Volatility: how ‘algos’ changed the rhythm of the market

Jan 9, 2019

Lead Stories

Volatility: how ‘algos’ changed the rhythm of the market
Robin Wigglesworth – Financial Times (SUBSCRIPTION)
Philippe Jabre was the quintessential swashbuckling trader, slicing his way through markets first at GLG Partners and then an eponymous hedge fund he founded in 2007 — at the time one of the industry’s biggest-ever launches. But in December he fell on his sword, closing Jabre Capital after racking up huge losses. The fault, he said, was machines.
/on.ft.com/2CYCGgK

****SD: I doubt the themes and arguments in this will be illuminating to anyone: Can you really blame computerization? There’s a lot of participant concentration. How about risk parity? Look at these flash crashes. “Michael Lewis, author of Flash Boys, fanned the flames with his book.” Is liquidity poorer now than in the past? But it serves as a nice overview. (I was confused for a moment though as one Andrei Kirilenko is quoted. As a basketball fan, I immediately thought of the Russian-American baller who gained fame with the Utah Jazz, but in this case it refers to a former CFTC chief economist.)

VIX Is Plummeting But Market Reality May Yet Pull It Higher
Joanna Ossinger – BloombergQuint
Divergence from realized volatility usually heralds gains; ‘Fear gauge’ vulnerable to rally on big down day for stocks
Wall Street’s “fear gauge” is defying the recent market swoon.
The Cboe Volatility Index, known as the VIX, has fallen eight of the past 10 trading sessions, dropping to 20 on Wednesday versus 36 in mid-December. That’s at odds with large realized swings in U.S. stocks — a potentially unsustainable divergence.
/goo.gl/wJksZq

Cboe Shouldn’t Be Let Out Of VIX Manipulation MDL
Nadia Dreid – Law360 (SUBSCRIPTION)
Chicago Board Options Exchange investors urged an Illinois federal court not to let Cboe Global Markets Inc. out of multidistrict litigation accusing it and related entities of manipulating the exchange’s volatility…
/goo.gl/kMFqc4

****SD: As mentioned before, Law360 is tight with its subscribers – it won’t even quote me a subscription price as I’m in the media. So, I’ll have to find some time to dig up the court filings and actually get a more comprehensive picture of where things stand.

Saba Capital’s Tail Hedge Master Fund gains 25 percent in 2018
Svea Herbst-Bayliss – Reuters
Saba Capital’s Tail Hedge Master Fund, which promises a sort of doomsday insurance through bets that perform well when markets spiral, ended 2018 with a 25 percent gain, a person familiar with the fund’s returns said on Tuesday.
/reut.rs/2D0Stfj

Barclays Provides Further Guidance around the Upcoming Maturity of the iPath VXX and VXZ ETNs
Business Wire
Barclays Bank PLC (“Barclays”) provided further guidance today around the upcoming maturity of the iPath S&P 500 VIX Short-Term Futures ETNs (Ticker: VXX) and the iPath S&P 500 VIX Mid-Term Futures ETNs (Ticker: VXZ) (together, the “Maturing ETNs”). The Maturing ETNs currently trade on the NYSE Arca Exchange.
/goo.gl/oBdYvk

****SD: Volume is slowly accumulating in VXXB, Barclays’ successor note to VXX. You can find more on the “maturity” event via the Six Figure Investing Blog.

Financial market largely affected by bad economic news: report
Yonhap
Seoul – The South Korean financial market is even more impacted by bad economic data than good data, a report by the central bank said Wednesday.
The report published by the Bank of Korea (BOK) measured volatility dynamics of option derivatives using intraday data on the KOSPI 200 index before and after announcements of key economic data, including the BOK’s monetary decisions, gross domestic product, trade balance and industrial outputs.
bit.ly/2D090jl

****SD: Bank of Korea staying busy with options data!

Exchanges and Clearing

Nasdaq Dubai Begins Futures Trading of Saudi Firms
Finance Magnates
Nasdaq Dubai on Wednesday launched equity futures trading of 12 Saudi Arabian companies and said it plans to debut trading a Saudi index this year, stimulating investor interest in the kingdom’s capital markets.
bit.ly/2D1kao3

****SD: Included for background on the region – “With the exception of Kuwait, Gulf Arab stock markets have been slow to introduce futures and options. As a result, some have asked investment banks to design over-the-counter options for individual stocks.”

SGX reports market statistics for December 2018
SGX
Total Derivatives volume was 18.35 million, down 7% month-on-month (m-o-m) and up 17% year-on-year (y-o-y).
bit.ly/2D0fOh2

Technology

FIS eyes partners as tech providers integrate
Louisa Chender – Global Investor Group (SUBSCRIPTION)
US tech giant is investing in agile platforms that can scale up to sudden spikes in market volumes
bit.ly/2CYNL1x

Strategy

Looking for a Pound Hedge? Nordic Volatility May Be Your Answer
Shoko Oda – BloombergQuint
Some of the best hedges against the next wave of pound risk may be Scandinavian currency options, according to Credit Agricole SA.
/goo.gl/RH3XMt

KKR – Outlook for 2019: The Game Has Changed
KKR
As we begin 2019, we definitely tilt more positive in our global asset allocation and macro positioning, despite our call for a weaker economic environment.
/goo.gl/oXpS66

****SD: A little bit of everything in here.

Miscellaneous

DoubleLine’s Gundlach: High-yield market flashing ‘yellow’ on recession
Jennifer Ablan, Trevor Hunnicutt – Reuters
The high-yield “junk” bond market, which has been a leading indicator of recessions, is flashing “yellow now,” Jeffrey Gundlach, chief executive of Doubleline Capital, said on Tuesday.
/reut.rs/2Fqb4TF

Trump is probably going to get his way with the Fed this year
Jeff Cox – CNBC
As President Donald Trump jawbones the Federal Reserve, the likelihood that he’s going get what he wants this year from the central bank continues to grow.
/cnb.cx/2CYGhLM

Three Currencies to Watch in 2019
Kathy Lien – CME Group OpenMarkets
2018 was a phenomenal year for the U.S. dollar as the trade weighted Dollar Index rose more than 9 percent from its low in February. This strength drove all of the major currencies lower from the euro to the Japanese yen and Australian dollar.
bit.ly/2CYOT5h

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...

Pin It on Pinterest

Share This