Legal battle over Credit Suisse ‘volatility’ product expands to second firm
Trevor Hunnicutt – Reuters
The legal fight over a complex Credit Suisse financial instrument betting on stock market swings is expanding, with a new lawsuit targeting one of the product’s service providers.
An investor on Thursday sued both the bank and the service provider, a unit of Janus Henderson Group PLC, over the VelocityShares Daily Inverse VIX Short-Term Exchange-Traded Note (ETN).
Hey, Credit Suisse—Just Because You Disclose the Risks of Your Volatility ETN Doesn’t Mean You Can’t Be Sued
Crystal Kim – Barron’s
Investors were burned when the VelocityShares Daily Inverse VIX Futures Short Term exchange-traded note, a debt security, went down in flames following the Great Volatility Spike of Feb. 5. The death of this ETN was no mystery, unlike the volatility ETF that lived—the ProShares Short VIX Short-Term Futures ETF (SVXY)—whose escape was chronicled in Barron’s “Where Volatility Goes to Die.”
Risk Parity Is the Weak Hand in Markets ‘Tethered’ to Volatility
Luke Kawa – Bloomberg
Look out below.
Risk parity funds, a popular strategy that was battered during the volatility shock that rocked financial markets in February, are still the most vulnerable around, said Paul Britton, founder of Capstone Investment Advisors LLC.
Where is the fear? Markets wave off global risks
Simmering fears of a global trade war. An embarrassing political scandal in Japan. Rapid job-turnover inside the White House and the threat of faster interest rate hikes in the United States.
In any other era, this concoction would be a perfect recipe for heightened market volatility. But in recent months, markets have brushed aside risks and recurring bad news on geopolitics to stay focused on positive macro-economic cues.
S&P 500 Declines: S&P Stuck In Worst Streak This Year Now Faces Quadruple Witching
Lu Wang – Bloomberg
Equity bulls frustrated with this year’s longest stretch of declines can blame it on a regular market event happening this Friday.
That’s when the quarterly expiration of futures and options on indexes and individual stocks, known as “quadruple witching,” takes place. Typically it coincides with the rebalancing of the S&P 500 Index, spurring volatility and active trading.
US bank derivatives books larger since rescue of Bear Stearns
Ben McLannahan – Financial Times
At the end of January 2008, in what would turn out to be its final annual report, Bear Stearns went into some detail about its big book of derivatives. The book had a notional value of $13.4tn at the end of November, Bear said, up more than 50 per cent from a year earlier. A two-notch downgrade in the firm’s credit ratings, it added, would require it to come up with an extra $353m in collateral.
BoE says action needed to avert financial contract disruption after Brexit
Huw Jones – Reuters
The risk of disrupted insurance and derivatives contracts for customers is “material” unless Britain and the European Union take joint action ahead of Brexit, the Bank of England said on Friday.
Britain has made progress towards mitigating risks of disruption to financial services after it leaves the bloc next March, the BoE’s Financial Policy Committee (FPC) said in a statement on Friday on its March 12 meeting.
RBA deputy governor Guy Debelle: Is the bond market’s calm about to break?
Jonathan Shapiro – Financial Review
Are financial markets dangerously complacent?
It’s the key question troubling policymakers and investors as central banks retreat from financial markets while government spending increases tax cuts and rising tensions all suggest the feature will be harder, not easier, to predict.
There are few more respected authorities on the workings of financial markets than the Reserve Bank deputy governor Guy Debelle so when he offers his thoughts, its worth paying attention.
Exchanges and Clearing
CME Considers Bidding for Michael Spencer’s NEX Group
Matthew Leising, Dinesh Nair, Manuel Baigorri, Viren Vaghela – Bloomberg
London-based markets firm could also attract other suitors; NEX market value surges to $4.8 billion after confirming talks
Michael Spencer’s NEX Group Plc rose the most in almost two decades after CME Group Inc., a $56 billion giant of futures trading, approached the company on a potential takeover.
Hong Kong’s Financial Rivalry With Singapore Turns Caustic
Benjamin Robertson and Andrea Tan – Bloomberg
For decades, Hong Kong and Singapore have engaged in a more or less friendly competition for financial supremacy in Asia. This week, the rivalry got unusually heated.
“We don’t normally as an organization dignify remarks made by competitors with a response, but I thought today I’d make an exception to that rule,” Ashley Alder, chief executive of Hong Kong’s Securities and Futures Commission, said at a public forum in the city on Wednesday.
