Observations & Insight
Thursday’s Grab Bag
Spencer Doar – JLN
Remember how that LJM fund went kaput in epic fashion in February? Remember how the gargantuan loss prompted a whole bunch of investor lawsuits? Well, here’s the update: the lead plaintiffs need to file their class action complaint today. (As of publishing time, it does not appear available.) The defendants need to respond to that complaint by October 1. If defendants move to dismiss, then the ball is back in the plaintiffs’ court to respond by November 5.
The OCC will be performing system maintenance on Sunday – MyOCC and ENCORE will be unavailable.
Eric Dugan of 3D Capital Management had this data point – the S&P 500’s daily trading range is 130 percent greater than last year and 75 percent greater than its 20-year average.
I’m a broken record over here – I love the infographics. Visual Capitalist has a new one all about volatility. It might be a bit too “101” for you all, but I still like it.
Aretha Franklin died today. Here’s a link to two hours of her greatest hits on Youtube.
Register for FIA Expo on or before August 31 to get a deal on ticket pricing.
Walmart stock is busting some serious moves on the dance floor today – up some 10 percent on positive earnings.
Treasury Secretary Mnuchin said the U.S. is preparing more sanctions on Turkey.
Tradeweb Brings RFQ Trading To The Options Industry
Tradeweb Markets, a global leader in electronic financial marketplaces, today announced the launch of the Tradeweb U.S. options platform for institutional customer-to-dealer trading.
Banks Say No Thanks to Volcker Rule Changes; A proposal by Trump-appointed regulators to ease restrictions on trading could hurt large banks, firms say
Lalita Clozel – WSJ
Trump-appointed financial regulators set out to ease the Volcker rule – a controversial postcrisis restriction for banks – and instead have drawn the industry’s ire.
****SD: As far as options markets go, I think it’s pretty clear that the loss of prop desks at banks was not a good thing for market quality. But, now that they’re gone, would a Volcker revision bring much back? I’m pretty confident the answer is “kinda.” Those traders have already moved on to other pastures (not sure if the fields are greener, but personnel has moved on).
Sebi sets eyes on commodity index derivatives, works on guidelines
Rajesh Bhayani – Business Standard
Securities and Exchange Board of India Chairman Ajay Tyagi has said in an annual report “there are plans to consider more commodity options contracts to be launched, besides working on guidelines for index products”. Sebi will have to first finalise guidelines, which, according to sources, will suggest common standards for preparing commodity indices and later there will be regulations regarding trading.
Tide about to turn for markets as easy-money decade ends
Sujata Rao, Dhara Ranasinghe – Reuters
Swept along by super-easy money, investors have debated for years how world markets will react when this central bank largesse inevitably ends. Now the liquidity tide is about to turn, and they have only a few months to adjust.
Deutsche Bank, Barclays Fortunes Differ in Turkish Turmoil Bets
Donal Griffin, Sridhar Natarajan and Alastair Marsh – Bloomberg
Deutsche Bank AG traders generated a $35 million profit in two weeks sparked by economic turmoil in Turkey. That same volatility cost Barclays Plc some trading losses, according to people with knowledge of the matter.
****SD: Now the question I have is who was on the other side of the trades? I’d be amused if this story turned out to partially be “Deutsche’s desk banks Barclays’ bucks.”
Tencent’s Stock Traders Read All the Signs That Analysts Ignored
Sofia Horta e Costa -BloombergQuint
Thursday could have been a whole lot worse for Hong Kong’s equity market.
While Tencent Holdings Ltd.’s shock profit slump caught almost all analysts by surprise, traders were far more prepared. They’d been selling the shares at the fastest clip since February, paying up for bearish derivatives and increasing their short positions to hedge against further declines. That paid off: the stock was down as much as 5.1 percent in early Hong Kong trading Thursday, exactly the move predicted by the options market.
****SD: Tencent is the largest constituent – 5.8 percent weighting – in the MSCI Emerging Markets Index, which helps explain the ripple effect caused by its tumble. The number two weighting is a full 2 percent less – Samsung with a weighting of ~3.7 percent.
