Violent Reversals Fastest Since 2011; Volcker 2.0; VXX Termination

Dec 12, 2018

Spencer Doar

Spencer Doar

Associate Editor

Observations & Insight

Worldwide Exchange-Traded Derivatives November Volumes via FIA
(Click for larger image)

****Look at APAC go! You can download a spreadsheet file with more in-depth breakdowns of the volumes and open interest here.

++++++

(Click for larger image)

****SD: The record for most overall cleared contracts at OCC has already been set (by about 200 million contracts) with still a few weeks to go in 2018. The above is a chart of just OCC equity options volumes over time. Below is a chart of the growth of OCC-cleared non-equity options volumes.

++++++

(Click for larger image)

Lead Stories

Violent Stock Reversals Coming Faster Than Any Time Since 2011
Lu Wang – BloombergQuint
Equity investors are getting used to whiplash.
They got a dose today, when the S&P 500 wiped out a 1.4 percent rally. And the day before, when a 1.9 percent loss was erased. So far, there have been six days this quarter when stocks completely reversed an intraday move of at least 1 percent, the most since 2011, when Standard & Poor’s downgraded the U.S. sovereign rating, sending stocks to the brink of a bear market.
/goo.gl/FuHSfR

Volcker 2.0 to turn up volume of trading, chop compliance costs
Nathan Dean – Bloomberg Intelligence
Investment banks stand to increase trading market-making volumes and shave compliance costs under the proposed rewrite of the Volcker Rule. It’s not a total win — prop trading is still banned. Yet banks will be able to set internal risk limits with regard to underwriting and gain opportunities to invest in covered funds. The rule should be finalized in mid-2019.
/goo.gl/ELNnPo

On January 29 The VXX Will Cease To Exist: What This Means For The Market
Zero Hedge
Over the past decade, few ETFs have been as hated (or really, really hated and occasionally loved) as the VXX Volatility ETN. After the spectacular implosion of the inverse VIX ETN/ETF universe in February’s 5-sigma VIXtermination event … the VXX emerged as the largest VIX exchange-traded product (ETP).
bit.ly/2EpWc7N

****SD: This is one of those increasingly rare instances where ZeroHedge really does have some nice excerpted content that I cannot find anywhere else – they excerpt a note from Goldman strategist Rocky Fishman that covers a ton of VXX termination Q&As.

Pound Traders Are Betting on May to Survive
Charlotte Ryan and Shoko Oda – BloombergQuint
Volatility surges ahead of no-confidence vote late Wednesday; Traders are covering short positions, TD’s Rumpeltin says
The pound headed for the biggest gain in a month on increased confidence U.K. Prime Minister Theresa May will survive a leadership challenge, amid reports that she had the backing of a majority of Conservative Party Parliament members.
/goo.gl/ZbcMAv

****SD: There is constant breaking news as Theresa May is facing a vote of no confidence this evening (afternoon in the States).

How one investor’s Amazon misfire led to a 99% loss in his trading account; Reddit Sob stories are piling up on WallStreetBets
Shawn Langlois – MarketWatch
If you’re feeling bruised and battered by this whipsaw stock market, you might consider heading over to Reddit’s “WallStreetBets” board. You’ll find of plenty of company in your misery. One options-flipping YOLO’er by the name of MightBePresident, for instance, shared his story of a wildly volatile, and ultimately devastating, year of trading.
/goo.gl/VukCgB

****SD: If true, this is nothing compared to the story making the rounds today of a guy losing $850k, leaving less than $10k in his IBKR account. But these stories are frequently not a true reflection of the case. Screenshots of account balances can be gamed a bit depending on the broker. The takeaway generally is that r/wallstreetbets offers a daily chance to see a more minnow-y version of the OptionSellers blowup – people making really bad decisions with no concept of risk management who then, whaddya know, lose a boatload of their gambling stash.

Hedge funds notch up fourth consecutive month of negative returns in November
Hedgeweek
The global hedge fund industry returned -0.31 per cent in November, bringing year-to-date returns to -2.81 per cent and marking the fourth consecutive month of negative industry returns, according to the just released eVestment November 2018 hedge fund performance data.
/goo.gl/z3L2Xk

South African rand’s volatility grows as economic risks gather
Mfuneko Toyana – Reuters
Volatility at levels last seen during finance minister reshuffle; Ratings downgrades, elections seen as main risks
Implied volatility on South Africa’s rand rose by its most since the last finance minister reshuffling in October, amid worries over the country’s sovereign credit ratings, power supply interruptions and next year’s elections.
/goo.gl/xRQx9T

Washington STEO highlights: EIA cuts Brent, WTI 2019 forecasts nearly $11/b amid supply glut
Brian Scheid and Meghan Gordon – S&P Global Platts
The US Energy Information Administration on Tuesday reduced its forecasts for WTI and Brent spot prices in 2019 by nearly $11/b, largely due to record global output, particularly in the US, and lower-than-expected demand.
/goo.gl/UWHTNM

****SD: “The implied volatility of Brent and WTI, calculated from options prices, more than doubled during the month, reflecting the market’s heightened uncertainty regarding future oil supply and demand,” EIA said.

Exchanges and Clearing

Cboe names derivatives business leaders with new hires from Goldman and DRW Trading
Hayley McDowell – The Trade
Arianne Criqui joins Cboe from Goldman Sachs, and Rob Hocking joins from DRW Trading, while Matt McFarland is promoted to head of futures at Cboe Futures Exchange.
/goo.gl/kLkRSt

Cboe C2 Exchange proposes to introduce new risk parameter
Maria Nikolova – FinanceFeeds
A trading permit holder may specify a maximum number of times that the risk parameters are reached over a specified interval or absolute period.
/goo.gl/Eefzg5

Fixed Income Highlights – December 2018 edition
Eurex
November was a strong month overall for Eurex, with futures and options volumes up across the board. Despite the European Central Bank meeting being close to expectations, Draghi failed to talk up the possibility of quantitative easing extending beyond December. Although growth was ever so slightly downgraded, the overall picture has held up relatively well. Despite headwinds from Brexit negotiations from a political standpoint, the markets saw an uptick in volatility. This helped to underpin our volumes.
/goo.gl/nHyrxV

Regulation & Enforcement

Derivatives traders to get one-year market access in no-deal Brexit
Jim Brunsden – Financial Times (SUBSCRIPTION)
Brussels is set to grant a 12-month window for European derivatives traders to continue using crucial UK market infrastructure in the event of a no-deal Brexit, as it seeks to avoid financial turmoil should Britain crash out of the EU.
/on.ft.com/2C6zXl8

