Observations & Insight
October 2018 Options Exchange Marketshare via OCC
What’s Up With the Next Gen of Traders?
The old way to learn the trading ropes – via open outcry pits – is nearly nonexistent. So where is the next generation of traders going to come from? What is going to attract interest and enable these newbies to enter the markets?
In this compilation video from FIA Expo, Cboe Global Markets Chairman of the Board and CEO Ed Tilly, YCharts President and CEO Sean Brown, and CQG Senior Vice President of Client Relations Pat Kenny discuss what is going to help attract fresh talent to the trading industry.
Watch the video and read the rest »
Cboe’s Head of Equity Options Just Joined a Blockchain Startup
Anna Baydakova – CoinDesk
Blockchain startup AlphaPoint has hired a senior executive from Cboe Global Markets, the parent of the Chicago Board of Exchange.
Revealed exclusively to CoinDesk, Kapil Rathi joined AlphaPoint as global head of trading markets, a newly created position, and will be in charge of the company’s trading and exchange business. He was previously Cboe’s head of equity options, and earlier worked at the New York Stock Exchange, ISE (now a part of Nasdaq) and Bats Global Markets, which Cboe acquired in 2017.
****SD: The flight of industry vets to crypto continues! If you haven’t already, acquaint yourself with John Palmer. Here’s the press release from AlphaPoint. AlphaPoint is partnered with some real obscure firms – ever heard of Intel or Microsoft?
Special Alert: U.S. banking regulators propose SA-CCR methodology for calculating derivatives exposures
On Oct. 30, the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency issued a rulemaking proposal seeking comment on an alternative approach to calculating capital requirements for derivatives. The proposal, if adopted, would permit banks to use the “standardized approach for measuring counterparty credit risk”, also known as SA-CCR, as an alternative to the current CEM methodology for calculating derivatives exposure under U.S. regulatory capital rules.
****SD: Just in case you missed the encouraging news!
50 Years of Put-Call Parity
It will be 50 years ago next year (1969) that Hans R. Stoll came out with “The Relationship between Put and Call Option Prices,” establishing the principle of put-call parity. Stoll’s article in The Journal of Finance was a landmark in the developing scholarship about derivatives. It preceded the work of Black, Scholes, and Merton by four years. Indeed, it offered a foundation for their later work, in so far as it relies on arbitrage-free pricing.
Highly Evolved Vol
Mid-term elections are not usually very memorable affairs. The voter turnout is much lower than for presidential elections (since 1960, voter turnout has averaged around 40% versus 60%). It seems likely that voter interest is atypically high this year, but that isn’t the point of this post.
What I want to know is, “How do mid-terms affect volatility?”
Markets Are Steadier, But Investors Have Plenty to Worry About
Joanna Ossinger – Bloomberg (SUBSCRIPTION)
Just when you thought we were past the worst of it.
Markets have stopped the heaviest bleeding amid renewed optimism that U.S.-China trade issues might be resolved. While not exactly threatening the all-time high of 2,930.75, the S&P 500 rallied by more than 1 percent for three straight days before taking a breather. In the backdrop is a U.S. economy that is firing on all cylinders, as shown by Friday’s strong payrolls report.
EU exec: fin services arrangement only to be discussed after Brexit divorce deal
The European Commission denied on Thursday a report by the Times newspaper that Britain had secured agreement with the EU on financial services after Brexit, saying such a relationship would only be discussed after a divorce deal has been finalised.
Proposal to amend the Fees Schedule with respect to the Volume Incentive Program.
The Exchange proposes to amend the Volume Incentive Program (“VIP”).
****SD: Previously, market makers could only get the credit if 40 percent of their volume was simple (as opposed to complex). Cboe lowered that threshold to 38 percent.
Oil Extends Nosedive as U.S. Supplies Surge, Iran Fears Subside
Samuel Robinson – Bloomberg (SUBSCRIPTION)
Oil extended its slide to six-month lows as the U.S. dialed down its crackdown on Iranian exports and American supplies surged, easing concerns of an impending shortage.
