Someone Just Wrote Black Swan Options on the Hong Kong Dollar
Mark Cranfield – Bloomberg (SUBSCRIPTION)
Hong Kong authorities have never failed to keep the local dollar at its peg, or since 2005 within a set band against the dollar, yet that hasn’t stopped someone from writing options on a black-swan event.
Quant Funds Hit By Misfiring Strategies
Justina Lee – Bloomberg (SUBSCRIPTION)
When it comes to slicing and dicing equities based on their factors, the strategy beloved by quants is exhibiting symptoms of sickness. The challenge is diagnosing how serious it is.
This month, Neuberger Berman will become the latest big name to close a fund based on factor investing, which uses characteristics like quality and value to bet which stocks will outperform over time. The decision follows a similar move by Columbia Threadneedle in December.
China’s Best and Worst Show Power of Volatility
Eric Lam – Bloomberg (SUBSCRIPTION)
In what’s been a stellar rally overall for Asian equities to start the year, it hasn’t always been smooth sailing — especially when it comes to China and Hong Kong, markets full of potential perils and rewards.
Take selfie app maker Meitu Inc. and property developer Jiayuan International Group Ltd., which with moves of more than 70 percent are some of the biggest gainers and losers of the MSCI Asia Pacific Index in 2019. Those compare with a rebound of 8.3 percent in the benchmark gauge. Jiayuan’s volatility of almost 376 percent in the past 60 days is four times higher than the next most volatile name on the list, data compiled by Bloomberg show.
Sterling overnight volatility at highest since June 2016
Sujata Rao and Richard Pace – Reuters
Sterling implied volatility rose sharply on Tuesday as lawmakers prepared to vote on a divorce deal after Prime Minister Theresa May won last-minute assurances from the European Union.
What Recent Volatility Signals About the Markets
On this edition of “Options Insight,” Headwaters Volatility Chief Investment Officer Matthew Rowe discusses the rally in U.S. stocks and recent market volatility with Bloomberg’s Abigail Doolittle on “Bloomberg Markets: The Close.”
Exchanges and Clearing
CME Group Receives Approval From the Dutch Minister of Finance to Operate in Amsterdam
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that its new legal entity CME Amsterdam B.V. has received approval from the Dutch Minister of Finance.
The establishment of the new Amsterdam-based entity will ensure that CME Group’s BrokerTec and EBS venues and CME Regulatory Reporting services (formerly NEX Regulatory Reporting) can continue to service their EU27 clients, regardless of the outcome of the UK’s withdrawal from the EU.
Equity Index Highlights – March 2019 edition
February was a busy month for new product launches at Eurex and especially our innovative ESG derivatives segment was off to a promising start. The open interest in the STOXX Europe 600 ESG-X in particular is building up nicely. The underlying index applies a light exclusion methodology and we expected it to be in demand. While the ESG derivatives took the limelight, we also introduced the STOXX Europe Select 50 index futures and options. This is an index frequently referenced in structured products, as the combination of low volatility and high dividend yield factors leave the respective long-dated call options relatively low cost. Here we have already seen early block option volume activity. ETF options were also in focus. In February we added new listings covering the top five in-demand US sector products, Brazil, FTSE EPRA and FTSE 250. We are expanding this segment in response to the continued excellent volume trend on the iShares physical gold ETC option. Another 200k contracts traded in February, mainly concentrated in the June put contracts in the 25 to 25.75 strike range.
FX Options: Withdrawal of the admission for trading for FX Options on Euro – Japanese Yen (OCEY)
Eurex Deutschland took the following decision with effect from 18 March 2019: Withdrawal of the admission for trading on Eurex Deutschland for FX Options on Euro – Japanese Yen (OCEY)
Singapore Exchange under pressure as HKEX jostles for China market
Anshuman Daga and Alun John – Reuters
Singapore Exchange Ltd, which generates half of its revenues from derivatives business, could see a dent in its earnings following a move by the Hong Kong exchange operator to launch Chinese A-share futures contracts, analysts said.
Shares in SGX fell 1.6 percent on Tuesday after slumping 3.7 percent in the previous session when it clocked the worst slide in 13 months.
JPMorgan Steps Closer to Zero Fees With Cheapest-Ever Stock ETF
Rachel Evans – Bloomberg (SUBSCRIPTION)
JPMorgan Chase & Co. is still trying to make a buck while selling America’s cheapest exchange-traded fund.
The New York-based bank plans to charge just 20 cents for every $1,000 invested in a new stock fund, undercutting all 2,000 existing U.S. ETFs, a regulatory filing showed Monday. But for some even that price isn’t low enough, with analysts predicting that a zero-fee ETF is only a matter of time.
Cboe blog celebrates Women’s History Month
Cboe is celebrating Women’s History Month throughout March. This includes profiles of some of the women who work at or trade at the exchange, inspiring quotes and more, which you can find here. You can also follow them on social media with #CboeWomen.~SR
Regulation & Enforcement
US financial transaction tax would put unfair burden on savers
Kirsten Wegner – Financial Times (SUBSCRIPTION)
As Democrats start positioning themselves for the 2020 US presidential campaign, it is clear that Wall Street is firmly in their sights.
