Observations & Insight
The D-Limit Order Type of IEX Has My Support
By John J. Lothian
Most of you know I prefer markets that are listed. You also know I prefer markets that are not dark. I also prefer markets that have many and a multitude of participants, in numbers and size. These are all features of a proposal from IEX before the SEC for its D-Limit order type. Thus, it was not a surprise to me when representatives from IEX asked me to take a look at the order type, the proposal and the arguments for and against.
D-Limit is a new innovative order type aimed at protecting lit markets from predatory market behavior tied to latency arbitrage strategies. Fighting latency arbitrage strategies is what helped create IEX and their speed bump.
The D-Limit Order is an artificial intelligence order type that protects displayed lit orders from being picked off by latency arbitrage players. The D-Limit Order aims to benefit displayed equity market quotes with better prices, larger displayed sizes and more competition among liquidity providers. I like all of that, and regulators and legislators should too. Innovations that promote liquidity and transparency by encouraging market participants to display their trading interest are good innovations in my book.
To read the rest of this commentary, click here.
Unsung Heroes Series: Q&A with Julie Holzrichter
By Sarah Rudolph – John Lothian News
In the second installment of JLN’s Unsung Heroes series, CME Group’s COO Julie Holzrichter responded to questions about what it’s like managing operations under the unusual conditions brought about by the coronavirus.
SR: What Is different about the environment you are working in now, in this time of self-quarantine? Who is working from home and who is coming into the office?
JH: I think the main difference is that we all miss being able to meet with each other and our clients in person. We’ve had to find new ways of communicating, brainstorming, and solving problems virtually. Internally, I’m proud of how our global team has been able to address these challenges without missing a beat in terms of productivity and performance. Technology has been key in helping us do that and making telework successful for CME Group.
We do have a very small crew of employees in our offices for functions like our clearing house, Global Command Center, facilities and data centers. But, like most companies, most of us have been working remotely for several months now. We announced that our Eurodollar Options trading pit in Chicago will reopen in August, which will require some of our employees to return to the trading floor. In accordance with regional guidance, we will take a phased approach to bringing more employees back into our offices, but most will continue to work from home for several months.
To read the rest of this interview, go here.
Bitcoin Option Traders Now Betting on Short-Term Price Drop
Omkar Godbole – Coindesk
With bitcoin looking heavy this week, short-term sentiment in the options market has flipped bearish. The leading cryptocurrency by market value fell to $9,070 soon before press time, reversing the 2.5% rise to $9,450 seen last week, according to CoinDesk’s Bitcoin Price Index. Prices are now closing on the lower end of the multi-week-long trading range of $9,000 – $10,000. Reflecting the downward trend, the one-month put-call skew for bitcoin options, a metric that measures the price of (bearish) put options relative to (bullish) call options, has risen to 4.9%, according to data provided by crypto derivatives research firm Skew.
‘We’re really hitting the moment of truth’: 5 Wall Street execs have sounded the alarm on a tough economic recovery ahead. Here’s what they said.
Ben Winck – Markets Insider
Surging coronavirus case counts and fears of a second US lockdown are prompting Wall Street’s biggest names to err on the side of caution.
Citigroup, Goldman Sachs, JPMorgan, and Wells Fargo all reported second-quarter figures this week to kick off earnings season. Wells Fargo was the only one to stumble, with larger-than-expected loan loss reserves prompting its first quarterly loss since the financial crisis. The other firms trounced analyst estimates and cited strong trading desk revenues for their rosy performances.
Exchanges and Clearing
CCP12 report: CCPs show strong resilience despite Covid-19
How did the cleared markets perform during the Covid-19 crisis and resulting turbulences? This question is answered in a detailed report issued by CCP12, the global association of CCPs. The report covers the wide range of markets with centralized risk management, including for instance oil, credit and interest rate derivatives.
*****MR: The CCP12 report includes descriptions of the performance of the OCC and Hong Kong’s SEHK Options Clearing House Ltd. in July.
MIAX Exchange Group – Options Markets – Behavior when submitting Quotes and Orders
Each order message, eQuote message and quote message that a Member submits to MIAX must contain the minimum information identified in the Exchange’s technical specifications in a single packet.
CME Globex Notices: July 13, 2020
Robinhood’s Trailing Stop Orders: Extreme Profitability, By Design
Imagine if you knew, ahead of time, exactly what bait to use? Not only which bait to attract and influence the behavior of specific customers, but how to package the output of those behaviors – into an additional form of bait – in such a way as to leverage US listed market structure and maximize the probability of financial windfall. If so, chances are, you would share some of the vision that the founders of retail trading app and rising zeitgeist symbol, Robinhood, did circa 2013…
Using Call Put Ratio Charts For Indexes And Components
The call put ratio can often reflect the bullish or bearish views of options traders, with more calls trading indicating bullish sentiment. The ratio should be used as a relative measurement to its normal level for symbols. For example, the SPX call volume lagged put volume over much of the time since 2007 averaging only 55% as shown below.
Ray Dalio’s Risk Parity Trade Is Alive for Hedge Funds in China
Shuli Ren – Bloomberg
Risk parity trades, made popular by Bridgewater Associates LP founder Ray Dalio, have made a nice comeback since the global selloff in March. In its simplest form, this strategy assumes that government bonds rally when stocks fall — a dynamic Covid-19 turned on its head when everything was crashing at once.
Now both asset classes are behaving again, and the S&P Risk Parity Index that targets 15% market volatility has returned over 45%. But for the next leg up, hedge funds should consider paying a visit to China.