Cboe News Day; SEBI Derivatives crackdown; Volatility a One-Sided Affair

Apr 5, 2018

Cboe News Day; SEBI Derivatives crackdown; Volatility a One-Sided Affair

Apr 5, 2018

Spencer Doar

Spencer Doar

Associate Editor

Observations & Insight

It’s Cboe News Time Apparently
Spencer Doar – JLN

A flood of news poured out of Cboe these last 24 hours. Much of it stems from continued integration and restructuring after the Bats deal. Then again, Cboe is celebrating the 25th anniversary of the VIX all month, so why not announce a bunch of stuff? (The announcement releases are all in our “Exchanges” section.)

First came the announcement of a new Markets Division, bringing together the product, sales and business development units. Andy Lowenthal and Bryan Harkins will be co-heads of the unit.

The next release was the monthly volume report. Year-to-date volume and average daily volume are both more than 30 percent higher than 2017’s YTD volume and ADV. Futures ADV and volume are up more than 40 percent compared to 2017. However, Cboe’s total March options marketshare was down to 39.54 percent from 42.56 percent in 2017.

Third out of the pipeline was the announcement of the date when the Cboe Options Exchange – the largest of Cboe Global Markets’ four options exchanges by a sizeable margin – will migrate to Bats technology. The eagle will land on October 7, 2019. For more on the Cboe’s tech migration and other endeavors, I encourage you to watch – if you missed it – our recent video with Cboe President and COO Chris Concannon, which covers quite a bit of ground (yes, that includes bitcoin).

Oh, by the way, I couldn’t help but notice (while my White Sox started the season 2-0 in Kansas City) that Cboe inherited (or renewed, I don’t know) the Bats sponsorship of MLB’s Royals. And I have to say, it doesn’t work nearly as well as “Bats.” That was just so perfect for baseball…


SEBI crackdown on F&O trades promises windfall gains to Centre
The Hindu Business Line
In what could be the largest penalty proceedings by any regulator in India, SEBI has now revealed it will take action against 14,720 entities that had indulged in non-genuine trades or sham transactions in the equity derivatives segment. BusinessLine had reported on March 6 that SEBI was to initiate one of its largest penalty proceedings against nearly 15,000 entities, who indulged in creating artificial futures and options (F&O) volumes through the ‘reversal of trade’ route, which could bring windfall gains for the central government to the tune of several thousand crores.

****SD: This is a potentially gigantic enforcement action for India. We’re talking hundreds of millions in USD terms.

Lead Stories

Divided Markets Show Volatility’s Return Is One-Sided Affair
Sid Verma – Bloomberg
Wall Street is struggling to reconcile currency and bond markets increasingly at odds with the roller coaster in stocks.
As China’s proposed retaliatory measures against Washington’s protectionist threats rattled equities Wednesday, bond and currency markets shrugged. The JPMorgan FX Volatility Index held comfortably below its 12-month average, even as the Cboe Volatility Index jumped to nearly double its level for the past year. Treasuries were steady. Unlike in the past, a plunge in the S&P 500 did little to rouse demand for long-dated bonds.

U.S. options hedging muted even as stocks approach February lows
Saqib Iqbal Ahmed – Reuters
Activity in U.S. equity options was slow on Wednesday even as stock indexes flirted with February lows, as expectations for strong corporate earnings quelled the urge to load up on contracts that benefit from a surge in market volatility.

Bull Market’s Anchor at Risk in Shifting Global Growth Story
Sid Verma and Dani Burger – Bloomberg
Risk assets challenged in new volatility regime – strategists; Trade tensions arrive just as business cycle nears peak
Trade skirmishes are focusing minds on a simmering threat to markets: the eventual easing of synchronized global growth.

Federman & Sherwood Announces Filing of Securities Class Action Lawsuit on Behalf of Investors in Credit Suisse VelocityShares Inverse VIX Short Term Exchange Traded Notes
Globe Newswire
Federman & Sherwood announces that on March 15, 2018, a class action lawsuit was filed in the United States District Court for the Southern District of New York against Credit Suisse AG and Janus Index & Calculation Services LLC on behalf of a class consisting of investors who purchased or otherwise acquired Credit Suisse VelocityShares Inverse VIX Short Term ETNs. The complaint alleges violations of federal securities laws, during the Class Period, which is January 29, 2018 through February 5, 2018.

‘Fear gauge’ for soyabean jumps most in 15 months on tariff spat
Peter Wells – Financial Times
China’s plans to slap punitive tariffs on $50bn worth of US imports has prompted the biggest jump in soyabean volatility in 15 months.
Yes, you read that correctly: there is a volatility index for soyabean futures. Corn, too.

****SD: Maybe I’m being petty, but not a fan of that second sentence. What’s so surprising about markets as integral to global food supplies as corn and soybeans (representing billions and billions of dollars of industry with intricate hedging mechanisms) having indicators regarding potential price fluctuations? Maybe in a different publication you could pull off that sentence, but the FT?!

Wild trading shows markets aren’t really afraid of a trade war yet
Patti Domm – CNBC
Markets shook off fears of a trade war Wednesday, and traders have shifted focus to whether the next jolt for stocks could come from a surprise jump in wages in Friday’s jobs report.

****SD: Given how this potential trade war can be reported, it is important to remember that essentially these are proposals meant to stir negotiations and that nothing is set in stone.

