Kurtosis Monsters; SEC Warns on Leveraged Funds

Nov 13, 2018

Observations & Insight

Coinigy Joins with Merkle Data to Provide Enhanced Data
Thom Thompson – John Lothian News

Coinigy, the Milwaukee-based cryptocurrency trading front-end and data service, announced an
agreement Tuesday in which Merkle Data would provide its three cryptocurrency indexes to Coinigy’s customers. Merkle Data provides analytics and risk solutions to crypto institutions in part by analyzing the publicly available data that are a hallmark of the blockchain economy.

Coinigy offers its customers a trading interface that is connected to 15 different cryptocurrency platforms. Customers can use the Coinigy interface to access their own accounts at the cryptocurrency platforms, providing what Derek Urben, the Coinigy CFO and director of business development, calls “remote control of their accounts.” Urben notes that many cryptocurrency traders have positions in a variety of currencies on many different trading platforms, and Coinigy users can manage them all from a single platform.

Read more here

****SD: For some other JLN crypto content that happens to feature Derek Urben, see our Crypto Outlook video filmed at FIA Expo.


UK and EU provisionally agree text on Brexit withdrawal treaty
George Parker and Alex Barker – Financial Times
Theresa May will convene her cabinet on Wednesday for a historic meeting to agree Britain’s terms for leaving the EU after the two sides agreed the draft exit treaty after months of negotiations in Brussels.

****SD: Still plenty of hurdles remain. For other sources with the news, see – CNN, Associated Press via ABC, The Guardian and the NY Times. In related news via the WSJ, the SEC Calls For More Detailed Disclosure on Brexit Impact.

Lead Stories

Monsters lurk in the calm of low market volatility
Stuart Kirk, DWS Global Research Institute – Financial Times (SUBSCRIPTION)
Which horror films are scarier? Those where a monster is shown frequently in snippets? Or where nothing is revealed as tension builds to a climax? Most people answer the latter, even if the total amount of menace they are exposed to ends up being the same in each movie.

****SD: Did Stuart Kirk spend all of October watching AMC’s FearFest lineup of horror programming? Anyway, it’s not very often that you get a chart of the S&P’s one-year rolling kurtosis in a mainstream publication, even one that focuses on finance. For more from Kirk/DWS on kurtosis (no fun horror movie theme in this one), check out this paper from October – Don’t be fooled by low volatility.

SEC Official Warns Leveraged Funds Could Hurt Reputation of ETFs
Rachel Evans – BloombergQuint
Investment products that use derivatives to improve returns are threatening the reputation of the $3.6 trillion market for exchange-traded funds, according to one of five commissioners at the U.S. Securities and Exchange Commission.

****SD: “Could”? I’d argue that the activity of early February did that already. Of course, the leveraged ETP universe is not limited to VIX-related ETPs. You can trade 2x (and 3x in some cases) leveraged ETFs on the vast majority of major products and indices. Crude Oil? Yep. 20+ year Treasury bonds? Of course. The Russell 2000? You bet.

Love It or Hate It, Volatility Is Back: How Pros Contend With It
Abhishek Vishnoi and Divya Balji – Bloomberg (SUBSCRIPTION)
Buy-the-distress seen working for longer-term investors; Cash and options strategies cited, client communication key
In a year full of debate on whether stocks have peaked, one thing’s clear: volatility is back.

****SD: I hope everybody reading this newsletter is in the “love it” category.

Sell-Off Becomes Roughest Since 2011 on Third Leg of Nasdaq Drop
Elena Popina and Luke Kawa – BloombergQuint
Daily swings averaging 1.7 percent in megacap tech index; Prices for protection via tech options exceed rest of market
Another beating in tech shares has thrust the correction that began last month into a league of its own versus past selloffs.

U.S. Gas Traders Don’t Believe (the Government) Winter’s Tale
David Fickling – Bloomberg (SUBSCRIPTION)
As oil sinks into a bear market, methane is on a tear. Hedge funds are betting the U.S. government is wrong and the best is yet to come.

****SD: Hedge funds still have a near-record long position in futures and options.

Hedge funds enforce correction to oil market’s course
John Kemp – Reuters
Hedge funds have sold the equivalent of almost half a billion barrels of crude oil and refined products in the last six weeks, as worries about slowing demand replaced earlier concern over sanctions on Iran.
Hedge funds and other money managers cut their combined net long position in the six major petroleum futures and options contracts by another 108 million barrels in the week to Nov. 6.