Futures dropped 0.6 percent in New York, taking the weekly loss to 6.3 percent, the biggest since February. The U.S. has agreed to let eight countries — including Japan, India and South Korea keep buying Iranian oil after sanctions kick in this weekend to prevent a spike in prices, a senior administration official said.
Exchanges and Clearing
Cboe Global Markets Reports Record Trading Activity
Cboe VIX futures set new monthly total volume record; Cboe SPX options
set new monthly total volume record
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, today reported several new trading records.
****SD: Reuters has Cboe’s profit beats estimates on reduced expenses and taxes and Cboe Global Markets disappoints Wall Street in third quarter
CME completes GBP3.9 billion NEX Group acquisition
Hayley McDowell – The Trade
CME Group has confirmed that it has completed its GBP3.9 billion acquisition of London-based NEX Group, forming a combined company for futures, cash and OTC markets.
CME Group Averaged 20.6 Million Contracts Per Day in October 2018, Up 38% from October 2017
CME Group, the world’s leading and most diverse derivatives marketplace, reached average daily volume (ADV) of 20.6 million contracts per day during October 2018, up 38 percent from October 2017. Open interest at the end of October was 128 million contracts, up 6 percent from October 2017 and up 19 percent from year-end 2017.
MIAX International Holdings Reports October 2018 Trading Activity; MIAX Exchange Group Sets New Daily and Monthly Records
Miami International Holdings Inc today reported the October 2018 trading activity for its two fully electronic options exchanges – MIAX Options and MIAX Pearl. The MIAX Exchange Group collectively executed over 47.3 million contracts in October 2018 for a combined averaged daily volume of 2,057,973 contracts, representing a total of U.S. equity options market share of 9.62%.
Nasdaq Volume Statistics
****SD: Equity options volume in October was 189 million contracts, compared to 126 million in September 2018 and 133 million in October 2017. Fun fact – every one of Nasdaq’s monthly volume totals in 2018 beat its corresponding 2017 total.
Strong October for Eurex Exchange: 83 percent increase in European equity index derivatives
In October, Eurex, Europe’s largest derivatives exchange and part of Deutsche Börse Group, has again seen very strong demand for its products. European equity index derivatives increased by 83 percent to 96.2 million traded contracts from 52.2 million in October 2017. Demand was also particularly high for European equity derivatives (+58 percent) with 28.4 million traded contracts (19.2 million in October 2017).
CME Group Prevails in Antitrust Case Brought by Eurex Subsidiary
CME Group today released the following statement regarding the dismissal of a 15-year old antitrust lawsuit filed by the United States Futures Exchange, the former U.S. subsidiary of Eurex:
“We are extremely pleased to be vindicated from these baseless antitrust charges after litigating them for more than a decade. USFE, which hasn’t been in operation for years, by its own admission failed to attract customers and effectively compete in the U.S. market due to its own missteps – offering inferior liquidity on a substandard platform without any economic incentive for clients to trade its product. With this long-running case now resolved, we continue to focus on providing the products and services that help global market participants effectively manage their risk and pursue opportunities.”
LME plans code of conduct for traders following Playboy party; London Metal Exchange wants to stamp out inappropriate behaviour and prevent further embarrassment
Samuel Agini – Financial News
The London Metal Exchange is to introduce a code of conduct for its members after one of the City’s oldest trading houses hosted a networking event at the Playboy Club during the LME’s annual gathering for commodities traders.
****SD: That whole situation was just plain tone deaf.
Regulation & Enforcement
U.S. SEC collects nearly $4 billion in fines, disgorgement in fiscal 2018
Pete Schroeder – Reuters
The Securities and Exchange Commission assessed $3.945 billion in disgorgement and penalties across 821 enforcement actions in fiscal 2018, the agency’s enforcement division said in its annual report on Friday.
What Will Banks Do With Cash Freed Up by Rule Changes? No One Knows; Fed proposal to ease short-term cash requirements for big banks heads into uncertain territory
Ryan Tracy and Lalita Clozel – WSJ (SUBSCRIPTION)
Regulators plan to pare back requirements that banks keep billions of dollars of cash on hand to pay short-term bills. No one knows for sure what will happen next.
