Blame options expiration, not politics, for stock-market pullback, says top quant; Lessons From The greatest macro trader you’ve never heard of; What to Make of the Lowest VIX Ever

Mar 22, 2017

Observations & Insight

Westminster attack: man shot after police officer stabbed and several injured in related incident – live updates
The Guardian

****SD: Much is still unknown about what exactly happened in London today. The link above is a good resource and provides up-to-date details about the apparent terrorist attack.


FIA 2016 Year in Review
I’m proud to share with you FIA’s 2016 Year in Review, detailing the work we have done on behalf of our industry and membership over the past year. This year, we’ve introduced a new format for the annual report that allows you to quickly access key information and dive deeper into the issues that matter most to you.

Lead Stories

Blame options expiration, not politics, for stock-market pullback, says top quant
William Watts – MarketWatch
Don’t blame politics for the stock market’s turn south. The stage was set in the options market at the end of last week, says Marko Kolanovic, the widely followed head of derivative and quantitative strategies at J.P. Morgan Chase & Co.

****SD: Aww, come on JPM, what’d options ever do to you?

Jim Leitner – Lessons From The greatest macro trader you’ve never heard of
Jim Leitner is the greatest macro trader you’ve never heard of. He was once a currency expert on Wall Street, pulling billions from the markets, but now he plays the game through his own family office. Leitner understands the Macro Ops “go anywhere” mentality better than any other trader:

****SD: Lots to digest in here. I would slightly dispute the following statement though: “My advice is to make sure that you do not become too much of an expert in one area. Even if you see an area that is inefficient today, it’s likely that it won’t be inefficient tomorrow. Expertise is overrated.”

What to Make of the Lowest VIX Ever
Schaeffer’s Research
If you recall my article from last week, I looked at the first 50 trading days of the year and found that this year so far mostly resembles 1995. That is promising since that was a very good year for stocks. This week I show another similarity to 1995 — the ultra-low levels of the CBOE Volatility Index (VIX) thus far this year. We have VIX data back to 1990 and the VIX has never been lower on average at this point in the year. The next lowest average VIX level was in 1995. This week I’ll look at how the rest of the year tends to play out when we see such low levels on the market’s “fear gauge.”

EU to formally veto Deutsche Boerse LSE merger shortly: sources
The European Commission will shortly veto a proposed merger between Deutsche Boerse (DB1Gn.DE) and the London Stock Exchange (LSE.L), four sources close to the matter said on Wednesday, scuppering plans to create Europe’s biggest exchange.

****SD: Soon the party will be officially pooped.

Fed’s Kaplan sees three rate hikes in 2017, eyes balance sheet
Ann Saphir – Reuters
With the U.S. workforce nearly fully employed and inflation heading toward 2 percent, the Federal Reserve should raise interest rates two more times this year and continue work on a plan to gradually trim its massive balance sheet, Dallas Federal Reserve Bank President Robert Kaplan said.

****S: “Mirror, mirror, in my hand, on what day will the Fed hike rates across the land?”

Deutsche slips in European investment bank rankings
Laura Noonan and Ben McLannahan – Financial Times
Deutsche Bank loosened its grip on the European investment banking market last year and is now tied with Goldman Sachs in the race to be the Emea region’s second-biggest investment bank after JPMorgan Chase.

****SD: More on the rankings from Reuters – U.S. investment banks strengthen global lead over Europe

Exchanges and Clearing

CBOE eyes foreign traders with new schemes
Futures & Options World
US equity options exchange acquired Bats Global Markets at the end of last month
The Chicago Board Options Exchange plans to launch three incentive schemes on its futures exchange aimed at non-US market participants, according to regulatory filings seen by FOW.
The US exchange group has filed with the US futures regulator to launch three new incentive schemes for its CFE futures market. The first is a new European futures commission merchant (FCM) incentive program, aimed at “new FCMs and their customers that are located in Europe that have not previously traded in CFE products”.

****SD: Every American exchange should be eyeing foreign traders. Look at where CME is seeing growth for just one example.

ETF Trading Glitch Fuels Worries Over Modern Markets
A botched software update that snarled trading in hundreds of securities in the New York Stock Exchange’s Arca platform has renewed worries about fragility in U.S. markets.

****SD: Soooo, just never update your systems? Problem solved.

CBOE Holdings Unit Divests Livevol X to Sterling Trading
CBOE Livevol, a subsidiary of CBOE Holdings, Inc. CBOE , recently announced that it has divested its Livevol X to Sterling Trading Tech. We would like to remind investors that Livevol, a trade execution platform for U.S. equities and options, was acquired by CBOE Holdings in Aug 2015, and subsequently renamed CBOE Livevol.