Exchanges and Clearing

Cboe Global Markets Announces Planned Migration Date of Cboe Options Exchange to Bats Technology Platform
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, today announced that it plans to migrate Cboe Options Exchange to the company’s proprietary Bats technology on October 7, 2019. The planned migration of Cboe Options Exchange to Bats technology follows similar migrations for Cboe Futures Exchange (CFE) and C2 Options Exchange.

Cboe Global Markets Appoints Executive Vice Presidents in Newly Formed Markets Division
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, today announced the appointments of Andy Lowenthal and Bryan Harkins as Executive Vice Presidents and co-heads of the firm’s newly formed Markets Division.

Cboe Global Markets Reports March 2018 Trading Volume
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, today reported March monthly trading volume and average revenue per contract (RPC)/net revenue capture data at www.cboe.com/monthlyvolrpc.

BOX Options Exchange Directed Order Auction Only
Beginning April 30, 2018, BOX Options Exchange, LLC (“BOX”) will introduce an Auction Only designation for Directed Orders.1

MIAX Options & MIAX PEARL – Reg SCI / SIFMA BCP Test Plan
The MIAX Exchanges will be participating in the 2018 SIFMA BCP Testing on Saturday, October 13, 2018. All members that are required to test with MIAX Options and/or MIAX PEARL Exchanges in accordance with Regulation Systems Compliance and Integrity (Regulation SCI) have been notified, however, all members are encouraged to test.

Intercontinental Exchange Agrees to Acquire Chicago Stock Exchange
Intercontinental Exchange

****SD: Terms weren’t disclosed, but earlier reporting by the WSJ indicated it would likely be in the realm of $70 million.

Nasdaq PHLX Intra-day Electronic Quoting Requirements
Nasdaq Options Regulatory Alert #2018
Pending approval with the Securities and Exchange Commission, the Exchange will amend its electronic quoting requirements. New Phlx Rule 1081 shall govern intra-day electronic quoting obligations for Registered Options Traders (ROTs), Specialists, Directed Streaming Quote Traders (SQTs) and Directed Remote Streaming Quote Traders (RSQTs).

TMX Group Consolidated Trading Statistics – March 2018
TMX Group Limited today announced March 2018 trading statistics for its marketplaces – Toronto Stock Exchange, TSX Venture Exchange, TSX Alpha Exchange (Alpha) and
Montréal Exchange (MX).

****SD: Derivatives volumes on MX year-to-date are up compared to 2017 as is open interest. However, March’s activity was significantly less than February’s.

Regulation & Enforcement

SEC Warns Of Government Impersonators
The Securities and Exchange Commission today issued an Investor Alert warning investors of fraudsters claiming to be SEC employees in an attempt to trick investors into sending money or revealing sensitive account information. The alert makes clear that the SEC does not contact investors to confirm trades, set up trading accounts, or record the details of trades. The alert also notes that federal government agencies, including the SEC, do not endorse or sponsor any particular securities, issuers, products, services, professional credentials, firms, or individuals.


Wall Street’s Big Banks Are Waging a Technological Arms Race
Hugh Son and Dakin Campbell – Bloomberg
Dimon, Blankfein, Gorman: Three great rivals are battling to control the $58 billion-a-year equities industry.

****SD: Part of the lead – “By the time the trades were blocked for the last time, less than an hour after they began, Goldman Sachs executed orders to sell more than 1.5 million options contracts for $1. The cause? A coder had mistakenly programmed a router to send placeholder bids as live orders. If not for the good graces of the options exchanges, the bank would have lost $500 million, according to the U.S. Securities and Exchange Commission. Cancellations and price adjustments reduced that to $38 million.”


Bullish crude call spreads
Dan Keegan – Futures Magazine
In 2007 crude oil began the year priced at $60 per barrel. By July 11, 2008, it rose to $145.66, which was a nearly 150% increase, and a 31.6% increase in a little more than half a year. Southwest Airlines (LUV) was the only airline that hedged its largest variable cost. Southwest was paying $30 per barrel less than most of its competitors. In a little over five months later, on Dec. 26, WTI had dropped all the way down to $32.34. That’s a 77.8% decrease.

Market Volatility Bulletin: 10-Day Realized Volatility 10 Points Higher Than Spot VIX – What Gives?
Seeking Alpha
Well that was quite a showing! The close:close figures for stocks (SPY, DIA, QQQ, IWM) were not all that special within the current context, but the path was impressive given how sharply futures had thudded on more saber-rattling relating to trade policy.

Volatility in Equities and FX Poses Risks Lack of Trend Obscures
John Kicklighter – DailyFX
The VIX volatility index offered little forewarning to February’s record-breaking surge, starting from record lows
Implied measures of future volatility is derived from demand for hedges, but what if the market continues to go without?
While ranges and trendlines still stand for the likes of the S&P 500 and Dow, their volatility is shockingly high


Transcript: DoubleLine Capital CEO Jeffrey Gundlach Speaks with CNBC’s Scott Wapner Today
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with DoubleLine Capital CEO Jeffrey Gundlach and CNBC’s Scott Wapner on CNBC’s “Fast Money Halftime Report.”

China’s Rapid Response to Tariffs Raises Treasuries Risk, for Some
Chris Anstey and Cecile Gutscher – Bloomberg
‘Everything is in play right now’ in trade spat – fund manager; Just one headline could affect rates markets – Deutsche Bank

****SD: After the Fed, China second largest holder of US debt.

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