Bond wolves; Hedging for the shale boom; Jump Trading shakeup; More BTC

Nov 29, 2017

Observations & Insight

Jim Kharouf Resigns as CEO of John J. Lothian & Company, Inc.; Will Continue Work with Company in Freelance Role

Jim Kharouf is stepping down as CEO of John J. Lothian & Company, Inc. at the end of the year after having assumed the role on January 1, 2017. Kharouf is leaving the company as an employee, but will continue to work with John Lothian News and John Lothian Productions as an independent contributor. He will also be exploring his own bespoke initiatives, including in the Fintech sector.

Despite accomplishing much during his tenure at the company and as CEO, Kharouf is departing after philosophical differences with Executive Chairman John Lothian over the direction of the firm and management issues.

“Jim Kharouf did an excellent job as CEO and is one of the most talented journalists I have ever known,” Lothian said. “This new phase in our relationship will allow him to continue to apply his considerable talents as a multi-media journalist to our products and services, while also relieving him of the burden of managing the company. Additionally, this frees him to explore and develop his own entrepreneurial ideas.”

“Change is not a bad thing,” Kharouf said. “Sometimes you try new things and they work and sometimes they don’t work as well as you plan them. In our case, we did what good companies do, we adjusted and pivoted in another, positive direction. Ultimately, we’re aiming for a win-win here in terms of management and content.”

Kharouf is one of the most experienced journalists in financial markets, with more than 20 years covering the derivatives and securities space and more than 25 years as a journalist, editor and media executive. He has worked with John Lothian since 2006 when they co-founded the Environmental Markets Newsletter (later renamed JLN Environmental/Energy). He began working full-time with John Lothian News in 2008. Over the past 11 years, Kharouf has helped launch, manage and oversee key editorial properties such as Marketswiki, MarketsReformWiki and the John Lothian newsletters.

He also helped spearhead the expansion of the editorial video division, John Lothian Productions, with Patrick Lothian, head of video production for the firm. Kharouf also helped create the format for Marketswiki Education with John Lothian, the international educational event series aimed at educating, informing and inspiring the next generation of professionals in the financial markets.

“Jim has grown tremendously as a journalist during our time together and this new relationship allows him to apply those skills to initiatives of his own,” Lothian said. “We look forward to fully supporting him in any way we can.”

“We are grateful for Jim’s years of service on behalf of the entire company. I can’t say enough good things about Jim as a person and professional. He has been a great example to all our employees of someone growing personally and professionally while an employee of JJLCO.”

“John Lothian is a powerful voice in the industry and will continue to be so with his John Lothian Newsletter, JLN Options, Marketswiki and Marketswiki Education,” Kharouf said. “He will continue to build the company which he started 17 years ago. It is a unique model in the media space, and one of the most trusted sources of news and information in the financial markets globally. That will certainly continue.”

John Lothian will return to the role of CEO in addition to his other roles. Lothian continues to own 100% of John J. Lothian & Company, Inc.


Nasdaq plans bitcoin futures contract in 2018
John McCrank – Reuters
Nasdaq Inc plans to launch a futures contract based on bitcoin in 2018, making it the third exchange operator to plan U.S. derivatives contracts linked to the digital currency, a source with knowledge of the matter said on Wednesday.

****SD: Some other fun BTC news – Finance Magnates’ Record Demand for Bitcoin Prompts Coinbase Outage, Reuters’ Bubble trouble? Bitcoin tops $11,000 after $1,000 surge in 12 hrs and Bloomberg’s Bitcoin ‘Ought to Be Outlawed,’ Nobel Prize Winner Stiglitz Says.


Takeover speculation returns after Rolet’s exit from the LSE
Samuel Agini – Financial News (Soft Paywall)
Analysts at JPMorgan are already asking whether Xavier Rolet’s immediate exit from the London Stock Exchange could reinvigorate takeover interest from one of the biggest exchange groups in the world.

****SD: Another potentially drawn out merger attempt involving the LSE that will get caught in a regulatory and political bog?