Strategy

S&P chart could be forming another bearish pattern
Patti Domm – CNBC
The chart of the S&P 500, which flashed a scary death cross last week, now appears to be forming a new pattern that could be just as ominous.
/cnb.cx/2Eq9p0x

Market Volatility: A Return To The Old Normal
Sarah Hansen – Forbes
Raise your hand if you think 2018—with its whipsawing days of 500 plus point Dow moves—was evidence that markets are more volatile than ever before. During the last 12 months, the S&P closed above 2,900 for the first time ever but starting in October downdrafts seemed like a daily occurrence. Indeed, 50% of the ten biggest single day gains and declines for the Dow Jones Industrial Average happened in 2018. Everything from Brexit to the trade war tweets to oil prices seemed to spark oversized moves in the stock market.
bit.ly/2RPKaYx

Miscellaneous

Markets Conclude the U.S. Is Riskier Than China
Matthew Winkler – Bloomberg Opinion
Now the Treasury has to pay a premium over Chinese bonds to attract investors. They see four major red flags in U.S. debt.
/goo.gl/1GgYs2

Markets Should Embrace Volatility While It Lasts
Robert Burgess – Bloomberg Opinion via Yahoo
It sounds simple. Buy stocks when there’s news that the U.S. and China are making headway in resolving the escalating trade war. Sell them when the divide seems to be growing. But the problem for markets these days is that it appears as if every positive development seems to be followed closely by a negative one, sometimes within hours, and investors are having a hard time keeping up with the rapid-fire developments.
/goo.gl/ygwXR1

****SD: Yesterday’s lead story was Bloomberg’s Wall Street Is Making Peace With the New Era of Stock Volatility, and my comment was, “‘Making peace’? Shouldn’t Wall Street be embracing the new era?”

Finance Charlatan of the Year Voting
FedSpeak
Vote for your choice for your favorite rogue in finance at the following link. Last year’s winner was Jacob Wohl, 2016’s was Donald Trump and in 2015 it was Martin Shkreli.
/goo.gl/AtaZsx

 

 

John Lothian Newsletter

So you want to know what’s happening in the financial markets?

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Newsletters

What’s Driving the Unusual Calm in Currency Markets

Get a FREE 90 day trial of John Lothian Newsletter Observations & InsightThe Small Exchange: Building a new ecosystem for the little fishJim Kharouf - JLNIt's about time this industry got smaller.It's no secret futures markets have been...

Violent Reversals Fastest Since 2011; Volcker 2.0; VXX Termination

Dec 12, 2018

Spencer Doar

Spencer Doar

Associate Editor

Observations & Insight

Worldwide Exchange-Traded Derivatives November Volumes via FIA
(Click for larger image)

****Look at APAC go! You can download a spreadsheet file with more in-depth breakdowns of the volumes and open interest here.

++++++

(Click for larger image)

****SD: The record for most overall cleared contracts at OCC has already been set (by about 200 million contracts) with still a few weeks to go in 2018. The above is a chart of just OCC equity options volumes over time. Below is a chart of the growth of OCC-cleared non-equity options volumes.

++++++

(Click for larger image)

Lead Stories

Violent Stock Reversals Coming Faster Than Any Time Since 2011
Lu Wang – BloombergQuint
Equity investors are getting used to whiplash.
They got a dose today, when the S&P 500 wiped out a 1.4 percent rally. And the day before, when a 1.9 percent loss was erased. So far, there have been six days this quarter when stocks completely reversed an intraday move of at least 1 percent, the most since 2011, when Standard & Poor’s downgraded the U.S. sovereign rating, sending stocks to the brink of a bear market.
/goo.gl/FuHSfR

Volcker 2.0 to turn up volume of trading, chop compliance costs
Nathan Dean – Bloomberg Intelligence
Investment banks stand to increase trading market-making volumes and shave compliance costs under the proposed rewrite of the Volcker Rule. It’s not a total win — prop trading is still banned. Yet banks will be able to set internal risk limits with regard to underwriting and gain opportunities to invest in covered funds. The rule should be finalized in mid-2019.
/goo.gl/ELNnPo

On January 29 The VXX Will Cease To Exist: What This Means For The Market
Zero Hedge
Over the past decade, few ETFs have been as hated (or really, really hated and occasionally loved) as the VXX Volatility ETN. After the spectacular implosion of the inverse VIX ETN/ETF universe in February’s 5-sigma VIXtermination event … the VXX emerged as the largest VIX exchange-traded product (ETP).
bit.ly/2EpWc7N

****SD: This is one of those increasingly rare instances where ZeroHedge really does have some nice excerpted content that I cannot find anywhere else – they excerpt a note from Goldman strategist Rocky Fishman that covers a ton of VXX termination Q&As.

Pound Traders Are Betting on May to Survive
Charlotte Ryan and Shoko Oda – BloombergQuint
Volatility surges ahead of no-confidence vote late Wednesday; Traders are covering short positions, TD’s Rumpeltin says
The pound headed for the biggest gain in a month on increased confidence U.K. Prime Minister Theresa May will survive a leadership challenge, amid reports that she had the backing of a majority of Conservative Party Parliament members.
/goo.gl/ZbcMAv

****SD: There is constant breaking news as Theresa May is facing a vote of no confidence this evening (afternoon in the States).

How one investor’s Amazon misfire led to a 99% loss in his trading account; Reddit Sob stories are piling up on WallStreetBets
Shawn Langlois – MarketWatch
If you’re feeling bruised and battered by this whipsaw stock market, you might consider heading over to Reddit’s “WallStreetBets” board. You’ll find of plenty of company in your misery. One options-flipping YOLO’er by the name of MightBePresident, for instance, shared his story of a wildly volatile, and ultimately devastating, year of trading.
/goo.gl/VukCgB

****SD: If true, this is nothing compared to the story making the rounds today of a guy losing $850k, leaving less than $10k in his IBKR account. But these stories are frequently not a true reflection of the case. Screenshots of account balances can be gamed a bit depending on the broker. The takeaway generally is that r/wallstreetbets offers a daily chance to see a more minnow-y version of the OptionSellers blowup – people making really bad decisions with no concept of risk management who then, whaddya know, lose a boatload of their gambling stash.

