A New ETF Seeks to Short Volatility While Dodging Total Wipeout
Yakob Peterseil – Bloomberg
Exchange-traded products that bet against stock volatility have a history of blowing up. A New York-based firm is pitching a novel solution to the problem.
Simplify Asset Management plans to create a short-volatility ETF that piles on protection to guard investors from the periodic storms that hit the strategy.
Bitcoin (BTC USD) Cryptocurrency Price Falls After Swings Highlighted Risks
Joanna Ossinger and Olivia Raimonde – Bloomberg
Bitcoin’s losses accelerated, with prices tumbling below $50,000, as investors started to bail on the market’s frothiest assets.
The cryptocurrency tanked as much 18% on Tuesday and traded around $48,750 as of 10:41 a.m. in New York. While the selloff only puts Bitcoin prices at the lowest in about two weeks, investors are starting to wonder whether it marks the start of a bigger retreat from crypto or simply represents volatility in an unpredictable market.
Global Market Capitalisation Passed $100 Trillion
The World Federation of Exchanges (“WFE”), the global industry group for exchanges and CCPs, has today published its Full Year 2020 Market Highlights Report. The report offers the first opportunity to study the impact of the events of 2020 on markets holistically and looks across market capitalisation, listed companies, IPOs, volumes and value traded in multiple assets classes including equities, derivatives futures, options and ETFs. 2020 was an extraordinary year in history, with the Covid-19 pandemic, the US presidential election, Brexit, the resignation of Japan’s prime minister Shinzo Abe and increased tension between the US and China creating vast economic uncertainty and a flood of pessimistic forecasts. In March we saw market volatility levels comparable only to those of the Great Financial Crisis of 2008.
Fears of inflation are overblown, but it could still trigger near-term stock market volatility, UBS says
Emily Graffeo – Markets Insider
UBS’s chief investment officer of global wealth management says investors should brace for a near-term spike in inflation, but concerns about a long-term rise are overblown.
“…While we think inflation may spike in the near term as pent-up demand meets constrained supply, we believe fears about a persistent rise are likely to prove overdone. However, such concerns could still trigger bouts of market volatility-S&P 500 futures were down 0.7% on Monday-and may test investors’ resolve,” said Mark Haefele in a Monday note to clients.
Tech Stocks Drop Amid Rising Bond Yields; Investors’ bets on economic rebound have contributed to selloff in government bonds
Caitlin Ostroff and Alexander Osipovich – WSJ
The Nasdaq Composite fell sharply on Monday, as rising bond yields and investors’ bets on a further economic rebound weighed on the shares of technology giants such as Apple and Microsoft. The tech-heavy Nasdaq lost 341.41 points, or 2.5%, to close at 13533.05. The broad-based S&P 500 fell 30.21, or 0.8%, to 3876.50, in its fifth consecutive losing session. The Dow Jones Industrial Average eked out a slight gain, rising 27.37, or less than 0.1%, to 31521.69. Tech stocks that were recently trading at records posted broad declines. Microsoft, Apple and Amazon.com all fell between 2% and 3%. Shares of electric-car maker Tesla tumbled $66.80, or 8.6%, to $714.50.
Exchanges and Clearing
ICE Reports Record Futures Open Interest of 46.9 Million Contracts; OI record in Brent Futures of 2.76 million; Sterling Futures and Options OI record of 19.9 million
Intercontinental Exchange, Inc.
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of mortgage technology, data and listings services, announced record Total Futures Open Interest on February 19, 2021. ICE’s Brent futures contract, which serves as the global benchmark for crude oil, reached an all-time Open Interest record of approximately 2.76 million contracts on February 19, exceeding the previous record set in April 2020. Approximately 80% of the world’s traded crude is priced relative to Brent.
Exclusive: Top banks asked to justify why they still clear euro swaps in London
Huw Jones – Reuters
Europe’s top banks must justify why they should not have to shift clearing of euro-denominated derivatives worth billions of euros from London to the European Union after Brexit, an EU document seen by Reuters on Tuesday showed.
Clearers in Britain have EU permission to continue clearing for EU customers until mid-2022 to give banks time to shift their euro positions to the continent, but switching has been slow.
Regulation & Enforcement
Mutual Fund Locks Out Founder After SEC Questions Swaps Pricing
Miles Weiss – Bloomberg
By 30, James Velissaris was the founder, majority owner and chief investment officer of his own innovative mutual fund company, set up with backing from billionaire investing titan David Bonderman. This week, Velissaris was abruptly locked out.
In a dramatic response to a federal inquiry, Infinity Q Capital Management announced Monday it’s shutting a $1.8 billion mutual fund and that it placed Velissaris on leave, cutting off his access to accounts and trading while hiring an expert to value holdings. The firm said it had learned the U.S. Securities and Exchange Commission is probing whether Velissaris, now 36, incorrectly valued complex derivatives.
The Exchange proposes to amend Rule 5.52(d) in connection with a Market-Maker’s electronic volume transacted on the Exchange.
A proposal to amend Equity 4, Rule 4759 Data Feeds Utilized to change the primary and secondary source of quotation data
Entitlements-As-A-service: Managing Market Data On The Cloud
Ollie Cadman – Vela
I recently watched an interesting FISD webinar where the panelists discussed the challenges around market data distribution in the cloud. High on the agenda was the subject of entitlements. The huge growth in market data consumption over recent years has been driven by a number of factors including machine learning and artificial intelligence (AI), more passive investment strategies, and regulatory requirements driving application modernisation in areas such as real-time risk. This has led to an increase in demand for the right tools to control, manage and monitor data usage, ensure compliance with exchange policies, and follow best practices when it comes to data access and control.
Why J.P. Morgan Says Now Is the Time to Bet on the S&P 500
Steven M. Sears – Barron’s
Don’t worry. Be greedy.
Even though investor fears are rising, and the stock market is getting bullied by rising bond yields, J.P. Morgan strategists have told their clients that now is the time to embrace stocks.
The S&P 500 may be waffling around 3875, but the bank is standing by its 2021 year-end price target of 4400 on a range of 4200 to 4600. Its numbers aren’t merely some derivative of the stock market’s expected earnings. Instead, they reflect America’s economic reawakening after the Covid-19 pandemic.
Tech Stocks Are Getting Crushed Again. What’s Behind the Selloff.
Welcome to the first tech wreck of the new year.
Stock futures are down again Tuesday and tech, in particular, is taking it on the chin. The tech-darling FAANG stocks are all down between 1% and 2% in premarket trading. Microsoft shares are off 1.7% and Tesla stock is down almost 5%.
Futures on the Nasdaq Composite, home to many of those tech titans, are down about 1.5% after the index fell 2.5% Monday.
Registration is open! – FIA Boca 2021
The SEC’s new derivatives rule: practical implications for funds
25 February 2021 • 10:00 AM – 11:00 AM EST
The SEC recently adopted Rule 18f-4 under the 1940 Act, which will establish a comprehensive framework for the use of derivatives transactions by registered funds. The rule will replace SEC guidance and staff no-action letters that together have governed the use of derivatives by registered funds for over 40 years with an expansive regulatory framework. Funds will not need to come into compliance with the rule until the summer of 2022, but most fund families will need to devote significant time and resources to prepare for the new regulatory framework in advance of the compliance date.
A New Virtual Experience
The Options Industry Conference is Going Virtual in 2021. Join OCC and the options exchanges for the 39th annual Options Industry Conference, April 28-29, 2021. While the conference will be held virtually for the first time in history, the focus will continue to be the key topics facing the options industry today, from the regulatory shifts in the U.S. and Europe to the technological developments that are driving monumental change in markets around the globe.