Observations & Insight
The Spread – Calm Waters, For Some
The big deal for Harvest Volatility Management fell through, and there were even more regulatory and enforcement happenings of note – we give all the updates in this episode of “The Spread.”
Watch the video and see the stories referenced here »
Wall Street Rides FAR Co-Founder Bryan Harkins Honored for Philanthropy at Markets Choice Awards
GlobeNewswire via Yahoo Finance
Wall Street Rides FAR, an annual charity cycling event benefitting the Autism Science Foundation, today announced that co-founder Bryan Harkins was recognized for his philanthropic work at the Markets Choice Awards, a Markets Media-hosted ceremony recognizing industry leaders in institutional trading and technology.
****SD: Awesome and congrats to Bryan.
Hedge Funds Are Shorting the VIX at a Rate Never Seen Before
Sarah Ponczek – Bloomberg (SUBSCRIPTION)
CFTC data showed record net position betting on market calm; Sign of complacency? Strategists advise investors not to worry
As equities surge to all-time highs, volatility has all but vanished. Hedge funds are betting the calm will last, shorting the Cboe Volatility Index, or VIX, at rates not seen in at least 15 years.
Large speculators, mostly hedge funds, were net short about 178,000 VIX futures contracts on April 23, the largest such position on record, weekly CFTC data that dates back to 2004 show. Commonly known as the stock market fear gauge, aggressive bets against the VIX are, depending on your worldview, evidence of either confidence or complacency.
****SD: I first read the following headline from FXStreet – Record Short Positions In The VIX Are Worth Noting – as “Record Short Positions In The VIX Are Worth NOTHing” which I figured would be a more interesting take… Business Insider has Traders think volatility in US stocks will get even lower as central banks turn dovish.
SEC obtains asset freeze over Anadarko trading
Kadhim Shubber – Financial Times (SUBSCRIPTION)
The Securities and Exchange Commission has obtained an asset freeze against alleged insider traders who purchased call options in Anadarko Petroleum ahead of its $50bn agreement to be acquired by Chevron earlier this month. The US securities regulator alleged in a court filing on Monday the traders had made $2.5m in illicit profits by buying around 1,650 out of the money call options in Anadarko between February 8 and April 1.
****SD: Reuters – SEC obtains asset freeze over suspected illegal trading in Anadarko.
Meet the most exceptional trader at Credit Suisse
Sarah Butcher – eFinancialCareers
There are times when Credit Suisse finds itself in possession of some special talent. Take Nas Al-khudairi, the bank’s former head of global cross asset electronic trading who went to Barclays. Al-Khudairi slipped out of CS in 2017, but as of last year it seems there’s a new prodigy in the building, and his presence hasn’t gone unnoticed at the top. When Credit Suisse announced its results for the first quarter last week, the performance of its trading businesses was notably better than rivals’. In equities in particular, Credit Suisse achieved 10% year-on-year revenue growth, while every single rival experienced a double digit percentage decline. For this, the Swiss bank may have one man in particular to thank: Ross Mtangi its New York-based global head of flow derivatives trading.
Market `Melt-Up’ Exposes Investor Gap, Bernstein Quants Say
Gregor Stuart Hunter – Bloomberg (SUBSCRIPTION)
This year’s market rally has revealed a schism among investors, according to quantitative strategists at Sanford C. Bernstein & Co.
In equities, indicators such as fund flows point to neutral investor confidence even as global markets set fresh records. By contrast, traders have increased short positions on assets such as gold, U.S. Treasuries and volatility that typically offer protection in the case of a stock sell-off. That behavior suggests an overall bullishness “to a degree that is becoming alarming,” according to a research note from the brokerage.
The Chicago Brokerage Chasing Clients Wall Street Left Behind
Catherine Ngai and Cristiane Lucchesi – Bloomberg (SUBSCRIPTION)
R.J. O’Brien & Associates LLC is adding staff in offices from Houston to London, in a bid to expand its energy offerings even as major players retreat from commodities amid lackluster profits and increased oversight.
****SD: In case you missed it, we just put out a video with RJO CEO Gerry Corcoran – Making an Independent FCM a Global Ag Powerhouse.
Exchanges and Clearing
NSE Raises Margins on Futures, Options with High Open Interest
The NSE (National Stock Exchange of India) has raised trading margins required for stock futures and options by up to 300%, depending on market wide position limits.
Public Quantitative Disclosure Newsletter
The Global Association of Central Counterparties (C CP12) publishes the Public Quantitative Disclosure (PQD) Newsletter to present a panorama of the CCP industry to market participants, relevant authorities and the broader public. The analysis is based on PQD reports published by central counterparties (CC Ps) globally under the Principles for Financial Market Infrastructures (PFMI) requirements set by Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions (CPMI-IOSCO).