Hedge funds notch up fourth consecutive month of negative returns in November
Hedgeweek
The global hedge fund industry returned -0.31 per cent in November, bringing year-to-date returns to -2.81 per cent and marking the fourth consecutive month of negative industry returns, according to the just released eVestment November 2018 hedge fund performance data.
/goo.gl/z3L2Xk

South African rand’s volatility grows as economic risks gather
Mfuneko Toyana – Reuters
Volatility at levels last seen during finance minister reshuffle; Ratings downgrades, elections seen as main risks
Implied volatility on South Africa’s rand rose by its most since the last finance minister reshuffling in October, amid worries over the country’s sovereign credit ratings, power supply interruptions and next year’s elections.
/goo.gl/xRQx9T

Washington STEO highlights: EIA cuts Brent, WTI 2019 forecasts nearly $11/b amid supply glut
Brian Scheid and Meghan Gordon – S&P Global Platts
The US Energy Information Administration on Tuesday reduced its forecasts for WTI and Brent spot prices in 2019 by nearly $11/b, largely due to record global output, particularly in the US, and lower-than-expected demand.
/goo.gl/UWHTNM

****SD: “The implied volatility of Brent and WTI, calculated from options prices, more than doubled during the month, reflecting the market’s heightened uncertainty regarding future oil supply and demand,” EIA said.

Exchanges and Clearing

Cboe names derivatives business leaders with new hires from Goldman and DRW Trading
Hayley McDowell – The Trade
Arianne Criqui joins Cboe from Goldman Sachs, and Rob Hocking joins from DRW Trading, while Matt McFarland is promoted to head of futures at Cboe Futures Exchange.
/goo.gl/kLkRSt

Cboe C2 Exchange proposes to introduce new risk parameter
Maria Nikolova – FinanceFeeds
A trading permit holder may specify a maximum number of times that the risk parameters are reached over a specified interval or absolute period.
/goo.gl/Eefzg5

Fixed Income Highlights – December 2018 edition
Eurex
November was a strong month overall for Eurex, with futures and options volumes up across the board. Despite the European Central Bank meeting being close to expectations, Draghi failed to talk up the possibility of quantitative easing extending beyond December. Although growth was ever so slightly downgraded, the overall picture has held up relatively well. Despite headwinds from Brexit negotiations from a political standpoint, the markets saw an uptick in volatility. This helped to underpin our volumes.
/goo.gl/nHyrxV

Regulation & Enforcement

Derivatives traders to get one-year market access in no-deal Brexit
Jim Brunsden – Financial Times (SUBSCRIPTION)
Brussels is set to grant a 12-month window for European derivatives traders to continue using crucial UK market infrastructure in the event of a no-deal Brexit, as it seeks to avoid financial turmoil should Britain crash out of the EU.
/on.ft.com/2C6zXl8

Strategy

S&P chart could be forming another bearish pattern
Patti Domm – CNBC
The chart of the S&P 500, which flashed a scary death cross last week, now appears to be forming a new pattern that could be just as ominous.
/cnb.cx/2Eq9p0x

Market Volatility: A Return To The Old Normal
Sarah Hansen – Forbes
Raise your hand if you think 2018—with its whipsawing days of 500 plus point Dow moves—was evidence that markets are more volatile than ever before. During the last 12 months, the S&P closed above 2,900 for the first time ever but starting in October downdrafts seemed like a daily occurrence. Indeed, 50% of the ten biggest single day gains and declines for the Dow Jones Industrial Average happened in 2018. Everything from Brexit to the trade war tweets to oil prices seemed to spark oversized moves in the stock market.
bit.ly/2RPKaYx

Miscellaneous

Markets Conclude the U.S. Is Riskier Than China
Matthew Winkler – Bloomberg Opinion
Now the Treasury has to pay a premium over Chinese bonds to attract investors. They see four major red flags in U.S. debt.
/goo.gl/1GgYs2

Markets Should Embrace Volatility While It Lasts
Robert Burgess – Bloomberg Opinion via Yahoo
It sounds simple. Buy stocks when there’s news that the U.S. and China are making headway in resolving the escalating trade war. Sell them when the divide seems to be growing. But the problem for markets these days is that it appears as if every positive development seems to be followed closely by a negative one, sometimes within hours, and investors are having a hard time keeping up with the rapid-fire developments.
/goo.gl/ygwXR1

****SD: Yesterday’s lead story was Bloomberg’s Wall Street Is Making Peace With the New Era of Stock Volatility, and my comment was, “‘Making peace’? Shouldn’t Wall Street be embracing the new era?”

Finance Charlatan of the Year Voting
FedSpeak
Vote for your choice for your favorite rogue in finance at the following link. Last year’s winner was Jacob Wohl, 2016’s was Donald Trump and in 2015 it was Martin Shkreli.
/goo.gl/AtaZsx

 

 

John Lothian Newsletter

So you want to know what’s happening in the financial markets?

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Newsletters

What’s Driving the Unusual Calm in Currency Markets

Get a FREE 90 day trial of John Lothian Newsletter Observations & InsightThe Small Exchange: Building a new ecosystem for the little fishJim Kharouf - JLNIt's about time this industry got smaller.It's no secret futures markets have been...

Violent Reversals Fastest Since 2011; Volcker 2.0; VXX Termination

Dec 12, 2018

Observations & Insight

Wednesday’s Miscellany

JLN Staff

MLex has a (paywalled) story titled CFTC’s Giancarlo cites threat from China futures markets in bid for more money. Obviously it is a futures story, but I see it as indicative of the overall “threat” posed by the ongoing development of Chinese derivatives markets.

Check out this Bloomberg/Saxo Bank chart of yuan denominated oil futures trading and you’ll see why Giancarlo said what he did. (Besides, the usual rhetoric about needing money to protect investors hasn’t worked for the CFTC’s budget so maybe some fear-mongering will.) Also see this Reuters story from May – China’s crude oil futures boom amid looming Iran sanctions. ~SD

The newest CFTC Talks podcast is out. It’s a shorter, “FlashCast” episode focused on a single subject and features John Coughlan of the CFTC’s Market Intelligence Branch.

FIA updated its FCM tracker tool. Check it out here.

According to CLS data, currency trading volumes rose 2.6 percent in July on last year, although July volumes were 13.7 percent lower than the previous month of June. CLS said the average daily traded volume of currencies submitted to it reached $1.638 trillion in July, up from $1.596 trillion in the same month in 2017, Reuters reported.~SR

 

Lead Stories

Traders Pile Into Bets That Stock Rally Will Continue; Tax cuts and a robust U.S. economy boosted corporate profits in the three months through June

Gunjan Banerji – WSJ (SUBSCRIPTION)

With U.S. stock benchmarks mere points away from fresh records, some traders are piling into bets that share prices will rally higher and volatility will remain muted. The S&P 500 and the technology-heavy Nasdaq Composite hit their second-highest close in history on Tuesday. Options investors and traders are wagering the gains will continue. They have been scooping up bullish call options on the S&P 500, contracts that would pay out if the stock index took another leg higher, according to Credit Suisse . Call options give the right to buy shares at a later time if they hit a designated price.

/goo.gl/J3N5BG

****SD: Initially heralded as a year that would be “different,” 2018 seems more and more like 2017, with long equity, short vol being the strategy du jour (tous les jours).