Software Reliability at Optiver: Strategy
The first two software reliability concepts we examine concern our overall strategy for pursuing reliability. The foundation of our strategy is prudence and wisdom over brainless rule-following. No single methodology, set of best practices, or regulated rule can guarantee correctness or is appropriate in all situations.
Your Smartphone’s Location Data Is Worth Big Money to Wall Street
Ryan Dezember – WSJ (SUBSCRIPTION)
When Tesla Inc. Chief Executive Elon Musk said the car maker would work around the clock to boost production of its Model 3 sedan, the number crunchers at Thasos Group decided to watch.
****SD: People ought to be aware at this point that they are, more often than not, giving their personal data away for free. As just one “for instance,” I’m sure we have all clicked through plenty of user agreements without reading them and given up a whole bunch of our data/privacy rights. But there are people working on ways to enable folks to monetize their own data, or at least protect it better. (And this is not the first time I’ve seen Thasos in the news and read it as “Thanos.”
JP Morgan: How to Trade the G20
Steven M. Sears – Occam (SUBSCRIPTION)
Talk is cheap. Risk-adjusted investing is difficult.
Rather than sitting around and debating if it makes more sense to keep buying dips, or to prepare for the end of this historic bull market, consider overlooked opportunities tied to events that are arguably not well socialized. The Group of 20 meeting, which was until recently considered a non-event for investors, has suddenly become a potentially high-impact meeting that could move a broad swath of stocks.
How Options Traders Should Handle Stock Market Volatility
Gunjan Banerji – Barron’s (SUBSCRIPTION)
This market swoon has been different.
October was the worst month for the S&P 500 index since September 2011. But the options market isn’t very jittery about the stock declines. Investors haven’t been rushing into broad hedges to protect against further losses, and index volatility hasn’t recorded the outsize moves it did in prior months, analysts say.
Stock market picks for trade rally in late 2018, via JPMorgan
Akin Oyedele – Business Insider
The firm identified stocks with cheap out-of-the-money options that traders can buy to profit from price gains.
Doubting the Fed’s Resolve Is a Losing Proposition
Tim Duy – Bloomberg (SUBSCRIPTION)
It’s been a tough few weeks on Wall Street. Equity markets have struggled, with the S&P 500 Index down almost 10 percent from its Sept. 20 record high before finally finding what may be a floor. As is always the case when stocks struggle, market participants start to doubt the Federal Reserve’s resolve. Don’t.
Shorting the Yuan Is a Top Play for This Investor
Adam Haigh and Christopher Anstey – Bloomberg (SUBSCRIPTION)
China’s currency is bound for a steady grind lower as its officials oversee an orderly depreciation to support a slowing economy, according to a former Tudor Investment Corp. trader.
Northern Trust Gains as Buy Side Outsources Trading
Shanny Basar – MarketsMedia
Northern Trust has signed 23 fund managers for its outsourced trading capability and expects strong growth for the offering next year as asset managers face pressure on margins.
****SD: The “focus on what you do best” effect.
Corporate Buybacks Return, Supporting Market
Avantika Chilkoti – WSJ (SUBSCRIPTION)
U.S. companies are ramping up share buybacks again, offering potential support to volatile markets.
Share buybacks fell ahead of earnings season, when regulations bar such repurchases. As that so-called blackout period ends, there has been a resurgence, with companies making the most of last month’s selloff. That has eased analysts’ concerns that the year’s buyback boom is over.
****SD: Who needs QE when you’ve got this artificial floor on prices? There’s an argument to be made that corporate buybacks have helped (or at least did help) maintain a low volatility environment. Narrow Google news results and you’ll see similar headlines every couple of months. For example, CNBC had Companies set to buy back $1 trillion worth of shares this year, and that should keep market afloat, Goldman says on August 6, 2018 (and one month earlier had Companies buying back their own shares is the only thing keeping the stock market afloat right now), Forbes had The Ugly Truth Behind Stock Buybacks on February 28, 2017, Fortune had Stock Buybacks: What’s Keeping the Market Up on April 25, 2016, etc., etc.