Begging the Question on VIX Manipulation

May 2, 2018

Observations & Insight

Options Exchange Marketshare – April 2018


OCC’s Evolving Leadership Role in the Options Industry

The OCC didn’t always position itself as a thought leader in the derivatives industry, but as exchanges’ business interests shifted over the years to multiple asset classes, OCC is one of the few organizations left that can bring its focus solely to bear on equity options. In this video, OCC CEO and Executive Chairman Craig Donohue talks about the evolution of the OCC and the Options Industry Council.

Watch the video »

Lead Stories

Begging the Question on VIX Manipulation
Streetwise Professor
Stung by yet another allegation of manipulation of the VIX, Cboe Chairman and CEO Ed Tilly and President and COO Chris Concannon fired off an open letter defending the exchange and VIX. To say it begs the key questions is an understatement.

****JB: Kudos to the Streetwise Professor for using “begs the question” properly. In my experience that is a rare thing these days.

Vol virus: how a CCP basis leapt from swaps to swaptions
Lukas Becker –
Swaps users have got used to the idea of a price difference arising from their choice of clearing house. But what about a clearing house basis for non-cleared derivatives?
This is the situation facing the yen swaptions market, where for the first time a basis has opened up on these non-cleared products depending on where the resulting interest rate swap will be cleared. Some dealers now talk about being long or short volatility at the two competing central counterparties (CCPs), Japan Securities Clearing Corporation and LCH.

Global Market Volatility Now a ‘Made in the U.S.A.’ Phenomenon
Luke Kawa – Bloomberg
The U.S. is home to the world’s largest economy, the global reserve currency — and now, the rebirth of market volatility.
For the first time since the financial crisis, angst emanating across asset classes has an America-centric genesis. U.S. equity volatility has awoken from a long slumber to outpace its European equivalent, fixed-income traders worldwide are grappling with a 10-year Treasury yield that just cracked a significant psychological milestone, and two-year borrowing costs have reached their highest level since 2008.

Why the stock market is falling amid the best first-quarter results in 24 years
Mark DeCambre – MarketWatch
By at least one measure, corporate earnings are the best in nearly a quarter-century. However, the stock market is not enthused!
Rather than rally on the back of upbeat results, the main equity benchmarks have sulked lower.

JPMorgan’s Marko Kolanovic says ‘Uberization’ of markets poses risk
Joe Ciolli – Business Insider
JPMorgan’s quant guru, Marko Kolanovic— a man whose opinion is valued so highly that it can move markets — doesn’t think investors have learned their lesson from the meltdown that rocked stocks in early February.
That’s because they’ve become used to a low-volatility environment — one that hasn’t been conditioned to withstand sharp fluctuations. As a result, outsize price swings can hamper liquidity, making it difficult for markets to function properly when it’s most crucial, says Kolanovic, JPMorgan’s global head of quantitative and derivatives strategy.

Exchanges and Clearing

OCC Cleared Contract Volume Up 27 Percent in April; Equity options volume up 32 percent in April and average daily volume up 30 percent year-to-date
OCC announced today that total cleared contract volume in April reached 405,853,179 contracts, a 27 percent increase from April 2017 volume of 320,547,848 contracts and marking the highest April on record. OCC’s year-to-date average daily cleared contract volume is up 29 percent from 2017 with 22,026,812 contracts compared to 17,027,383 contracts in 2017.

CME Group Reached Average Daily Volume of 17 Million Contracts in April 2018, Up 4 Percent from April 2017
Press Release
CME Group announced it reached average daily volume (ADV) of 17 million contracts during April 2018, up 4 percent from April 2017. Open interest at the end of April was 126 million contracts, an increase of 4 percent from the end of April 2017, and up 17 percent from year-end 2017.

Deutsche Börse: Increased Trading Volumes, New Records For ETFs – Cash Market Turnover Totals EUR127.2 Billion In April
Press Release
The high trading volume on the cash markets since the beginning of the year has led to new records in ETF trading on Xetra, Europe’s leading platform for exchange-traded funds. The first quarter of 2018 saw a total of more than 1.9 million orders executed, the highest number since the products were introduced in 2000, and around 30 percent up year on year. The number of tradable ETFs also rose to a new high of 1,264 at the end of April.

Nasdaq Trading Statistics April 2018
Nasdaq (Nasdaq:NDAQ) today publishes monthly trade statistics for the Nordic1 and Baltic2 markets. Below follows a summary of the statistics for April 2018.


Cboe Expands Market Data Sales Team with Key Hires
Cboe Global Markets, Inc. (Cboe: CBOE | Nasdaq: CBOE), one of the world’s largest exchange holding companies, today announced the expansion of its Market Data Services team with two key appointments in its London office.

Regulation & Enforcement

Stock Exchanges Get Warning Shot From SEC Over Data Profits
Nick Baker – Bloomberg
U.S. regulators blocked stock exchanges’ request to raise some fees for market data, an unusual step suggesting closer scrutiny of an increasingly important slice of their businesses.
The fees that firms including NYSE Group Inc., Nasdaq Inc. and Cboe Global Markets Inc. wanted to boost are relatively obscure.

Sebi puts in place risk management measures for derivatives segment
Markets regulator Sebi today put in place additional risk management measures, pertaining to margin collection requirement and computation of liquid net worth, for equity derivatives segment.
The decision has been taken after taking into account feedback from the clearing corporations and the recommendations of Sebi’s risk management review committee, the regulator said in a circular.


Interactive Brokers’ mobile app enables traders to view SPX Delta & Theta for their portfolio
Maria Nikolova – FinanceFeeds
The addition to the mobile app is made shortly after the broker enhanced the “Greeks” information display in the Performance Profile of its TWS platform.


Discrete time stochastic volatility (SUBSCRIPTION)
Thomas Roos proposes a new methodology for obtaining arbitrage-free European swaption prices, requiring the calculation of a simple one-dimensional numerical integral per strike. The approach provides control over the wings of the distribution and also has applications to the pricing of forward starting options


Monex CEO says cryptocurrencies could take off like derivatives did
Kate Rooney – CNBC
Despite some pushback from global regulators, Wall Street veteran and CEO of Japanese online broker Monex Group says the new crypto asset class could take off like derivatives did 38 years ago.

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