German Exchange Glitch Hits Futures Volumes, Delays Big IPO
Joe Easton – Bloomberg
Equity and derivatives trading was delayed on the day of a landmark stock debut in Germany due to a technical glitch, Deutsche Boerse AG said.
Trading on the Eurex derivatives platform began at 9:20 a.m. in Frankfurt, an hour and 20 minutes later than normal, disrupting options and futures including Europe’s most-traded financial derivative, 10-year German government bond futures.
UK Crypto Exchange to Launch First Physically Settled Bitcoin Futures Next Month
Rebecca Campbell – BlockExplorer News
U.K.-based cryptocurrency exchange Coinfloor has announced that it will be launching a physically settled bitcoin futures next month, making it a first.
Regulation & Enforcement
Federal Court Adopts CFTC Position on Cryptocurrency Authority
In the first case of its kind, a New York federal district court has adopted the position of the Commodity Futures Trading Commission (CFTC) that it has jurisdiction to regulate the virtual currency markets. In so doing, the court has likewise preliminarily enjoined two defendants in an alleged fraudulent scheme to defraud customers operating in those markets and broadly rejected important jurisdictional arguments to the contrary.
Transatlantic divide spills over at derivatives summit
Joe Rennison – Financial Times
Regulators from both sides of the Atlantic clashed, cryptocurrency pioneers drummed up enthusiasm and the hubbub of merger conversations filled the corridors at the main US calendar event for the derivatives industry this week.
Key players in the industry gathered at the Boca Raton resort in Florida — and here are three big themes from the conference.
S&P defends ratings methods in Australian derivatives lawsuit
Ratings agency Standard & Poor’s was expected on Friday to defend its ratings as transparent and in line with regulations in an Australian lawsuit in which it is accused of going soft on products that caused significant investment losses.
Goldman Sachs trade recommendations for a pickup in M&A activity
Joe Ciolli – Business Insider
It’s common knowledge that positioning for a share price spike following the announcement of a merger and acquisition (M&A) deal is a great way to make a quick buck in the stock market.
Companies are usually purchased at a premium to their current market value, which leads to a stock surge as investors rush to close the pricing gap. With that in mind, it would seem that the best possible way to trade on M&A speculation would be to simply buy shares of potential targets.
ProShares Trust Ultra VIX Short Term Futures ETF(NYSE:UVXY): Volatility On The Rise
Chris Vermeulen – ETF Daily News
Our recent research shows that the current US markets are setting up for what could become a very interesting price range rotation as well as increased volatility. Our team of researchers at Technical Traders Ltd. have identified a number of key elements that appear to be in place similar to 2014/2015 where the market setup an initial deep price rotation, followed by a deeper price rotation only to end with an advanced price rally on the news that the US Fed would continue buying US debt.
XIV And SVXY – What Really Happened?
Stuart Barton – Seeking Alpha
The volatility markets have already experienced two seismic events in 2018. First the sharp devaluation of inverse VIX Exchange Traded Products (ETPs) on February 5th leading to the retirement of the Credit Suisse issued VelocityShares Daily Inverse VIX Short-Term ETN (XIV) and the lesser known Tokyo listed Nomura Next Notes S&P 500 VIX Short-Term Futures Inverse Daily Excess Return Index ETN (2049:JP), and then the deleveraging of the popular ProShares Short VIX Short-Term Futures ETF (SVXY) and Ultra VIX Short-Term Futures ETF (UVXY) on February 27th. How did this happen, should we have seen it coming, and what if anything could have been done to avoid it?
Pattern Similarity Between 2000 And 2018: Are We Heading Into The Final Blow-Off Rally?
Fractals are patterned shapes that exist at different temporal scales. They are ubiquitous in nature, such as the large-scale outline of a continental coastline, and the close-up outline of a smaller chunk of the coastline; both show the same shape but at different scales. It is not clear why fractals appear in the trading numbers of the stock market, but then again, the reasons for their existence do not affect their utility. The reality is that fractals repeat and can be used to gauge possible scenarios in the future. Their existence may have something to do with the consistent nature of human behavior; en masse, humans tend to repeat the same actions. It goes hand in hand with the effect that investor sentiment consistently has on stock markets.
Quadruple Witching And Housing Data Take Center Stage Heading Into Weekend
It’s been nearly eight months since the S&P 500 Index (SPX) finished a whole week without recording even a single day of gains, but it has a chance to do that Friday if the current malaise continues. Quadruple witching and housing numbers could help drive the market as investors start gearing up for next week’s Fed meeting.