Tesla options bulls reap windfall on Musk’s going private tweet

Saqib Iqbal Ahmed – Reuters

Tesla Inc’s options activity surged on Tuesday after Chief Executive Elon Musk tweeted he was considering taking the company private and some quickly executed trades netted massive paper profits as shares in the electric car maker rallied as much as 9 percent.

/jlne.ws/2vpWB4d

****SD: The role Elon Musk’s twitter feed plays continues to strike me as remarkable. I don’t believe Donald Trump’s tweets – price action-related as they occasionally are – have ever caused a trading halt in a listed name/ETP. At the time of the breaking news, IHS Markit analyst Sam Pierson commented: “[Tesla’s] short interest equates to 20.7% of outstanding shares, down from a YTD peak of 23% observed in June. The short value is higher than any S&P 500 stock, only Under Armor has a higher percentage of outstanding shares short with 24%.”

Volatility slump stokes flames for post-summer blow up

Jamie McGeever – Reuters

Financial market volatility is slumping across the board to historically – or, dangerously – low levels, potentially fanning the flames for a repeat of February’s “volmageddon” explosion that sparked a 10-per-cent correction in U.S. and world stocks.

/goo.gl/Ev6WdG

New Chinese forex crackdown to hit corporate hedging; Despite new reserve requirement, dealers say ‘maturity’ in risk management is here to stay

Blake Evans-Pritchard – Risk.net (SUBSCRIPTION)

Dealers fear a move by the Chinese authorities to reinstate a deposit requirement on foreign currency derivatives could slow a recent pick-up in hedging from local corporates, despite warnings from regulators that firms need to do more to brace for future market volatility.

/goo.gl/a5jAoP

Sterling/dollar risk reversals at 17-month low, signal more weakness

Reuters

Nine-month and one-year sterling/dollar risk-reversals fell on Wednesday to the lowest since early-March 2017, as investors rushed to protect themselves from further weakness in the British currency.

/jlne.ws/2OTyRxi

Exchanges and Clearing

NSE says working on a structure to address SGX issue

Livemint

New Delhi: Locked in arbitration proceedings with SGX, the National Stock Exchange on Wednesday said it is working on a “structure” to address the issues and more clarity is likely to emerge in the next two-three weeks.

/jlne.ws/2vtvqVV

SGX reports market statistics for July 2018

SGX

…Total Derivatives volume was 16.9 million, down 5% month-on-month (m-o-m) and up 19% year-on-year (y-o-y).

/jlne.ws/2vtyeT1

Presentation By HKEX Chief Executive Charles Li And Group Chief Financial Officer John Killian On 2018 Interim Results Announcement

Mondovisione

…Strong growth in trading volumes: Cash Market headline ADT +67% YoY, Futures and Options ADV +58% YoY, LME chargeable ADV +11% YoY

/jlne.ws/2OQUvm5

Dalian Commodity Exchange Holds Training For Corn Options Instructors

Mondovisione

To strengthen the corn options training on member units, promote teaching staff construction and guarantee the steady listing and operation of corn options, Dalian Commodity Exchange (DCE) held the training on corn options instructions lately. A total of 100 trainees from 100 units attended the training, including futures companies, risk management subsidiaries of futures companies, spot companies and other financial institutions.

/jlne.ws/2ORJsZN

Technology

Tradeweb On Track For Record Year Of Trading Activity

Mondovisione

…Credit and Equities Derivatives Volumes Climb: Global equity derivatives ADV is up 351.55% and global credit derivatives volume is also up 80.16% year-over-year on the Tradeweb platform.

/jlne.ws/2vvSYtj

Redline Trading Solutions Breaks 180 Nanosecond Tick-to-Trade Barrier

Redline Trading Solutions

Redline Trading Solutions, the premier provider of high-performance market data and order execution solutions, today announced the production deployment of its hybrid software and FPGA-based market data and order execution gateway solution.

/jlne.ws/2OUwtGQ

The art of designing markets. Part III

Eurex Exchange

This is the third article in a series of topics related to the market design of electronic marketplaces. The first article discussed the most common execution models in electronic derivatives markets, while the second covered the various components of an order-generating process that define its arrival time. It thus gave an overview of the three steps market participants need to generate and submit an order to an exchange whereby connectivity drives the third step. We explained that for all participants timing matters but that ‘timing’ means different things to different market participants. Today, we are looking at the electronic connectivity of market participants who are not members of an exchange (i.e. indirect participants), typically institutional investors, but also retail investors.

/jlne.ws/2B142UO

Strategy

Morgan Stanley sees two ‘broken legs’ for stocks, heralding ‘significant market correction’

Ryan Vlastelica – MarketWatch

For years, one of the primary factors lifting the U.S. stock market has been the fact that some of the economy’s biggest, fastest-growing names just kept rising.

The strength of growth stocks, in particular some large technology and internet plays, has been a boon for momentum investors, who bet that recent outperformers will continue to do better than the overall market over the medium term. This trade has been one of the easiest ways for investors to make money, but analysts are increasingly concerned that its era may be drawing to a close.

/jlne.ws/2MuW4Et

A big shift to the S&P 500 may change the way you invest in tech

Stephanie Landsman – CNBC

The S&P 500 is about to undergo a major structural change that may alter which technology stocks you own.

Facebook and Google’s parent Alphabet will move out of the index’s technology sector and to a newly formed communication services sector in about six weeks. The goal is to make tech appear less dominant in the S&P 500.

/jlne.ws/2vwpTxU

Miscellaneous

Crypto pukes, again; Somebody pass the mop.

Jamie Powell – FT Alphaville

Ah, the crypto.

After the gyrations of early June, it all went pretty quiet recently as bitcoin, and its fellow tokens, began to recover from their lows.

/goo.gl/oCmMCt

****SD: First, great title. Second, with all these gyrations you’d think there would have been more activity on LedgerX. After all, the exchange did have a “record” July. While open interest seems to be building (4,000+ contracts) and Monday had 400+ trades, yesterday saw only 21 swaps trade. Oh, and the reason attributed to the puking? See Bloomberg’s SEC Postpones Decision on Bitcoin ETF Listing to September

Private Banks Are the New Hedge Funds

Yakob Peterseil – Bloomberg

Who needs hedge funds when a $2.4 trillion private bank is offering global macro trades to navigate late-cycle markets — mimicking fast-money strategies with leverage to boot.

UBS Group AG’s wealth management arm, the world’s largest, is pitching just that to billionaire clients.

/jlne.ws/2MtWeMx

John Lothian Newsletter

So you want to know what’s happening in the financial markets?

