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Calm Blankets Markets, Even as Risks Remain; Age of the Quant Coming to an End | John Lothian News

Calm Blankets Markets, Even as Risks Remain; Age of the Quant Coming to an End

Feb 22, 2019

Lead Stories

Calm Blankets Markets From Stocks to Bonds, Even as Risks Remain
Gunjan Banerji – WSJ (SUBSCRIPTION)
Volatility measures in markets from stocks to currencies have retreated this year—a sign that investors are shedding caution even as uncertainties linger in the global economy.
A measure that tracks expected turbulence in share prices, the Cboe Volatility Index, this week hit its lowest point since Oct. 3, placing the so-called fear gauge back at a level it reached before U.S. stocks descended into the worst quarter in seven years.
The options-based index, known as VIX, tumbled 3% this week to 14.46. The measure is down 43% in 2019.

****SD: From Bloomberg’s Brian Chappatta – Bond Volatility Is Eerily Quiet. But Is It Too Quiet? BAML’s MOVE Index – the VIX for for the Treasury market – nearly hit its record low this week.

COMMENT: The age of the quant is coming to an end
Anonymous – eFinancialCareers
I’ve worked as a quant in finance for over two decades, on both sides of the Atlantic. And I can smell the rot setting in.
In the past decade, banks’ use of quants has changed. Ten years ago, when we were still building structured products, quants in banks needed deep knowledge of mathematical techniques to do the job. Today it’s much less groundbreaking – quants have been dumbed down.

****SD: The kicker of the piece: “Nor are things likely to improve in the long term. The real threat to the quant is the trader of tomorrow. In future, traders will think differently. Traders themselves will be more quantitative and will know how to code in Python. However, traders won’t want to spend their time coding in Python and so this will become the task of a new sort of quant-quant developer hybrid. There will be less maths, and more programming, and less pay.”

Derivatives trading costs could double in times of market stress
Hayley McDowell – The Trade
Initial margin requirements in times of market volatility could see the costs of trading derivatives almost double for some firms, according to OpenGamma.
The analytics specialist investigated the impact of calculated stress on margin for a number of client portfolios using historical data for margin rates for listed futures contracts between 2008 and 2018. The research found that initial margin for one client portfolio, consisting of fixed income futures contracts traded on SPAN exchange CME, could surge by up to 94% at times of high volatility.

****SD: You can download the study from OpenGamma’s website here. It is entirely based on a futures portfolio and does not include options on futures (near as I can tell). But are there are a lot of people who trade three month eurodollar futures that have never touched options? Anyways, it’s worth the download and read regardless of your derivative instrument of choice.

A Fed pivot, born of volatility, missteps, and new economic reality
Howard Schneider, Jonathan Spicer – Reuters
The Federal Reserve’s promise in January to be “patient” about further interest rate hikes, putting a three-year-old process of policy tightening on hold, calmed markets after weeks of turmoil that wiped out trillions of dollars of household wealth.

Exchanges and Clearing

MIAX Launches SPIKES Options
John D’Antona Jr – Traders News
MIAX Options began its first day of volatility options trading on the SPIKES™ Index (Ticker: SPIKE) last Tuesday, an index designed with a fully-transparent process featuring pinpoint accuracy and radically faster dissemination.

Cboe Holdings, Inc. Annual Report
Annual Report Pursuant to Section 13 or 15(d) of the Security Exchange Act of 1934

FLASHBACK FRIDAY: Ex-Goldman Trader Readies New Bitcoin Exchange
John D’Antona Jr – Traders News
The exchange evolution is in swing these days.
First, the market had exchanges set up for goods and services. Then under a Buttonwood Tree the world got its first organized stock exchange. Then came bond exchanges, commodities exchanges and more recently myriad cryptocurrency exchanges. But back in 2015, the creation and/or formation of a Bitcoin exchange from a former Goldman Sachs trader made headlines.
LedgerX, the brainchild of Paul Chou, LedgerX is the first federally regulated exchange and clearing house to list and clear fully-collateralized, physically-settled bitcoin swaps and options for the institutional market.


European banks wield axe after bleak fourth quarter
Stephen Morris and David Crow – Financial Times (SUBSCRIPTION)
One of the most brutal trading quarters in memory has sparked another round of soul-searching at Europe’s few remaining investment banks, with some concluding the only option is to wield the axe again.
The seven largest traders in the region reported sharp declines in markets revenues in the final period of 2018, falling an average 19 per cent, three times more than the aggregate 6 per cent drop at US rivals, according to data from Citigroup. The results were also marred by eye-watering one-off losses from deals and trades gone bad.

Regulation & Enforcement

CAT’s Future Still Cloudy as NMS Committee Declines to Name New Processor
Emilia David – WatersTechnology (SUBSCRIPTION)
As the saga of the Consolidated Audit Trail (CAT) continues, the committee handling the project left the industry in limbo on February 20, as it refused, or said it was unable to answer key questions during a highly anticipated webcast.