****SD: Roughly 45 percent of global initial margin in Q4 was in the Americas with another 45 percent coming from EMEA. APAC accounted for the remaining 10 percent. Initial margin required for equity derivatives in Q4 2018 was ~$138 billion, down 5.11% from Q3, but up 2.22% on Q4 2017.
Regulation & Enforcement
Bart Chilton, CFTC’s Colorful Swaps-Rules Backer, Dies at 58
Hailey Waller and Nick Baker – Bloomberg (SUBSCRIPTION)
Bart Chilton, the former U.S. Commodity Futures Trading Commission official who called for tighter regulation of swaps and derivatives, and was known for his long blond hair that stood out in buttoned-down Washington, has died.
The TV channel RT America, for which Chilton hosted the show “Boom Bust,” announced the death late Saturday, citing an unspecified “sudden illness.” He was 58.
****SD: CNBC here.
How to Use Stock Splits to Outwit the Market
Mark Hulbert – Barron’s
The graveyards of Wall Street are filled with those who bet that they knew more than the market.
Yet it would be a mistake to conclude that the market never makes mistakes. Though errors may not be common, they do occur. You should be on the lookout for them, since they create opportunities for easy profits.
Traders Brace for Big Moves After GE Earnings This Week
Gunjan Banerji – WSJ (SUBSCRIPTION)
Options traders are betting on an explosive move in General Electric Co. shares after its earnings on Tuesday, a sign that turbulence in the battered stock may not be over.
Goldman Sachs is ditching its top 10 commodity recommendations, saying risks were ‘misplaced’ — here are its new batch of trades
Callum Burroughs – Business Insider Prime (SUBSCRIPTION)
Goldman Sachs is closing 10 of its commodity trading decisions made in December as a reflection of a changing macroeconomic landscape, according to a note published Friday.
“Time to go micro,” the bank says, meaning smaller, sector specific risks are now taking center stage. The bank is bullish on agriculture and pork, among other commodity picks. Goldman Sachs named its 10 best commodity trades last year. It’s now dropping all of them.
“We are closing all of our remaining top 10 trading recommendations from last December – all of which were based upon misplaced macro risk – and opening up 10 new top trades,” analysts wrote in a note to clients on Friday.
****SD: Goldman’s new recommendations: Long copper and short zinc; long December 19 aluminum and short December 20 aluminum futures; long 62% vs. 58% iron ore premium; long gold and short silver; long palladium, short platinum trade; long S&P GSCI Agriculture & Livestock Index; and long London Metals Exchange aluminum and short Shanghai Futures Exchange aluminum.
Oil Bulls on Longest Run in 13 Years as Trump Demands Price Cut
Alex Nussbaum – Bloomberg (SUBSCRIPTION)
Oil is on its longest bull run in 13 years, fueling a rally that has U.S. President Donald Trump fretting about higher prices.
Hedge funds have increased bullish sentiment on U.S. crude prices for the last nine weeks, the longest such run since 2006, according to data released Friday. Almost 14 times as many bets have been placed on prices going up as on a decline, as investors see supply threats multiplying around the globe.
ErisX crypto exchange in final testing
Valentina Kirilova – LeapRate
ErisX, the Chicago-based crypto exchange, is in the final testing phase before launching its spot crypto trading product offering. The news is that it is also testing with a number of its strategic partners in order to finalize operating protocols before the big day. Since TD Ameritrade and a few other notables are known to be investors in the exchange, the presumption is that the large online broker is about to offer crypto trading to its 11 million-strong customer base, a shot that will be heard around the world, so to speak.
****SD: A ton of options-related players invested in ErisX including TD Ameritrade, DRW Venture Capital, Susquehanna, Cboe, Virtu Financial, and Nico Trading.
Schrodinger’s Libor Refuses to Leave Its Box
Mark Gilbert – Bloomberg (SUBSCRIPTION)
By the end of 2021, the smorgasbord of benchmark borrowing costs known as the London Interbank Offered Rates is due to die. Rendered archaic by shifts in the wholesale money markets, not to mention sullied by rigging, the world’s regulators have deemed Libor no longer fit for purpose.
Brexit threatens pound’s status as global currency, surveys says
Claire Jones – Financial Times (SUBSCRIPTION)
Brexit is likely to threaten the pound’s status as a global reserve currency according to a survey of central bank money managers who say Britain’s departure from the EU will alter their views on sterling.
Fed Meeting This Week Won’t Answer Key Economic Questions
Mohamed A. El-Erian – Bloomberg (SUBSCRIPTION)
Data released last week measuring the U.S. economy ensured that, absent a major communication mishap, this week’s policy meeting of the Federal Reserve should end up being a no-drama non-event for markets. That’s doubtless what Fed Chairman Jerome Powell and his colleagues on the Federal Open Market Committee desire. But it will leave for later meetings unsolved questions that have been highlighted by the latest economic numbers.