Observations & Insight
MWE World of Opportunity – How to Spot Financial Fraud
“As an auditor, if I start to look at recurring transactions and I ask the question, ‘What’s the economic purpose for this transaction?’ and I don’t get the right answer, I keep asking that question.”
Before Barings Bank went belly-up, John Hague, recently retired from RSM, recalls giving a presentation to back office personnel. Some Barings people were there – apparently they didn’t pay attention to Hague’s talk.
In this video from MarketsWiki Education’s Chicago event, Hague reviews some well known frauds, the characteristics they share and some of the best market movies to watch.
Watch the video here »
FINRA, Exchanges Set New CAT Schedule After Missing Deadline
Melanie Waddell – ThinkAdvisor
FINRA and national securities exchanges have failed to begin reporting consolidated audit trail data as scheduled, SEC Trading and Markets chief Redfearn said.
****SD: The Reuters’ story can be found here and the statement from SEC Director of the Division of Trading and Markets Brett Redfearn here. The current SRO Master Plan indicates that it likely won’t be until May 2021 that complex options reporting is ready to go live. Before anyone starts worrying about penalties surrounding the delays, Redfearn says in his statement that “the Division does not expect to make enforcement referrals concerning industry members for failure to report data to the CAT if the CAT is not sufficiently developed to receive that data.” If you have opinions about the CAT timeline, email TradingandMarkets@sec.gov. I wonder what Navinder Sarao thinks about the ongoing development and implementation of the system he inadvertently helped create?
As We Enter the Treacherous September-October Time of the Year, What Is VIX Telling Us?
Russell Rhoads – TABB Forum (Free w/ registration)
Traders have always seemed to be a little more skittish about the stock market in the Autumn months. Historically, some of our biggest drops have occurred as we send the kids back to school and 100 percent of our focus returns to the markets. So, I always like to look at what VIX traders are thinking as Labor Day approaches.
F&O Investors To Pay Tenfold Higher Transaction Tax On Delivery
Sajeet Manghat – Bloomberg Quint
Investors taking physical delivery of securities to settle derivative contracts will have to pay a tenfold higher transaction tax than those who settle in cash.
That’s because the taxman clarified to the Bombay High Court that the same securities transaction tax rate will apply to physical settlement in derivatives and equity segments. For taking delivery of shares, investors will now pay Rs 10,000 for every Rs 1 crore of transaction value, compared with Rs 1,000 earlier.
Exchanges and Clearing
CME Group floats plan to buy out Class B shareholders, shrink board of directors
Lynne Marek – Crain’s Chicago Business
The exchange operator has proposed buying out holders of Class B shares handed out to seat-holders in 2000 as the company pursued its IPO. If OK’d, the board – one of the nation’s largest – would shrink.
Borsa Istanbul begins work on setting up swap market
Hurriyet Daily News
Turkey’s main stock exchange Borsa Istanbul has started work on setting up a swap market, beginning with foreign currency markets, it said in a statement on Aug. 27.
It added that work on deepening existing derivative markets and other efforts to raise added value for the economy would be accelerated.
****SD: It is unclear at this time what “deepening existing derivative markets” means. The statement from Borsa Istanbul can be found here.
Veteran quant joins Millennium as a risk manager with one unique responsibility
Beecher Tuttle – eFinancialCareers
A quant trader and researcher who cut his teeth at Lehman Brothers has joined Millennium Management in an interesting new role that may have consequences on who the hedge fund ultimately hires. Derrick Li started at Millennium in New York in August.
Li’s new position at Millennium has some similarities to his previous career stops at Nomura and Barclays – he’ll still be building quantitative analytics tools and covering equity derivatives. But Li noted on LinkedIn that part of his duties as a risk manager include interviewing prospective portfolio managers and evaluating their trading strategies.
****SD: According to the article, including risk managers in the hiring process is a novel proposition.
Regulation & Enforcement
EU drops reporting relief for exchange-traded derivatives
Samuel Wilkes – Risk.net (SUBSCRIPTION)
European Union legislators look set to scrap the proposed relief exempting banks from reporting exchange-traded derivatives (ETD) to regulators, although members of the European Parliament have asked if the requirements can be simplified.
Trading Technologies Extends TT Platform into Brazil via the B3 Data Center
Trading Technologies International, Inc. (TT) today announced that execution and client connectivity services through the TT platform are now available in Brazil through the B3 Data Center. This move establishes regional access to TT’s worldwide network of data centers while providing colocated connectivity to B3 for unprecedented global execution of latency-sensitive strategies.
Sterling Trading Tech Achieves Record Growth in the First Half of 2018
Sterling Trading Tech (STT), a leading broker-neutral provider of professional trading technology solutions for the global equities, options, and futures markets announced record breaking results in the first half of 2018, with over 20 new clients added including Areus Wealth Management, Veloric Asset Management and KBK Capital Management. Existing clients also added-on additional products, leading Sterling to the best financial results for a 6-month period in its history.
Commentary: Record U.S. yield curve bets plunge into red as inversion looms
Jamie McGeever – Reuters
Hedge funds are doubling down on their bets that the U.S. yield curve will steepen, just as it flattens to within 20 basis points of inversion, historically a sure-fire indication that the economy is headed for a slowdown.
****SD: Yields right now on 2s, 5s, 10s and 30s are ~ 2.66, 2.76, 2.87 and 3.02. Mnuchin said that he is “not at all concerned” about the convergence in rates.
Using the VIX Futures Term Structure to Predict Volatility ETP Prices
Vance Harwood – Six Figure Investing Blog
Status quo forecasting is sometimes very easy to do. For example, if you predict that tomorrow’s high temperature will be the same as today’s high, your estimate will be close to the actual high much of the time. Predicting volatility Exchange Traded Products (ETP) prices is not so straightforward.
How Investors Can Short Tesla Inc Stock With Options
Ellen Chang – US News
While Tesla Inc has remained one of the most-shorted stocks in the New York Stock Exchange, retail investors have also taken advantage of the volatility in the electric auto manufacturer’s shares by buying puts.
Options traders have earned millions of dollars since Tesla’s CEO Elon Musk infamously tweeted that he was taking the company private at $420 a share on Aug. 7, sending TSLA stock into a tailspin. Late Friday, Musk announced he was abandoning the effort, sending TSLA stock down again.
Markets may be signaling rising recession risk: Fed study
Ann Saphir – Reuters
A narrowing gap between short-term and long-term borrowing costs could be signaling heightened risk of a U.S. recession, researchers at the San Francisco Federal Reserve Bank said in a study published on Monday.
****SD: The study can be found here.
AMD short sellers gutted by ‘stealthy short squeeze’
Wallace Witkowski – MarketWatch
Short sellers of Advanced Micro Devices Inc. have faced destruction in 2018, losing nearly $3 billion on paper in what one analyst contends is a prolonged “stealthy short squeeze.”