SEBI fines 2 firms for fraudulent trade in BSE stock options
Business Today
Markets regulator Sebi Thursday slapped a total penalty of Rs 13 lakh on two entities for non-genuine trades in illiquid stock options on the BSE.


Fending Off the FAANGS Using High-Performance Switch Technology
A Team Insight
A story we published some years ago suggesting that Google was looking at making an acquisition in the real-time market data space sparked unprecedented interest from our readership and to this day remains one of our most viewed articles. Since then, the generic financial services space has seen the arrival of a raft of interlopers – disruptors, if you will – who have threatened the status quo in mainstream financial activities like retail banking, payments and e-commerce.

Options adds new direct low latency connectivity to Hong Kong, Korea and Sydney exchanges
Institutional Asset Manager
Options, a provider of global market data and colocation services for trading firms, has added Hong Kong Exchange (HKEx), Korea Exchange (KRX) and the Australian Securities Exchange (ASX – ALC Australian Liquidity Centre) to its Managed Colocation platform.


The VIX Is At The Lowest Level For 2019 – How Long Can That Last?
Andrew Hecht – Seeking Alpha
In 2016, the first six weeks of the year were downright ugly when it came to the stock market. An economic slowdown in China rippled around the world in a tsunami of selling as Chinese domestic equities experienced a severe correction to the downside. The S&P 500 index dropped from a high at 2104.37 in December 2015 which was just shy of a record high, to a low at 1810.10 one month and a half into 2016, a decline of almost 14% over six weeks. Over that period, the VIX index, which measures the implied volatilities of put and call options on S&P 500 stocks, moved from 14.45 to a high at 32.09.

Volatility Seems Here To Stay
Neuberger Berman – Seeking Alpha
With investor psychology recently swinging from fourth-quarter despair to New-Year optimism, we wanted to highlight that, despite the market recently moving higher, we believe that the higher volatility we became used to in 2018 is here to stay. In fact, our models currently suggest that the chance of a return to materially lower volatility – 11-12% or less – is very low over the next few years.

Now’s the time to take out some insurance if trade, Fed don’t go the way stocks want, says UBS chief investment officer
Barbara Kollmeyer – MarketWatch
A ho-hum week for stocks could end with a pop, thanks to hopes by investors on the trade front.
It could be the mere idea of a planned get together between POTUS and China’s top negotiator Friday that’s driving global equities higher, while talk about details of such a deal trickle out. To be sure, there’s plenty standing in the way of an amazing deal.

Pimco: The ‘sugar rush’ is almost over, so it’s time to ‘de-risk’ and raise cash
Shawn Langlois – MarketWatch
That’s Mark Kiesel, Pimco’s global credit chief investment officer, throwing a wet blanket on what’s been a gloriously bullish start to 2019.

These Are The 50 Most Popular Hedge Fund Longs And Shorts
After a dreadful year for professional (carbon-based) money managers, when in 2018 the average hedge fund posted the worst return since 2011, equity hedge funds have had a strong start to 2019, returning 6% YTD.

****SD: As always, apologies for the ZeroHedge link – can’t find this list elsewhere.


Cboe Announces Keynote Speakers And Agenda For 35th Annual Cboe Risk Management Conference U.S. 2019
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, will host the 35th annual Cboe Risk Management Conference (RMCSM) U.S. on Monday, March 25, through Wednesday, March 27, 2019, at the Park Hyatt Aviara in Carlsbad, California.


There Are Still Ways to Bet Against Wirecard Despite the Ban
Yakob Peterseil and Jan-Patrick Barnert – Bloomberg (SUBSCRIPTION)
Puts and warrants can position for possible Wirecard declines; Derivatives are still trading amid ban on new short positions
Germany’s unprecedented ban on short-selling Wirecard AG shares hasn’t closed the door on all transactions that bet on potential declines for the digital payments company.

Despite Some Dismal Data, High-Level Trade Meeting Has Market Feeling Optimistic
JJ Kinahan – The Ticker Tape
The March 1 deadline for a trade deal between Washington and Beijing is now just a week away, and traders and investors continue to be riveted in their watch for developments in negotiations.
President Trump is scheduled to meet with China’s top trade negotiator today as the world’s top two economies continue trying to hash out a deal. The meeting comes a day after Reuters reported that negotiators from the United States and China had begun to “outline commitments in principle” on the thorniest issues in the trade dispute.

India: Rupee’s Significant Risks Ahead of April Election
Erik Norland – CME Group
The Chinese renminbi and Indian rupee weathered last year’s emerging market turbulence with greater aplomb that currencies of the other BRIC members, the Brazilian real and Russian ruble (Figure 1). While India’s currency enjoyed a relatively calm 2018, the general elections coming up in April hold out the possibility of a much more challenging year for the rupee.

Brexit concerns bite into sterling’s share of giant London FX market
Saikat Chatterjee – Reuters
As Brexit talks drag on, sterling trading volumes in London, the world’s biggest forex trading centre, are languishing well below long-term averages, with long-term investors and sovereign players set to stay on the sidelines until the crisis is over.

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