting $65 by May has increased. That marks a 4.1% increase from Wednesday’s close. The number of contracts has jumped about 75% since the start of March, according to data from QuikStrike, an options pricing tool.”
Dimon Sees Recent Volatility as Harbinger of Things to Come
Michelle Davis – Bloomberg (SUBSCRIPTION)
Jamie Dimon warned investors to get ready for more wild rides like the one that upended markets at the end of last year.
Rage within the machine: Brexit headline blizzard overloads FX algos
Saikat Chatterjee – Reuters
Brexit is so confusing it’s even confounding the robots.
Machine-driven trading systems in the $5.1 trillion-a-day global currency market are struggling to cope with the blizzard of headlines about Britain’s efforts to extricate itself from the European Union, making it more expensive and risky to bet for or against sterling.
****SD: More on the pound from Bloomberg’s Vassilis Karamanis Pound Traders Enjoy Told-You-So Moment as House Blocks No-Deal.
Inside Volatility Trading: April 3, 2019
Net leveraged money in Cboe Volatility Index (VIX) futures—assets predominantly managed by hedge funds—began rebuilding short positions as equity markets recovered from late December losses. In contrast, leveraged long VIX exchange-traded products—assets predominantly owned by retail investors—started to trend higher in 2019.
Exchanges and Clearing
Cboe Global Markets Reports March 2019 Trading Volume
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, today reported March monthly trading volume.
HKEX Monthly Market Highlights
…The average daily turnover of equity index options for the first three months of 2019 was 159,348 contacts, a decrease of 10 per cent when compared with the 177,787 contacts for the same period last year.
Traders make ample use of our extended trading hours in roll month March
Exciting news: the results in March – the first roll month after the launch of our extended trading hours (THX) in the Asian time zones in December 2018 – exceeded our expectation.
EEX to introduce new suite of commodity products in power, freight and emissions derivatives
The European Energy Exchange (EEX) will expand its product range on the derivatives market on 3 June with new power futures, freight futures and options as well as further maturities in emissions options.
Dalian Commodity Exchange: Optimizing Contract System To Fully Boost Functioning Of Iron Ore Futures
… In addition, DCE would speed up the pace of listing iron ore options and intensify technical system support, market expansion service and legal support service, with an aim of encouraging overseas industry clients, like international mainstream mines and trading companies, to take part in the Chinese futures market and conduct international trade at the iron ore futures price.
****SD: The above excerpt is the very last sentence of the release.
Mercury Digital Assets Teams with the San Juan Mercantile Exchange for New Digital Asset Dark Pool and OTC Trading
Mercury Digital Assets (Mercury) announced today that it has partnered with the San Juan Mercantile Exchange (SJMX), and the San Juan Mercantile Bank & Trust International (SJMBT), to create the SJMX Dark Pool and SJMX Blocks, the exchange’s over-the-counter (OTC) trading venue for digital assets. The first trades in the dark pool have been successfully completed. The dark pool and OTC liquidity, built for the needs of institutional users, may be accessed via a FIX API or Mercury’s proprietary execution and order management system (EMS/OMS), BEACON.
****SD: Not sure if the OTC angle includes crypto derivatives, however, Mercury’s CEO is Anthony Saliba.
Backtesting Outlier Moves in SPY
Sage Anderson – tastytrade blog
One of the biggest threats when trading short volatility is the risk of a big, unexpected move (i.e. outlier move) in the underlying price.
Options are priced according to historical volatility observed in the underlying, as well as future potential developments (i.e. news). That means that unanticipated, and significantly impacting events can sometimes derail the expected performance of a short premium position.
A good example of this is the chaos observed in recent months in the stock PG&E Corporation (PCG), which has been suffering due to litigation associated with the wildfires in California. Such drama certainly wasn’t something most people would have articulated as a high-probability risk for PCG a couple years ago.
Token Sales Have Some Rules Now
Matt Levine – Bloomberg (SUBSCRIPTION)
…Look, if you are an investment bank, and you are going to sell structured notes whose payoff is based on a basket of large venture-backed private technology companies, I think you are obligated to acronym it up and call the thing a UNICORN. It ends with an “N,” for “note,” so you’ve got a head start. Unregistered Non-IPO Corporate Option Reverse Notes, something like that.
****SD: The story Levine is referencing is BNP Paribas Announces Investment in Forge and Launches Industry-First Investment Product focused on Pre-IPO Securities. His column also references some options-y Lyft stuff. Note: Lyft options started trading today.
Nobody Likes Deutsche Bank and Commerzbank’s Planned Merger
Elisa Martinuzzi – Bloomberg (SUBSCRIPTION)
It’s hard to find anyone who is, at least publicly, in favor of Deutsche Bank AG’s merger with Commerzbank AG.
Even one adviser on the deal privately acknowledged what most observers suspect: putting together the two ailing German banks will only create a bigger lender with exactly the same problems. That’s not exactly an endorsement of what would be Europe’s fourth-biggest bank.