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Newsletters

What’s Driving the Unusual Calm in Currency Markets

Get a FREE 90 day trial of John Lothian Newsletter Observations & InsightThe Small Exchange: Building a new ecosystem for the little fishJim Kharouf - JLNIt's about time this industry got smaller.It's no secret futures markets have been...

Observations & Insight

Worldwide Exchange-Traded Derivatives November Volumes via FIA
(Click for larger image)

****Look at APAC go! You can download a spreadsheet file with more in-depth breakdowns of the volumes and open interest here.

++++++

(Click for larger image)

****SD: The record for most overall cleared contracts at OCC has already been set (by about 200 million contracts) with still a few weeks to go in 2018. The above is a chart of just OCC equity options volumes over time. Below is a chart of the growth of OCC-cleared non-equity options volumes.

++++++

(Click for larger image)

Lead Stories

Violent Stock Reversals Coming Faster Than Any Time Since 2011
Lu Wang – BloombergQuint
Equity investors are getting used to whiplash.
They got a dose today, when the S&P 500 wiped out a 1.4 percent rally. And the day before, when a 1.9 percent loss was erased. So far, there have been six days this quarter when stocks completely reversed an intraday move of at least 1 percent, the most since 2011, when Standard & Poor’s downgraded the U.S. sovereign rating, sending stocks to the brink of a bear market.
/goo.gl/FuHSfR

Volcker 2.0 to turn up volume of trading, chop compliance costs
Nathan Dean – Bloomberg Intelligence
Investment banks stand to increase trading market-making volumes and shave compliance costs under the proposed rewrite of the Volcker Rule. It’s not a total win — prop trading is still banned. Yet banks will be able to set internal risk limits with regard to underwriting and gain opportunities to invest in covered funds. The rule should be finalized in mid-2019.
/goo.gl/ELNnPo

On January 29 The VXX Will Cease To Exist: What This Means For The Market
Zero Hedge
Over the past decade, few ETFs have been as hated (or really, really hated and occasionally loved) as the VXX Volatility ETN. After the spectacular implosion of the inverse VIX ETN/ETF universe in February’s 5-sigma VIXtermination event … the VXX emerged as the largest VIX exchange-traded product (ETP).
bit.ly/2EpWc7N

****SD: This is one of those increasingly rare instances where ZeroHedge really does have some nice excerpted content that I cannot find anywhere else – they excerpt a note from Goldman strategist Rocky Fishman that covers a ton of VXX termination Q&As.

Pound Traders Are Betting on May to Survive
Charlotte Ryan and Shoko Oda – BloombergQuint
Volatility surges ahead of no-confidence vote late Wednesday; Traders are covering short positions, TD’s Rumpeltin says
The pound headed for the biggest gain in a month on increased confidence U.K. Prime Minister Theresa May will survive a leadership challenge, amid reports that she had the backing of a majority of Conservative Party Parliament members.
/goo.gl/ZbcMAv

****SD: There is constant breaking news as Theresa May is facing a vote of no confidence this evening (afternoon in the States).

How one investor’s Amazon misfire led to a 99% loss in his trading account; Reddit Sob stories are piling up on WallStreetBets
Shawn Langlois – MarketWatch
If you’re feeling bruised and battered by this whipsaw stock market, you might consider heading over to Reddit’s “WallStreetBets” board. You’ll find of plenty of company in your misery. One options-flipping YOLO’er by the name of MightBePresident, for instance, shared his story of a wildly volatile, and ultimately devastating, year of trading.
/goo.gl/VukCgB

****SD: If true, this is nothing compared to the story making the rounds today of a guy losing $850k, leaving less than $10k in his IBKR account. But these stories are frequently not a true reflection of the case. Screenshots of account balances can be gamed a bit depending on the broker. The takeaway generally is that r/wallstreetbets offers a daily chance to see a more minnow-y version of the OptionSellers blowup – people making really bad decisions with no concept of risk management who then, whaddya know, lose a boatload of their gambling stash.

Hedge funds notch up fourth consecutive month of negative returns in November
Hedgeweek
The global hedge fund industry returned -0.31 per cent in November, bringing year-to-date returns to -2.81 per cent and marking the fourth consecutive month of negative industry returns, according to the just released eVestment November 2018 hedge fund performance data.
/goo.gl/z3L2Xk

South African rand’s volatility grows as economic risks gather
Mfuneko Toyana – Reuters
Volatility at levels last seen during finance minister reshuffle; Ratings downgrades, elections seen as main risks
Implied volatility on South Africa’s rand rose by its most since the last finance minister reshuffling in October, amid worries over the country’s sovereign credit ratings, power supply interruptions and next year’s elections.
/goo.gl/xRQx9T

Washington STEO highlights: EIA cuts Brent, WTI 2019 forecasts nearly $11/b amid supply glut
Brian Scheid and Meghan Gordon – S&P Global Platts
The US Energy Information Administration on Tuesday reduced its forecasts for WTI and Brent spot prices in 2019 by nearly $11/b, largely due to record global output, particularly in the US, and lower-than-expected demand.
/goo.gl/UWHTNM

****SD: “The implied volatility of Brent and WTI, calculated from options prices, more than doubled during the month, reflecting the market’s heightened uncertainty regarding future oil supply and demand,” EIA said.

Exchanges and Clearing

Cboe names derivatives business leaders with new hires from Goldman and DRW Trading
Hayley McDowell – The Trade
Arianne Criqui joins Cboe from Goldman Sachs, and Rob Hocking joins from DRW Trading, while Matt McFarland is promoted to head of futures at Cboe Futures Exchange.
/goo.gl/kLkRSt

Cboe C2 Exchange proposes to introduce new risk parameter
Maria Nikolova – FinanceFeeds
A trading permit holder may specify a maximum number of times that the risk parameters are reached over a specified interval or absolute period.
/goo.gl/Eefzg5

Fixed Income Highlights – December 2018 edition
Eurex
November was a strong month overall for Eurex, with futures and options volumes up across the board. Despite the European Central Bank meeting being close to expectations, Draghi failed to talk up the possibility of quantitative easing extending beyond December. Although growth was ever so slightly downgraded, the overall picture has held up relatively well. Despite headwinds from Brexit negotiations from a political standpoint, the markets saw an uptick in volatility. This helped to underpin our volumes.
/goo.gl/nHyrxV

Regulation & Enforcement

Derivatives traders to get one-year market access in no-deal Brexit
Jim Brunsden – Financial Times (SUBSCRIPTION)
Brussels is set to grant a 12-month window for European derivatives traders to continue using crucial UK market infrastructure in the event of a no-deal Brexit, as it seeks to avoid financial turmoil should Britain crash out of the EU.
/on.ft.com/2C6zXl8