Lead Stories

Brace for Steeper Yield Curves as the Wolves Return
Ash Alankar – Bloomberg
Ultra-accommodative monetary policy by the U.S. Federal Reserve and other central banks has created many market distortions, among them the disappearing term premium, or the extra compensation investors demand to bear the risk of lending money for longer periods of time.

****SD: Not very often that a “wolf” story regarding Wall Street actually refers to the events in Yellowstone National Park in the early 20th century.

Million-Barrel Oil Hedging Surge Signals Shale Boom Here to Stay
Alex Nussbaum – Bloomberg
Protection grew most since Wood MacKenzie started tracking; New contracts cover annualized 897,000 barrels a day of output
Oil explorers took advantage of a market rally to lock in prices for almost 1 million barrels a day’s worth of future output, signaling the shale boom’s staying power as OPEC ponders the extension of its supply curbs.

****SD: Also see Reuters’ Hedge funds lighten bullish positions in oil and Bloomberg’s Oil Market’s Vital Signs Reveal Zero Tolerance for OPEC Nasties

Jump Trading CTO Hunt departs in shakeup
Frank Chaparro – Business Insider (Soft Paywall)
Steve Hunt, the chief technology officer of Chicago-based trading firm Jump Trading, has left the firm, according to the company.
Hunt’s tenure with Jump, a trading firm with offices in Chicago, New York, London, and Singapore, has spanned more than 10 years, according to his LinkedIn page. Before joining the firm in 2007, Hunt was a vice president at Goldman Sachs.

****SD: Prop shops are notoriously tight-lipped and that usually applies to their web presence as well. But Jump Trading’s website is about as devoid of information as it gets other than the “open positions” page. (There are 29 openings listed.)

Ex-JPMorgan Traders Start Singapore Currency Options Quant Fund
Chikafumi Hodo and Komaki Ito – Bloomberg
Ogaki and Loh to start with $75 million in seed capital; Model tests returned annualized 12.7% gain over past decade
Two former JPMorgan Chase & Co. foreign-exchange option traders will start a quantitative hedge fund in January, using artificial intelligence to trade currency options.

OCC Quarterly Report on Bank Derivatives Activities
Amir Khwaja – Clarus Financial Technology
Our regular readers will know that the Clarus Blog focuses on Derivatives and the new regulations introduced after the Financial Crisis of 2007-08. The massive increase in availability of data on OTC Derivatives markets is of great interest to us. However at times we are guilty of not paying enough attention to older data sources.
Today I will look at one such source, namely U.S. Bank Call Reports, jargon that I have sometimes heard colleagues in the industry refer to and I have nodded sagely in agreement; well time to find out more.

****SD: I am equally as surprised as Amir – “1,418 insured U.S. commercial banks and savings associations reported derivatives activities! Wow that is a lot more firms than I would have imagined.”

“It’s All One Single, Giant $22 Trillion Position”: How Market Risk Became Systemic Risk
Fasanara Capital via Zero Hedge
QE and NIRP have two predominant effects on markets: (i) relentless up-trend in stocks and bonds (the ‘Trend Factor’), dominated by the buy-the-dip mentality, which encapsulates the ‘moral hazard’ of investors knowing Central Banks are prompt to come to their rescue (otherwise known as ‘Bernanke/Yellen/Kuroda/Draghi put’), and (ii) the relentless down-trend in volatility (the ‘Volatility Factor’).

****SD: Posted on Zero Hedge but from Fasanara Capital’s “Positive Feedback Loops and Financial Instability: the blind spot of policymakers.” Sorry to expose you to all the cheap ads…

China bond sell-off makes case for options market
Blake Evans-Pritchard – (SUBSCRIPTION)
China’s recent bond market sell-off, which sent sovereign yields to a three-year high in November, could pressure the world’s second-largest economy to develop an interest rate options market, allowing investors to hedge their exposure, according to market participants.