Along with touting proposals for wealth and income taxes aimed at the affluent, some Democrats on Capitol Hill last week unveiled a bill to impose a financial transaction tax. This particular revenue raiser, beloved by leftists in Europe, would levy a 0.1 per cent tax every time a share, bond or derivative changes hands.
The Battle Over Broker Rules Goes Local
Neil Weinberg – Bloomberg (SUBSCRIPTION)
Ordinary investors face a confusing situation when it comes to sizing up the people doling out financial advice. Can they can be trusted to act in their clients’ best interests, or should they be treated with caution—like a car salesman?
It turns out either answer could be correct, depending on the adviser. A registered investment adviser works for a fee and has a fiduciary duty to make the client a priority. Others, such as traditional securities brokers, are held to a lower standard and might skew their advice based on the commissions they receive for selling mutual funds, annuities, and other products.
Firms to Pay $125 Million to Clients Over Fee-Disclosure Practices; Almost 80 firms settle claims as part of SEC program emphasizing self-reporting
Dave Michaels – WSJ (SUBSCRIPTION)
Almost 80 investment advisory firms agreed to pay back more than $125 million to clients who were steered into higher-cost mutual funds without being clearly told about cheaper versions, the result of a government effort to persuade financial firms to self-report misconduct.
Brussels ramps up criticism of China’s investment strategy in EU
Michael Peel and Jim Brunsden – Financial Times (SUBSCRIPTION)
Brussels has branded China a “systemic rival” and threatened tighter rules on its investments in Europe as some of the largest EU countries push back on Beijing’s contentious Belt and Road Initiative.
In a paper released on Tuesday, the European Commission and the EU’s diplomatic unit called on China to stop unfair treatment of European companies and investment practices that threatened the rule of law in recipient countries and risked plunging them into debt.
Ex-Goldman Bankers Leissner and Ng Banned From Industry by Fed
Jesse Hamilton – Bloomberg (SUBSCRIPTION)
Former Goldman Sachs Group Inc. bankers Tim Leissner and Roger Ng were banned from the industry by the U.S. Federal Reserve for their role in helping divert billions of dollars from the Malaysian state fund 1MDB.
Refinitiv increases investment to unearth links between sustainability and financial performance; Appoints new Head of Sustainable Investing & Fund Ratings
Building on its commitment to drive positive change through its data and insight, Refinitiv today announced that it has appointed Leon Saunders Calvert as Head of Sustainable Investing & Fund Ratings, a newly created role that brings together Refinitiv’s ESG Sustainable Investing and Lipper Fund Ratings businesses to increase focus on unearthing links between sustainable business strategies and financial performance.
FX Options Skews: Economics and Implications
Erik Norland – CME Group
Nearly all options markets exhibit some kind of natural skewness. For example, out-of-the-money (OTM) put options on equity index futures are typically more expensive than OTM call options: investors typically fear a sudden fall in stock prices more than a sudden rise and, hence, are willing to pay more for downside than upside protection. In agricultural markets, skew tends to work the opposite way. On corn, soy and wheat options, for example, OTM call options are usually more expensive than OTM puts. Food buyers fear a sudden spike in the price of these crops in the event of a bad harvest more than farmers fear a sudden price decline in the event of an exceptionally good harvest.
An Ominous Pattern In The E-Mini S&P 500 Futures
Andrew Hecht – Seeking Alpha
Fundamentals tend to drive my opinion of markets. I have been trading commodities and other assets since the early 1980s and have found that supply and demand factors often uncover compelling opportunities in markets across all asset classes. When it comes to technical analysis, I never discount the importance of sentiment which shows up on charts and sometimes sticks out like a sore thumb. Double tops, head and shoulder formations, key reversals, and other technical patterns represent past price action which is never a guaranty of future performance. However, these signals often cause market participants to behave in certain predictable ways which lead to herd behavior and drives prices. Therefore, technical analysis is as significant as the fundamentals for markets, and at times charts take the center of the stage.
The Brexit Threat to London’s World-Class Legal Business
Lionel Laurent – Bloomberg (SUBSCRIPTION)
London’s lawyers have thrived on the back of the City. But their primacy may come under threat in areas like the $742 trillion derivatives market.
Globalization and European integration have been kind to English law, which over the decades has bound together financial systems across the EU and drawn talent, money and energy into the City of London.
Her Story: Roma Colwell-Steinke
Roma Colwell-Steinke spent the earlier part of her career as a market maker for Group One on the Pacific Stock Exchange in San Francisco before an earthquake rendered it temporarily unusable in 1989. She and other PSE market makers then came to Chicago to trade on the Cboe floor until the PSE floor reopened.
“I looked down at the floor and there were 4,500 people,” she says. “And I remember thinking, ‘They want me to do what?! Go where?!'”
Equities Mark 10-Year Bull Run
CME Group – Bluford Putnam (VIDEO)
The bull market in equities began a decade ago in the aftermath of the Great Recession. Its path ahead will depend on policies and their consequences.