Strategy

S&P chart could be forming another bearish pattern
Patti Domm – CNBC
The chart of the S&P 500, which flashed a scary death cross last week, now appears to be forming a new pattern that could be just as ominous.
/cnb.cx/2Eq9p0x

Market Volatility: A Return To The Old Normal
Sarah Hansen – Forbes
Raise your hand if you think 2018—with its whipsawing days of 500 plus point Dow moves—was evidence that markets are more volatile than ever before. During the last 12 months, the S&P closed above 2,900 for the first time ever but starting in October downdrafts seemed like a daily occurrence. Indeed, 50% of the ten biggest single day gains and declines for the Dow Jones Industrial Average happened in 2018. Everything from Brexit to the trade war tweets to oil prices seemed to spark oversized moves in the stock market.
bit.ly/2RPKaYx

Miscellaneous

Markets Conclude the U.S. Is Riskier Than China
Matthew Winkler – Bloomberg Opinion
Now the Treasury has to pay a premium over Chinese bonds to attract investors. They see four major red flags in U.S. debt.
/goo.gl/1GgYs2

Markets Should Embrace Volatility While It Lasts
Robert Burgess – Bloomberg Opinion via Yahoo
It sounds simple. Buy stocks when there’s news that the U.S. and China are making headway in resolving the escalating trade war. Sell them when the divide seems to be growing. But the problem for markets these days is that it appears as if every positive development seems to be followed closely by a negative one, sometimes within hours, and investors are having a hard time keeping up with the rapid-fire developments.
/goo.gl/ygwXR1

****SD: Yesterday’s lead story was Bloomberg’s Wall Street Is Making Peace With the New Era of Stock Volatility, and my comment was, “‘Making peace’? Shouldn’t Wall Street be embracing the new era?”

Finance Charlatan of the Year Voting
FedSpeak
Vote for your choice for your favorite rogue in finance at the following link. Last year’s winner was Jacob Wohl, 2016’s was Donald Trump and in 2015 it was Martin Shkreli.
/goo.gl/AtaZsx

 

 

Violent Reversals Fastest Since 2011; Volcker 2.0; VXX Termination

Dec 12, 2018

Spencer Doar

Spencer Doar

Associate Editor

Observations & Insight

Worldwide Exchange-Traded Derivatives November Volumes via FIA
(Click for larger image)

****Look at APAC go! You can download a spreadsheet file with more in-depth breakdowns of the volumes and open interest here.

++++++

(Click for larger image)

****SD: The record for most overall cleared contracts at OCC has already been set (by about 200 million contracts) with still a few weeks to go in 2018. The above is a chart of just OCC equity options volumes over time. Below is a chart of the growth of OCC-cleared non-equity options volumes.

++++++

(Click for larger image)

Lead Stories

Violent Stock Reversals Coming Faster Than Any Time Since 2011
Lu Wang – BloombergQuint
Equity investors are getting used to whiplash.
They got a dose today, when the S&P 500 wiped out a 1.4 percent rally. And the day before, when a 1.9 percent loss was erased. So far, there have been six days this quarter when stocks completely reversed an intraday move of at least 1 percent, the most since 2011, when Standard & Poor’s downgraded the U.S. sovereign rating, sending stocks to the brink of a bear market.
/goo.gl/FuHSfR

Volcker 2.0 to turn up volume of trading, chop compliance costs
Nathan Dean – Bloomberg Intelligence
Investment banks stand to increase trading market-making volumes and shave compliance costs under the proposed rewrite of the Volcker Rule. It’s not a total win — prop trading is still banned. Yet banks will be able to set internal risk limits with regard to underwriting and gain opportunities to invest in covered funds. The rule should be finalized in mid-2019.
/goo.gl/ELNnPo

On January 29 The VXX Will Cease To Exist: What This Means For The Market
Zero Hedge
Over the past decade, few ETFs have been as hated (or really, really hated and occasionally loved) as the VXX Volatility ETN. After the spectacular implosion of the inverse VIX ETN/ETF universe in February’s 5-sigma VIXtermination event … the VXX emerged as the largest VIX exchange-traded product (ETP).
bit.ly/2EpWc7N

****SD: This is one of those increasingly rare instances where ZeroHedge really does have some nice excerpted content that I cannot find anywhere else – they excerpt a note from Goldman strategist Rocky Fishman that covers a ton of VXX termination Q&As.

Pound Traders Are Betting on May to Survive
Charlotte Ryan and Shoko Oda – BloombergQuint
Volatility surges ahead of no-confidence vote late Wednesday; Traders are covering short positions, TD’s Rumpeltin says
The pound headed for the biggest gain in a month on increased confidence U.K. Prime Minister Theresa May will survive a leadership challenge, amid reports that she had the backing of a majority of Conservative Party Parliament members.
/goo.gl/ZbcMAv

****SD: There is constant breaking news as Theresa May is facing a vote of no confidence this evening (afternoon in the States).

How one investor’s Amazon misfire led to a 99% loss in his trading account; Reddit Sob stories are piling up on WallStreetBets
Shawn Langlois – MarketWatch
If you’re feeling bruised and battered by this whipsaw stock market, you might consider heading over to Reddit’s “WallStreetBets” board. You’ll find of plenty of company in your misery. One options-flipping YOLO’er by the name of MightBePresident, for instance, shared his story of a wildly volatile, and ultimately devastating, year of trading.
/goo.gl/VukCgB

****SD: If true, this is nothing compared to the story making the rounds today of a guy losing $850k, leaving less than $10k in his IBKR account. But these stories are frequently not a true reflection of the case. Screenshots of account balances can be gamed a bit depending on the broker. The takeaway generally is that r/wallstreetbets offers a daily chance to see a more minnow-y version of the OptionSellers blowup – people making really bad decisions with no concept of risk management who then, whaddya know, lose a boatload of their gambling stash.

Hedge funds notch up fourth consecutive month of negative returns in November
Hedgeweek
The global hedge fund industry returned -0.31 per cent in November, bringing year-to-date returns to -2.81 per cent and marking the fourth consecutive month of negative industry returns, according to the just released eVestment November 2018 hedge fund performance data.
/goo.gl/z3L2Xk

South African rand’s volatility grows as economic risks gather
Mfuneko Toyana – Reuters
Volatility at levels last seen during finance minister reshuffle; Ratings downgrades, elections seen as main risks
Implied volatility on South Africa’s rand rose by its most since the last finance minister reshuffling in October, amid worries over the country’s sovereign credit ratings, power supply interruptions and next year’s elections.
/goo.gl/xRQx9T

Washington STEO highlights: EIA cuts Brent, WTI 2019 forecasts nearly $11/b amid supply glut
Brian Scheid and Meghan Gordon – S&P Global Platts
The US Energy Information Administration on Tuesday reduced its forecasts for WTI and Brent spot prices in 2019 by nearly $11/b, largely due to record global output, particularly in the US, and lower-than-expected demand.
/goo.gl/UWHTNM

****SD: “The implied volatility of Brent and WTI, calculated from options prices, more than doubled during the month, reflecting the market’s heightened uncertainty regarding future oil supply and demand,” EIA said.