****SD: In case you missed it yesterday.

SGX to report 3Q FY2017 results on 20 April
Singapore Exchange (SGX) is reporting its third-quarter (3Q) results for Financial Year 2017 (FY2017) after the market closes on 20 April 2017.

Regulation & Enforcement

Behind the scenes, bank lobbyists temper expectations for Dodd-Frank overhaul
Pete Schroeder – Reuters
Bank lobbyists who opened the Trump era with great expectations for sweeping regulatory reform are privately striking an increasingly dismal tone as hopes for a quick and thorough rewrite of Dodd-Frank legislation dim.

****SD: Also from Reuters – Top Democrat on Senate panel: No rollback on Dodd-Frank because it works

When Was the Last ‘Air Raid’? (Or: Why Wait to Eliminate the Order Protection Rule?)
David Weisberger, Exquam – TABB Forum
It has often been said that one of the greatest impediments to innovation and positive change is the expression, “It has always been done this way.” Such thinking is pernicious, as people assume that “this way” must be correct and that change must imply risk, particularly when the people involved either forget or ignore WHY things are done that way …

Going Public: My Adventures Inside the SEC and How to Prevent the Next Devastating Crisis
Brenda Jubin – ValueWalk
Norm Champ spent almost 20 years in the private sector practicing law and serving as general counsel of a hedge fund before opting to join the SEC. Going Public: My Adventures Inside the SEC and How to Prevent the Next Devastating Crisis (McGraw-Hill, 2017) recounts his five years (“adventures” is a stretch) in government. My initial reaction to this book was negative since it focused so much on the petty. But then, upon reflection, I decided that it was undoubtedly an accurate, if limited, account of how people function, and don’t function, inside government agencies. And for this reason was worth reading.

Texas judge shoots down latest effort to halt DOL fiduciary rule
Opponents of the Department of Labor’s fiduciary rule were dealt another blow Monday, when a federal judge in Dallas denied their latest effort to halt its implementation.

****SD: If this weren’t a Texan judge, would they have said “shoot?”

Federal Court in Florida Orders Neil Pecker and His Company, Vision Financial Partners, LLC, to Pay More than $6.5 Million in Restitution and a Civil Monetary Penalty in CFTC Binary Options Fraud Action
The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge James I. Cohn of the U.S. District Court for the Southern District of Florida entered a Consent Order against CFTC Defendants Neil Pecker with a last-known address in Longwood, Florida and his company, Vision Financial Partners, LLC (Vision) of Deerfield Beach, who were charged with fraudulent solicitation and misappropriation in connection with off-exchange binary options. The Order, entered on March 9, 2017, requires Pecker and Vision, jointly and severally, to pay restitution to defrauded investors totaling $2,777,130 and a $3.75 million civil monetary penalty.

****SD: Neil Pecker from Longwood? For real? I guess it is hard to tell what’s fake news these days.


London’s trading infrastructure retains edge despite Brexit
Philip Stafford – Financial Times
As the UK looks to start the process of leaving the EU next week, optimism reigns that London will remain home for the vital physical infrastructure that underpins trading across Europe’s financial markets. A 30-mile radius from the City contains a cluster of critical technology sites that power today’s highly computerised markets, including the trading of shares, currencies, bonds, commodities and numerous contracts for derivatives and futures.


Highland Park council candidate denies he misled voters about college degree
Karen Berkowitz – Chicago Tribune
Highland Park City Council candidate Adam Stolberg lists a B.S. in Economics from the University of Illinois among his qualifications on his campaign literature. Stolberg says he wasn’t trying to mislead anyone when he shortened the degree referenced on his list of qualifications, which runs alongside testimonials from prominent supporters including the mayor, a city council member, a Lake County board member and a former state representative.

****SD: Be careful how you represent yourself. What seems to me like a very minor omission is causing quite the headache. Stolberg actually has a degree in Agricultural Economics (and worked for a while at CBOE).

Why American Farmers Are Hacking Their Tractors With Ukrainian Firmware
Jason Koebler – Vice Motherboard
To avoid the draconian locks that John Deere puts on the tractors they buy, farmers throughout America’s heartland have started hacking their equipment with firmware that’s cracked in Eastern Europe and traded on invite-only, paid online forums.

****SD: These are the stories that make me think that regardless of recent protectionist trends, globalization is not going away.

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