A Financial Crisis That Only Targets Advisors
Steven M. Sears – Financial Advisor Magazine
Toward the end of each year, Wall Street erupts into a speculative frenzy about what may occur next year. We could join the mob and predict markets will be volatile as the Federal Reserve normalizes interest rates, and even offer some investment ideas, but it is better to focus on nascent forces that are increasingly impacting financial advisors even though many are unaware of the risk.

Volatility’s a Friend for Asian Hedge Fund Bucking Market Trend
Bei Hu – BloombergQuint
Hong Kong-based True Partner Fund returned 4.8% in October; Fund seeks to profit from relative price swings across markets
One hedge fund in Asia is making the most of volatile markets, extending gains this year to 24 percent as stocks in many geographies tumble.

Inaugural Cboe Risk Management Conference (RMC) Tel Aviv Features Packed Program, Strong Attendance
Matt Moran – Cboe
More than 150 financial professionals, including top traders, strategists and researchers attended the inaugural Cboe Risk Management Conference (RMC) in Tel Aviv, Israel on November 6. A variety of topics related to the management of risk and return in investment portfolios were discussed by 17 speakers at RMC Israel, including the three speakers pictured below: Sheldon Natenberg (left), Andy Lowenthal (center), and David Blitzer (right).

Exchanges and Clearing

Overseas Trading Of HKEX’s Derivatives
Press Release
The Stock Exchange of Hong Kong Limited (“SEHK”) is pleased to announce Taiwan Futures Exchange has approved the inclusion of additional 19 stock options classes in its list of offshore exchanges and contracts for which Taiwan Futures Commission Merchants (“FCMs”) have trading authorization.
Taiwan FCMs can now offer 56 stock options classes to Taiwan investors. Please refer to Attachment I for the full list of SEHK derivatives which are available to Taiwan investors.

MIAX Options & MIAX PEARL Holiday Schedule – Thanksgiving 2018
Please be advised that the MIAX Exchanges will be closed on Thursday, November 22, 2018 in observance of the Thanksgiving Holiday.
On Friday, November 23, 2018, the MIAX Exchanges will have an abbreviated trading session. All Option Classes will close 3 hours early.


Dash Financial hires former Credit Suisse algo trading executive
Hayley McDowell – The Trade
Dash Financial Technologies has expanded its team with the addition of a twenty-year Credit Suisse veteran to lead its equity products.

This French bank is quietly building a macro business on Wall Street
Sarah Butcher – eFinancialCareers
Looking for a macro derivatives trading or funding job on Wall Street? Credit Agricole has been hiring.
Insiders at the French bank say it’s building up a fixed income rates and solutions business in the U.S. and that there have been several big hires in recent months.

****SD: This despite Credit Agricole cutting its equity derivatives business.

Sterling Trading Tech Taps Fintech Veteran Todd Kenney as CTO
Celeste Skinner – Finance Magnates
Sterling Trading Tech, a provider of professional trading technology, announced today that it has secured financial technology veteran Todd Kenney as its Chief Technology Officer (CTO).

Regulation & Enforcement

Wall Street Drags Main Street Into a Fee Dispute
Nir Kaissar, Bloomberg – Washington Post
A battle is brewing between Wall Street and stock exchanges. Wall Street says it’s fighting for ordinary investors, but don’t be fooled. Like everything else on Wall Street, this dispute is about the bottom line.

****SD: If you’re curious what the OPRA feed fee breakdown is, check out this PDF.

What Are We Learning About Artificial Intelligence In Financial Services? Federal Reserve Governor Lael Brainard, At FinTech And The New Financial Landscape, Philadelphia, Pennsylvania
Although it is still early days, it is already evident that the application of artificial intelligence (AI) in financial services is potentially quite important and merits our attention. Through our Fintech working group, we are working across the Federal Reserve System to take a deliberate approach to understanding the potential implications of AI for financial services, particularly as they relate to our responsibilities. In light of the potential importance of AI, we are seeking to learn from industry, banks, consumer advocates, researchers, and others, including through today’s conference. I am pleased to take part in this timely discussion of how technology is changing the financial landscape.1

How The CFTC Is Going Digital
Evan Peterson – CME Group OpenMarkets
The Commodity Futures Trading Commission is modernizing. The analog to digital switch happened in financial markets years ago and continues today. CFTC Chairman J. Christopher Giancarlo is making it a mission that the agency keeps up the pace of fast-changing markets.