Exchanges and Clearing

Cboe names derivatives business leaders with new hires from Goldman and DRW Trading
Hayley McDowell – The Trade
Arianne Criqui joins Cboe from Goldman Sachs, and Rob Hocking joins from DRW Trading, while Matt McFarland is promoted to head of futures at Cboe Futures Exchange.
/goo.gl/kLkRSt

Cboe C2 Exchange proposes to introduce new risk parameter
Maria Nikolova – FinanceFeeds
A trading permit holder may specify a maximum number of times that the risk parameters are reached over a specified interval or absolute period.
/goo.gl/Eefzg5

Fixed Income Highlights – December 2018 edition
Eurex
November was a strong month overall for Eurex, with futures and options volumes up across the board. Despite the European Central Bank meeting being close to expectations, Draghi failed to talk up the possibility of quantitative easing extending beyond December. Although growth was ever so slightly downgraded, the overall picture has held up relatively well. Despite headwinds from Brexit negotiations from a political standpoint, the markets saw an uptick in volatility. This helped to underpin our volumes.
/goo.gl/nHyrxV

Regulation & Enforcement

Derivatives traders to get one-year market access in no-deal Brexit
Jim Brunsden – Financial Times (SUBSCRIPTION)
Brussels is set to grant a 12-month window for European derivatives traders to continue using crucial UK market infrastructure in the event of a no-deal Brexit, as it seeks to avoid financial turmoil should Britain crash out of the EU.
/on.ft.com/2C6zXl8

Strategy

S&P chart could be forming another bearish pattern
Patti Domm – CNBC
The chart of the S&P 500, which flashed a scary death cross last week, now appears to be forming a new pattern that could be just as ominous.
/cnb.cx/2Eq9p0x

Market Volatility: A Return To The Old Normal
Sarah Hansen – Forbes
Raise your hand if you think 2018—with its whipsawing days of 500 plus point Dow moves—was evidence that markets are more volatile than ever before. During the last 12 months, the S&P closed above 2,900 for the first time ever but starting in October downdrafts seemed like a daily occurrence. Indeed, 50% of the ten biggest single day gains and declines for the Dow Jones Industrial Average happened in 2018. Everything from Brexit to the trade war tweets to oil prices seemed to spark oversized moves in the stock market.
bit.ly/2RPKaYx

Miscellaneous

Markets Conclude the U.S. Is Riskier Than China
Matthew Winkler – Bloomberg Opinion
Now the Treasury has to pay a premium over Chinese bonds to attract investors. They see four major red flags in U.S. debt.
/goo.gl/1GgYs2

Markets Should Embrace Volatility While It Lasts
Robert Burgess – Bloomberg Opinion via Yahoo
It sounds simple. Buy stocks when there’s news that the U.S. and China are making headway in resolving the escalating trade war. Sell them when the divide seems to be growing. But the problem for markets these days is that it appears as if every positive development seems to be followed closely by a negative one, sometimes within hours, and investors are having a hard time keeping up with the rapid-fire developments.
/goo.gl/ygwXR1

****SD: Yesterday’s lead story was Bloomberg’s Wall Street Is Making Peace With the New Era of Stock Volatility, and my comment was, “‘Making peace’? Shouldn’t Wall Street be embracing the new era?”

Finance Charlatan of the Year Voting
FedSpeak
Vote for your choice for your favorite rogue in finance at the following link. Last year’s winner was Jacob Wohl, 2016’s was Donald Trump and in 2015 it was Martin Shkreli.
/goo.gl/AtaZsx

 

 

John Lothian Newsletter

So you want to know what’s happening in the financial markets?

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Newsletters

What’s Driving the Unusual Calm in Currency Markets

Get a FREE 90 day trial of John Lothian Newsletter Observations & InsightThe Small Exchange: Building a new ecosystem for the little fishJim Kharouf - JLNIt's about time this industry got smaller.It's no secret futures markets have been...

Violent Reversals Fastest Since 2011; Volcker 2.0; VXX Termination

Dec 12, 2018

Observations & Insight

Wednesday’s Miscellany

JLN Staff

MLex has a (paywalled) story titled CFTC’s Giancarlo cites threat from China futures markets in bid for more money. Obviously it is a futures story, but I see it as indicative of the overall “threat” posed by the ongoing development of Chinese derivatives markets.

Check out this Bloomberg/Saxo Bank chart of yuan denominated oil futures trading and you’ll see why Giancarlo said what he did. (Besides, the usual rhetoric about needing money to protect investors hasn’t worked for the CFTC’s budget so maybe some fear-mongering will.) Also see this Reuters story from May – China’s crude oil futures boom amid looming Iran sanctions. ~SD

The newest CFTC Talks podcast is out. It’s a shorter, “FlashCast” episode focused on a single subject and features John Coughlan of the CFTC’s Market Intelligence Branch.

FIA updated its FCM tracker tool. Check it out here.

According to CLS data, currency trading volumes rose 2.6 percent in July on last year, although July volumes were 13.7 percent lower than the previous month of June. CLS said the average daily traded volume of currencies submitted to it reached $1.638 trillion in July, up from $1.596 trillion in the same month in 2017, Reuters reported.~SR

 

Lead Stories

Traders Pile Into Bets That Stock Rally Will Continue; Tax cuts and a robust U.S. economy boosted corporate profits in the three months through June

Gunjan Banerji – WSJ (SUBSCRIPTION)

With U.S. stock benchmarks mere points away from fresh records, some traders are piling into bets that share prices will rally higher and volatility will remain muted. The S&P 500 and the technology-heavy Nasdaq Composite hit their second-highest close in history on Tuesday. Options investors and traders are wagering the gains will continue. They have been scooping up bullish call options on the S&P 500, contracts that would pay out if the stock index took another leg higher, according to Credit Suisse . Call options give the right to buy shares at a later time if they hit a designated price.

/goo.gl/J3N5BG

****SD: Initially heralded as a year that would be “different,” 2018 seems more and more like 2017, with long equity, short vol being the strategy du jour (tous les jours).

Tesla options bulls reap windfall on Musk’s going private tweet

Saqib Iqbal Ahmed – Reuters

Tesla Inc’s options activity surged on Tuesday after Chief Executive Elon Musk tweeted he was considering taking the company private and some quickly executed trades netted massive paper profits as shares in the electric car maker rallied as much as 9 percent.

