OCC Volume Down 7% in March; Too Volatile, or Too Calm, Markets Not Right for Wall St. Banks

Apr 1, 2019

Observations & Insight

The Spread – A CAT and Three Lizards Walk Into a Bar…
What do an Irish pub, a reptilian derivative product and eurodollar trading have in common? This episode of “The Spread.”
Watch the video and see the stories referenced here »


March 2019 Options Volumes via OCC
(Click for larger image)

Lead Stories

OCC Cleared Contract Volume Down Seven Percent in March
OCC, the world’s largest equity derivatives clearing organization, announced today that total cleared contract volume in March reached 411,838,353 contracts, a 7.0 percent decline compared to last March. OCC’s year-to-date average daily cleared contract volume is 19,482,998, down 15.1 percent compared to 2018’s record-breaking pace.

Too Volatile, or Too Calm, Markets Still Aren’t Just Right for Wall Street Banks
Markets have been calm so far in 2019. That’s bad news for Wall Street trading desks. Early last year, markets were choppy. Investors were unsure about interest rate increases with a new Federal Reserve chairman starting, and stock-trading surged as complex products tied to volatility began moving wildly.

****SD: I guess a Goldilocks economy to the big banks means all conditions are either too hot or too cold with no “just right” options?

Citadel’s Secret Sauce
Paul Rowady – Alphacution
Alphacution believes that Citadel’s core competitive advantage – its secret sauce and super power – can be found on display every day, out in the open, and is not related to a specific product, asset class, region or even a specific trading strategy or temporal wave of theoretical alpha. No, the thing that makes Citadel so unique is its focus on process. You just need to know what to watch for.

****SD: “Furthermore, Alphacution has detected evidence of a statistical arbitrage strategy embedded in this data along with various hedging activities, which will be displayed shortly…”

Why Stocks May Be Able to Look Past the Big Bond-Volatility Jump
Joanna Ossinger – Bloomberg (SUBSCRIPTION)
Tumbling bond yields since the Federal Reserve’s dovish March statement may not necessarily suggest the growth outlook is so bad that equities need to fall in sympathy.

Taleb Was Right. We’re Still Fooled by Randomness; You know you shouldn’t chase “hot hands” in the fund management industry. This study says you really, really shouldn’t.
Mark Gilbert – Bloomberg (SUBSCRIPTION)
In his 2001 book “Fooled by Randomness,” author and fund manager Nassim Nicholas Taleb argued that chance plays a largely unacknowledged role in success, particularly in the finance industry. A new study of the returns generated by fund managers suggests that even the minority able to beat their benchmarks are lucky rather than good — and maybe not even that lucky.

Wall Street Embraces Weather Risk in New Era of Storms
Brian K Sullivan, Alexandra Semenova and Eric Roston – Bloomberg (SUBSCRIPTION)
Climate change revs up number, intensity of weather disasters
Every uptick in wind speed along the Gulf of Mexico shoreline is of enormous interest to Mike Eilts. Eilts, senior vice president for weather at DTN, a Minnesota-based analytics firm, knows that an unexpected cold front in Louisiana, nudged southward by a jet stream unsettled by global warming, can push rising winds into the Gulf, putting dozens of floating oil rigs at risk.

Sterling Is Trapped in the Brexit Tractor Beam
Marcus Ashworth – Bloomberg (SUBSCRIPTION)
After a dreadful week for the divorce negotiations, the pound is as untradable as ever.

Exchanges and Clearing

Nasdaq ISE, Nasdaq PHLX and NOM Updated Pricing, Effective April 1, 2019
Nasdaq Options Trader Alert #2019
Effective Monday April 1, 2019, pending filing with the SEC, the following changes will apply to Nasdaq ISE, Nasdaq PHLX, and the Nasdaq Options Market (NOM), respectively.

SR-CBOE-2019-019 – Proposal to amend the Select Customer Options Reduction program.
The Exchange proposes to amend the Select Customer Option s Reduction program (“SCORe”) to (i) eliminate the use of product multipliers and (ii) increase certain discount s. By way of background, SCORe is a discount program for Retail 2, Non -FLEX Customer (“C” origin code) volume in the following options classes: SPX (including SPXW), VIX, RUT, MXEA, MXEF and XSP.

Reminder – Cboe EDGX Options Plans to List Options on the Mini -SPX Index and the Addition of Matching Unit 33
Effective April 8, 2019, EDGX Options Exchange will begin trading options on the Mini -SPX Index, symbol XSP.

Cboe Global Markets Plans Listing of Options on Lyft, Inc. (LYFT)
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, today announced it plans to list options on Lyft, Inc. (LYFT), the fast-growing multimodal transportation network.

Dalian Commodity Exchange Adds The Products For And Adjusted The Time Of After-hours Trading
Dalian Commodity Exchange (DCE) released a notice on March 25, stating that it would add 6 futures products and 1 options product in chemical and corn series for after-hours trading and adjust the close time of after-hours trading from 23:30 to 23:00.

Regulation & Enforcement

SEBI slaps 94 lakh fine on 17 entities
Hindu Business Line
Capital markets regulator SEBI slapped 94.5 lakh penalty on 17 entities for indulging in fraudulent trade practices in illiquid stock options segment on the BSE.

Watchdogs probe systemic risks of passive fund growth; The growing weight of money committed to ETFs by asset managers is attracting more scrutiny
Siobhan Riding – Financial Times (SUBSCRIPTION)
Financial regulators across the world are increasingly focused on potential dangers of exchange traded funds, which now account for $5.2tn of assets globally.


Alt Vol: The Other Indicators You Could Be Watching
Jayanthi Gopalakrishnan – The Ticker Tape Blog
A strong wind forecast is enough to send most of us indoors. Not surfers, though. For them, it’s a different story—a surfer lives for windy conditions. But it has to be the right kind of wind. There are plenty of factors that impact the quality of the surf—tide, type of wind, type of break, direction of wave. The right combination creates the perfect surf. Surfers long for those days—that’s when you’ll find them at the beach in swarms.


Markets: High Returns Quarter May Be Giving Way to Volatility
Mohamed A. El-Erian – Bloomberg (SUBSCRIPTION)
Three events featured prominently in the financial news last week. Each was significant in its own right, but together they point to the risk in coming months that volatility and investor discomfort could follow what has been a comforting first quarter of across-the-board high returns, relatively low volatility and favorable correlations.

What Are Fat Fingers and Why Don’t They Go Away?
Eric Lam – Bloomberg (SUBSCRIPTION)
A momentary 83 percent plunge and rebound in one of Singapore’s largest stocks, Jardine Matheson Holdings Ltd., left dazed traders wondering whether a “fat finger” had struck again in January. After the dust settled, Singapore Exchange Ltd. decided not to cancel the trades, insisting neither human error nor a computer malfunction was to blame. Still, Goldman Sachs and Morgan Stanley were said to have sought to cancel or amend their trades later, indicating mistakes were made somewhere. The episode serves as a reminder that even the best-designed systems can behave unexpectedly once humans enter the equation.

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