Remarks Of CFTC Chairman J. Christopher Giancarlo At The Global Financial Leadership Conference, Naples, Florida
I want to start off by stating something that is widely known, but inadequately voiced by those of us in the official sector. That is that the Chicago Mercantile Exchange and its family of listed exchanges and the marketplaces they serve are profoundly essential institutions in our economy. Indeed, they are a foundational pillar of the American way of life.


OptionMetrics Adopts Financial Instrument Global Identifier (FIGI) for Options Data Products in US, Europe, Asia, and Canada
OptionMetrics, an options database and analytics provider for institutional and retail investors and academic researchers, has added the open-source global identification framework, the Financial Instrument Global Identifier (FIGI) to its IvyDB US, Europe, Asia, and Canada options data products. These identifiers provide comprehensive global coverage of financial markets, providing a contextual view of an instrument as users move through functional aspects of trading, settlement, portfolio management, asset servicing, risk management, and regulatory reporting.

FIX Plans Broader Asset Class Coverage and Move into Back-Office Trade Settlement
Intelligent Trading Technology
FIX is extending its reach with plans to broaden asset class coverage and introduce the FIX messaging protocol into back-office settlement workflows between both asset managers and custodians, and brokers and custodians. These developments are being overseen by the EMEA Post-Trade Working Group within the FIX Trading Community and are designed to standardise workflows and allow firms already invested in FIX to extend its use.


The Dow Tumbles 602 Points Because All the News Looks Bad
Evie Liu – Barron’s
Not a Good Day. The stock market was pressured on Monday with bad news on multiple fronts. Besides Apple ‘s (AAPL) product-demand concerns and a cloud hanging over Goldman Sachs Group (GS), the Trump administration is reportedly looking to broaden its trade battle with China beyond tariffs. All three major indexes ended the day in the red

JPMorgan Says Don’t Play the Downturn, the S&P Will Bounce Back
Chris Anstey – Bloomberg (SUBSCRIPTION)
While many investors are getting anxious about the lateness of the economic and market cycle, it’s not yet time to abandon U.S. equities, according to JPMorgan Chase & Co.
“An increasing chunk of the investor base is of the view that one has to be already positioned for the next downturn,” strategists Mislav Matejka, Prabhav Bhadani and Nitya Saidanha wrote in a note Monday. “We continue to believe that S&P 500 will recoup the October correction, similar to what it achieved post- the February one.”

****SD: Bank of America has a similar take described in Business Insider Prime – Stock market investing strategy for year-end rally

A SWAN Takes Flight
William Trainor – Seeking Alpha
On Nov. 6, 2018 Amplify launched the BlackSwan Growth & Treasury Core ETF (SWAN) based on S-Networks SWANXT index which seeks significant exposure to the S&P 500 while mitigating downside risk. The strategy put forth to attain this holy grail of investing involves buying long term call options (LEAPs) on the S&P 500 coupled with a ladder of treasuries having a duration approximately equal to the 10-year T-bond.

****SD: A deep dive into an ETF that deploys an options strategy.


4th Annual Cboe Risk Management Conference Asia 2018
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, will host the 4th annual Cboe Risk Management Conference (RMCSM) Asia on Monday, December 3, through Tuesday, December 4, 2018, at the Conrad Hong Kong..


CQG and Matador Prime Team Up to Provide FX Liquidity on CQG Products
CQG News
CQG, a leading global provider of high-performance trading, market data, and technical analysis tools, announced today that the firm has collaborated with Matador Prime, a market-leading, global institutional broker. Matador’s unique liquidity offering includes pricing and execution services for spot foreign exchange (FX) and contracts for difference (CFD) indices. Through the partnership, CQG’s customers can access Matador’s liquidity and trade directly with Matador Prime.

****SD: Matador Prime – not to be confused with the steak company.

The Death of Exchange 1.0 and advent of Digital Exchange 2.0: more than just the matching engine
The Trade News Crypto
In order to generate development and innovative change, we must question and challenge what is already before us. It is not as simple as taking the next step up the ladder or adding to what you already have, it is about stripping a business model back to the basics, clarifying what you want to achieve and doing so by taking a completely different path.

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