/jlne.ws/2vpWB4d

****SD: The role Elon Musk’s twitter feed plays continues to strike me as remarkable. I don’t believe Donald Trump’s tweets – price action-related as they occasionally are – have ever caused a trading halt in a listed name/ETP. At the time of the breaking news, IHS Markit analyst Sam Pierson commented: “[Tesla’s] short interest equates to 20.7% of outstanding shares, down from a YTD peak of 23% observed in June. The short value is higher than any S&P 500 stock, only Under Armor has a higher percentage of outstanding shares short with 24%.”

Volatility slump stokes flames for post-summer blow up

Jamie McGeever – Reuters

Financial market volatility is slumping across the board to historically – or, dangerously – low levels, potentially fanning the flames for a repeat of February’s “volmageddon” explosion that sparked a 10-per-cent correction in U.S. and world stocks.

/goo.gl/Ev6WdG

New Chinese forex crackdown to hit corporate hedging; Despite new reserve requirement, dealers say ‘maturity’ in risk management is here to stay

Blake Evans-Pritchard – Risk.net (SUBSCRIPTION)

Dealers fear a move by the Chinese authorities to reinstate a deposit requirement on foreign currency derivatives could slow a recent pick-up in hedging from local corporates, despite warnings from regulators that firms need to do more to brace for future market volatility.

/goo.gl/a5jAoP

Sterling/dollar risk reversals at 17-month low, signal more weakness

Reuters

Nine-month and one-year sterling/dollar risk-reversals fell on Wednesday to the lowest since early-March 2017, as investors rushed to protect themselves from further weakness in the British currency.

/jlne.ws/2OTyRxi

Exchanges and Clearing

NSE says working on a structure to address SGX issue

Livemint

New Delhi: Locked in arbitration proceedings with SGX, the National Stock Exchange on Wednesday said it is working on a “structure” to address the issues and more clarity is likely to emerge in the next two-three weeks.

/jlne.ws/2vtvqVV

SGX reports market statistics for July 2018

SGX

…Total Derivatives volume was 16.9 million, down 5% month-on-month (m-o-m) and up 19% year-on-year (y-o-y).

/jlne.ws/2vtyeT1

Presentation By HKEX Chief Executive Charles Li And Group Chief Financial Officer John Killian On 2018 Interim Results Announcement

Mondovisione

…Strong growth in trading volumes: Cash Market headline ADT +67% YoY, Futures and Options ADV +58% YoY, LME chargeable ADV +11% YoY

/jlne.ws/2OQUvm5

Dalian Commodity Exchange Holds Training For Corn Options Instructors

Mondovisione

To strengthen the corn options training on member units, promote teaching staff construction and guarantee the steady listing and operation of corn options, Dalian Commodity Exchange (DCE) held the training on corn options instructions lately. A total of 100 trainees from 100 units attended the training, including futures companies, risk management subsidiaries of futures companies, spot companies and other financial institutions.

/jlne.ws/2ORJsZN

Technology

Tradeweb On Track For Record Year Of Trading Activity

Mondovisione

…Credit and Equities Derivatives Volumes Climb: Global equity derivatives ADV is up 351.55% and global credit derivatives volume is also up 80.16% year-over-year on the Tradeweb platform.

/jlne.ws/2vvSYtj

Redline Trading Solutions Breaks 180 Nanosecond Tick-to-Trade Barrier

Redline Trading Solutions

Redline Trading Solutions, the premier provider of high-performance market data and order execution solutions, today announced the production deployment of its hybrid software and FPGA-based market data and order execution gateway solution.

/jlne.ws/2OUwtGQ

The art of designing markets. Part III

Eurex Exchange

This is the third article in a series of topics related to the market design of electronic marketplaces. The first article discussed the most common execution models in electronic derivatives markets, while the second covered the various components of an order-generating process that define its arrival time. It thus gave an overview of the three steps market participants need to generate and submit an order to an exchange whereby connectivity drives the third step. We explained that for all participants timing matters but that ‘timing’ means different things to different market participants. Today, we are looking at the electronic connectivity of market participants who are not members of an exchange (i.e. indirect participants), typically institutional investors, but also retail investors.

/jlne.ws/2B142UO

Strategy

Morgan Stanley sees two ‘broken legs’ for stocks, heralding ‘significant market correction’

Ryan Vlastelica – MarketWatch

For years, one of the primary factors lifting the U.S. stock market has been the fact that some of the economy’s biggest, fastest-growing names just kept rising.

The strength of growth stocks, in particular some large technology and internet plays, has been a boon for momentum investors, who bet that recent outperformers will continue to do better than the overall market over the medium term. This trade has been one of the easiest ways for investors to make money, but analysts are increasingly concerned that its era may be drawing to a close.

/jlne.ws/2MuW4Et

A big shift to the S&P 500 may change the way you invest in tech

Stephanie Landsman – CNBC

The S&P 500 is about to undergo a major structural change that may alter which technology stocks you own.

Facebook and Google’s parent Alphabet will move out of the index’s technology sector and to a newly formed communication services sector in about six weeks. The goal is to make tech appear less dominant in the S&P 500.

/jlne.ws/2vwpTxU

Miscellaneous

Crypto pukes, again; Somebody pass the mop.

Jamie Powell – FT Alphaville

Ah, the crypto.

After the gyrations of early June, it all went pretty quiet recently as bitcoin, and its fellow tokens, began to recover from their lows.

/goo.gl/oCmMCt

****SD: First, great title. Second, with all these gyrations you’d think there would have been more activity on LedgerX. After all, the exchange did have a “record” July. While open interest seems to be building (4,000+ contracts) and Monday had 400+ trades, yesterday saw only 21 swaps trade. Oh, and the reason attributed to the puking? See Bloomberg’s SEC Postpones Decision on Bitcoin ETF Listing to September

Private Banks Are the New Hedge Funds

Yakob Peterseil – Bloomberg

Who needs hedge funds when a $2.4 trillion private bank is offering global macro trades to navigate late-cycle markets — mimicking fast-money strategies with leverage to boot.

UBS Group AG’s wealth management arm, the world’s largest, is pitching just that to billionaire clients.

/jlne.ws/2MtWeMx

John Lothian Newsletter

So you want to know what’s happening in the financial markets?

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Newsletters

What’s Driving the Unusual Calm in Currency Markets

Get a FREE 90 day trial of John Lothian Newsletter Observations & InsightThe Small Exchange: Building a new ecosystem for the little fishJim Kharouf - JLNIt's about time this industry got smaller.It's no secret futures markets have been...

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