****SD: Too bad this is paywalled – a tough nut to crack. China is one of those options frontiers with a ton of potential.

Falling systemic risk explains declining volatility on Chinese ETF options
David P. Goldman – Asia Times
The chart below shows that systemic risk (co-movement of components) has declined in the Hong Kong China Enterprises Index, as measured by the cross-sectional standard deviation of daily returns to index components. This corresponds to declining implied volatility in the Chinese market (as measured by the CBOE’s index of volatility for options on the large-cap China ETF FXI).

Exchanges and Clearing

CEO quits as LSE tries to draw line under management row
Huw Jones – Reuters
London Stock Exchange (LSE.L) CEO Xavier Rolet is stepping down immediately and its chairman will not seek re-election, as the exchange tries to draw a line under a row with a top shareholder over management succession.

****SD: Also see Reuters’ BoE’s Carney ‘mystified’ by CEO spat at London Stock Exchange, the FT’s Rolet quits as London Stock Exchange chief after power struggle and City establishment closes ranks over Xavier Rolet, Bloomberg’s An Embarrassment to London, Financial News’ Backfiring LSE campaign shows pitfalls of public activism and the Telegraph’s LSE bites back at ‘damaging’ investor as Xavier Rolet departs early.

Ethereum Derivatives Are Coming
John D’Antona Jr. – Traders News
First, there were bitcoin derivatives courtesy of the CME Group and Cboe. Slated for a December release, these futures are designed to promote trading and confidence in the fledging crypto markets. Now, according to CDS Pioneer, the second-biggest cryptocurrency, ethereum or “ether” is poised to get into the derivatives market, thanks in part to a pioneer of trading credit-default swaps, according to two people familiar with the matter.

CME rejigs commodities and buy-side incentive schemes
Global Investor Group (SUBSCRIPTION)
The Chicago Mercantile Group has applied with the US futures regulator to modify or extend around two dozen incentive programs across its various platforms.

****SD: Options contracts affected: NYMEX nat gas options, NYMEX refined and crude options, FX options, short-term interest rates options and Brent Crude futures-style margin options.

CME Plans to Manage Customer Exposure to Bitcoin Futures
Lily Katz – Bloomberg
CME Group Inc. ‘s Tim McCourt said the exchange has put safeguards such as higher margin levels and limits on positions and prices in place to curb risks on the bitcoin futures it plans to offer.

HKEX Expands Its Presence In Asia With An Office In Singapore
Hong Kong Exchanges and Clearing Limited (HKEX) today (Wednesday) expands its presence in Asia with the opening of the Singapore office of The Stock Exchange of Hong Kong Limited (SEHK) and the Hong Kong Futures Exchange Limited (HKFE), wholly-owned subsidiaries of HKEX.

Euronext expands its federal model with the acquisition of the Irish Stock Exchange
Today, Euronext announces the acquisition of 100% of The Irish Stock Exchange plc, for EUR137 million.

Regulation & Enforcement

Bank of England Warns On Derivatives
Shanny Basar – MarketsMedia
The Bank of England warned that new legislation is required to ensure the continuity of around GBP26 ($35) trillion of outstanding uncleared derivatives contracts after the UK leaves the European Union.

****SD: More on yesterday’s news.

Stranger Things: MiFID II and The Upside Down
Larry Tabb – TABB Forum
MiFID II is opening up a parallel dimension in finance, one that threatens to devastate the investing industry. On its face, the regulation provides fairly straightforward and laudable guidance for enhancing price discovery, improving execution quality, increasing transparency, and reducing conflicts of interest. But taken together, MiFID II’s rules will create a very different outcome than the regulators intended.

Trump Team to Recommend Keeping Dodd-Frank Liquidation Power; Treasury Department to propose tweaking, not scrapping, orderly liquidation authority, a win for backers of Dodd-Frank
Ryan Tracy – Bloomberg
The Trump administration doesn’t plan to recommend stripping regulators of their power to seize and unwind a failing financial firm in a crisis, according to people familiar with the matter, a development likely to make defenders of the 2010 Dodd-Frank financial law breathe a sigh of relief.