Exchanges and Clearing
AITE Group report (part 1): MSCI exchange-traded derivatives and recent trends in the market structure
For us at Eurex, MSCI is a major strategic focus point. That is why we constantly explore market developments and continuously expand our MSCI offering. To research MSCI exchange-traded derivatives (ETDs) in today’s market structure, we teamed up with AITE Group. The first part of the three-piece study focuses on MSCI ETDs and explains recent trends and changes in the market structure.
BSE to Launch Liquidity Enhancement Plan From September for Single Stock & Index Options
India’s leading stock exchange BSE (Bombay Stock Exchange) will launch a liquidity enhancement scheme on monthly single stock options and index options from September. Under the liquidity enhancement scheme (LES), brokers and other market intermediaries are given incentives for a specified period of time to bring in liquidity and generate investor interest in securities which have limited trading activity.
Vela announces key executive appointment; Peggy Sullivan joins as Chief of Staff
Vela, a leading independent provider of trading and market access technology for global multi-asset electronic trading, is pleased to announce that Peggy Sullivan, who served as a consultant to the Company since October 2017, has joined as Chief of Staff.
Regulation & Enforcement
Let’s talk big bank capital
Victoria Guida and Aubree Eliza Weaver – Politico
Big banks are pushing to lower a capital surcharge that applies only to them and is becoming increasingly important in their rulebook. It’s still not politically easy for megabanks to push for looser regulation, with the wounds of the financial crisis fresh in people’s minds. But there’s at least one argument that banks hope will resonate with policymakers: The surcharge is hurting their international competitiveness.
Turkey’s Capital Markets Board imposes leverage regulation to curb potential FX volatility
Turkey’s Capital Markets Board (SPK) on Wednesday imposed a regulation on leverage ratios to curb potential volatility in Forex (FX) markets until next Monday.
Vestmark Announces Innovative Options Trading and Risk Management Capabilities
Vestmark, the leading provider of portfolio management and trading solutions for financial advisors and institutions, today announced a new release of the VestmarkONE platform that includes a highly advanced options trading module for retail managed accounts.
Musings of a Market Commentator
Hamish Preston – S&P Dow Jones Indices
The S&P DJI index strategy team has for several years produced a variety of monthly and quarterly index dashboards. Earlier this year, we began to provide a daily summary of what S&P DJI indices and research are telling us about the markets on a day-to-day basis.
Gold Refuses to Shine for Investors in Search of a Haven
Luke Kawa – BloombergQuint
So much for gold’s time to shine.
The precious metal sank to its lowest level in more than 19 months on Wednesday, even as global equities came under pressure.
Bullion is a presumptive beneficiary of the safe-haven flows that typically accompany equity market retreats. But its recent behavior shows it’s been anything but a reliable hedge for a portfolio of risk assets.
Imposter Posed as SEC to Tank Shares, Penny-Stock Pot Firm Says
Lily Katz – Bloomberg
MassRoots Inc., a company that runs a marijuana-rating app, believes a short-seller may have impersonated someone from the Securities and Exchange Commission on a conference call to sink its stock.
During the question-and-answer portion of a shareholder update Tuesday, a caller identified himself as “John Wallace from SEC Enforcement” and asked a series of questions, the Los Angeles-based company said in a regulatory filing Wednesday. The dialer pressed for information about sales and clients.
****SD: Shouldn’t it have set off alarm bells that a regulator was on the call at all? That’s not normal protocol. Besides, this is a 30 cent stock that’s expensive to borrow and had revenue of less than $2,000 in Q1. Rating: poor attempt.
The Man Who Triggered a $10 Billion Commodity Collapse Finally Speaks
Javier Blas and Andy Hoffman – Bloomberg
Arnaud Vagner has been a mystery for more than three years. Noble Group, once one of the world’s biggest commodity trading houses, characterized him as a disgruntled former junior employee behind a series of reports by Iceberg Research, an anonymous group that began attacking its accounting practices in 2015.
***SR: Vagner is our MarketsWiki Page of the Day today.