Bitcoin Futures Draw Push Back, Not Stop Light From Market Cops
Benjamin Bain – Bloomberg
Bitcoin just passed $10,000 and a bid by the world’s largest futures exchange to make it even more mainstream is probably inevitable. But that doesn’t mean U.S. regulators will let trading resemble the Wild West.

Satellites and sensitive sheep blur insider trading; Technology creates a regulatory minefield and demands a revamp of reporting requirements
Stuart Kirk – FT
A key moment in the history of insider trading rules was the discovery in 1959 of a possible ore deposit in Ontario by the Texas Gulf Sulphur Company. When the find eventually became public five years later, scores of employees (and their relatives and friends) became rich. The Securities and Exchange Commission sued and won. A court agreed that “all investors should have equal access to material information”.

Israel markets regulator Hauser to step down in January
Steven Scheer – Reuters
The Israel Securities Authority (ISA) said its Chairman Shmuel Hauser, who led the charge to turn the country’s stock exchange into a for-profit bourse, will step down in January after 6-1/2 years as markets regulator.


SWIFT warns banks on cyber heists as hack sophistication grows
Jim Finkle – Reuters
SWIFT, the global messaging system used to move trillions of dollars each day, warned banks on Wednesday that the threat of digital heists is on the rise as hackers use increasingly sophisticated tools and techniques to launch new attacks.


A Better Way To Model The VIX
Vance Harwood – Seeking Alpha
Models are useful. They help us understand the world around us and aid us in predicting what will happen next. But it’s important to remember that models don’t necessarily reflect the underlying reality of the thing we’re modeling. The Ptolemaic model of the solar system assumed the Earth was the center of everything, but in spite of that spectacular error, it did a good job of predicting the motions of the stars, planets, moon, and sun. It was the best model available for over a thousand years. But new data (e.g., phases of Venus as revealed by Galileo’s telescope) and errors in predicting the motions of the planets demonstrated that the sun-centric Copernican/Kepler models were superior.

Paying for S&P 500 Crash Protection Using Cash From Dividends
Elena Popina – Bloomberg
Here’s a look at stock market insurance that considers using the dividends you get on equities to pay for protection against catastrophe.
As observed in a tweet by the financial blogger known as Jesse Livermore, payout yields on the S&P 500 Index right now are fairly close to the price of options that hedge against big losses in the index. Going by Bloomberg data, protection against a 10 percent plunge over the next 12 months costs about 2.9 percent of a portfolio’s value, compared with the S&P 500’s dividend yield of 1.8 percent.


Cboe Global Markets to Present at Goldman Sachs U.S. Financial Services 2017 Conference on December 6
Cboe Global Markets, Inc. (Cboe: CBOE | Nasdaq: CBOE) announced today that Edward Tilly, Chairman and Chief Executive Officer, and Chris Concannon, President and Chief Operating Officer, will jointly present at the Goldman Sachs U.S. Financial Services 2017 Conference in New York on Wednesday, December 6, at 9:20 a.m. (Eastern Time).


Low Volatility Means Low Turnover?
Roger Nusbaum – Seeking Alpha
ZeroHedge had an interesting article about the very low turnover in hedge funds in the third quarter, only 26%. The title of the article includes the word paralyzed, but the text rules out complacency. Instead, the conclusion seems to be that the market is going up in a way that just should not be

The Economics Data Revolution Has Growing Pains
Noah Smith – Bloomberg
By now, most people who read about economics have heard about the empirical revolution in the field. An economist used to be someone who spun theories out of reasonable-sounding assumptions to tell stories about why the world works the way it does. Nowadays, economists still have to understand theory, but their day-to-day work involves combing through data and crunching statistics. As you can see in the chart below, research based on data makes up a growing share of published studies:

****SD: However, include too much data and you run other risks.

John Lothian Newsletter

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 Options Newsletters

Pin It on Pinterest

Share This Story