Observations & Insight
The Industry Discusses MiFID II, Part II
At the 33rd Annual FIA Futures and Options Expo in mid-October, John Lothian News spoke with a variety of industry participants about upcoming milestones and trends in financial markets.
This is the second video in the series focused on MiFID II. Specifically, part two focuses more on the MiFID II effects on U.S. based participants. In part two, Drew Shields, CTO of Trading Technologies, Ed Tilly, chairman and CEO of Cboe Global Markets, Neal Brady, CEO of Eris Exchange, Julie Winkler, chief commercial officer for CME Group, and Ben Morof, chief compliance officer for Teza Capital Management, share their thoughts on MiFID II implementation.
The CME May Have Just Opened the Floodgates for Institutional Money to Pour Into Bitcoin
Camila Russo – Bloomberg
Bitcoin is spiking to a record after CME Group Inc. said it’s planning to launch bitcoin futures as the move could open the floodgates of investors who have been standing on the sidelines as bitcoin soared over 500 percent this year.
***SD: What makes this unexpected is CME President Bryan Durkin said at the end of September he didn’t think the exchange would roll out a product “in the very near future.” See that story – Bitcoin Futures Fail to Get Traction on Biggest Exchange for Now. An ETF must be right around the corner now.
****JB: Jamie Dimon said Bitcoin is “just not a real thing.” I’d love to be a fly on the wall if Terry Duffy and Jamie Dimon talk about this. Although Dimon’s opinion that Bitcoin is comparable to tulip mania may have gotten a boost: Bitcoin Surges After World’s Biggest Exchange Announces Plans for Futures.
Mexico Spent About $1.25 Billion on the World’s Biggest Oil Hedge
Nacha Cattan – Bloomberg
Cost for 2018 protection as of 3rd quarter exceeds 2017 price; Finance Ministry said Wall Street’s largest oil trade complete
Mexico spent about 24 billion pesos ($1.25 billion) to lock in prices of oil exports for next year, or more than 21 percent what it paid to hedge crude a year ago, according to Finance Ministry data.
****SD: The Bloomberg longform about the “Hacienda hedge” from April is well worth the read.
You Wanna See Something Really Scary? Try These Market Charts
Julie Verhage and Luke Kawa – Bloomberg
Bitcoin bubbles, savings rates, monetary policy among worries; ‘Lack of fear’ in markets at all-time highs also a concern
Dynegy drew bullish options trades ahead of deal news
Saqib Iqbal Ahmed – Reuters
Traders who took unusually bullish positions in Dynegy Inc’s (DYN.N) options, weeks before the company’s shares soared on word of a deal with Vistra Energy Corp (VST.N), stand to make outsized profits, Reuters data showed. Dynegy shares jumped as much as 14 percent to a one-year high of $12.84 on Monday after Vistra offered to buy Dynegy in an all-stock deal worth $1.74 billion.
****SD: Oct 5 volume was 38,000 contracts – daily average is less than 2,000. So, yeah, looks weird.
Who’s Afraid of a Wilder Market? Why a Little More Volatility Isn’t Bad News
Teresa Rivas – Barron’s
The S&P 500 has hit 50 all-time highs this year (so far) and hasn’t seen a 10% pullback since the start of 2016. Some might thank the tech sector or an expanding GDP, but Credit Suisse’s Jonathan Golub and his team write that investors can thank low volatility as well, for providing this “smoother ride.”
Bets on the Next Fed Chair: A History of Speculation Gone Wrong
James Mackintosh – WSJ
President Donald Trump’s The Apprentice-style hiring process for the Federal Reserve chair is due to end this week, and it looks like the message to Janet Yellen is: “You’re fired!”
Jerome Powell, a Fed governor, is the leading candidate to take the world’s leading economic job—and he isn’t an economist.
Exchanges and Clearing
CME Group Announces Launch of Bitcoin Futures
CME Group, the world’s leading and most diverse derivatives marketplace, today announced it intends to launch bitcoin futures in the fourth quarter of 2017, pending all relevant regulatory review periods. The new contract will be cash-settled, based on the CME CF Bitcoin Reference Rate (BRR) which serves as a once-a-day reference rate of the U.S. dollar price of bitcoin. Bitcoin futures will be listed on and subject to the rules of CME.
HKEx’s chief defends LME deal, says will ‘eventually recoup’ the GBP1.4bn paid
Henry Sanderson, Neil Hume – Financial Times (Subscription)
Charles Li, head of Hong Kong Exchanges and Clearing, defended his GBP1.4bn purchase of the London Metal Exchange, saying it was a rare asset that would eventually recoup the money paid for it.
China’s Biggest Exchange Wants More Deals With Foreign Peers
Shanghai Stock Exchange outlined plans for closer links with other national markets, taking further steps to enact President Xi Jinping’s policy to project Chinese soft power around the world.
London Stock Exchange Group and Deutsche Boerse seek new CEOs ahead of Brexit
John Detrixhe – Quartz
Europe’s biggest exchange operators are seeking new chief executives that will be at the helm of their companies as Brexit unfolds. London Stock Exchange Group CEO Xavier Rolet is departing after leading the company for eight years, while Deutsche Boerse boss Carsten Kengeter is leaving after being dogged by insider trading allegations.
Regulation & Enforcement
Commissioner Piwowar addresses SEC’s ‘new path’ at market structure conference
Joanne Cursinella, J.D. – Jim Hamilton’s World of Securities Regulation
The SEC is proceeding down a new path, and the current direction is such a complete change from the past few years that it can be called “SEC 180,” SEC Commissioner Michael S. Piwowar commented in his keynote address at the Unity Market Structure conference sponsored by FINRA and Columbia University. Market structure is not merely a subject we take up in response to a market event, a congressional inquiry, or a non-fiction book on high-frequency trading, he said. Rather, it sits at the core of the Commission’s mission, he claimed.
MIT research scientist pleads guilty to insider trading
Brendan Pierson – Reuters
A research scientist at Massachusetts Institute of Technology pleaded guilty on Monday to charges that he engaged in insider trading based on information he obtained from his wife, a corporate lawyer working on a deal involving a mining company
CFTC Bitcoin Virtual Currencies
The National Law Review
The Commodity Futures Trading Commission’s LabCFTC recently released, “A CFTC Primer on Virtual Currencies.” This primer provides an overview of virtual currencies and their potential use-cases, helps outline the CFTC’s role and oversight of virtual currencies, and cautions investors and users of the potential risks involved with virtual currencies.
CFTC’s Giancarlo on derivatives and financial regulation
The Commission’s Chairman J. Christopher Giancarlo talks to IFLR’s John Crabb about the need to balance derivative market regulation and financial system stability with economic growth and prosperity
Senate Panel to Hold Vote on SEC Nominees Peirce, Jackson
Melanie Waddell – ThinkAdvisor
The Senate Banking Committee plans to hold an executive session Wednesday to vote on the two new Securities and Exchange Commission nominees — Hester Peirce and Robert Jackson.
Peirce, a Republican, and Jackson, a Democrat, testified at a nomination hearing on Oct. 24 before the committee.
If confirmed by the Senate Banking Committee Wednesday, their nominations for SEC commissioner would move to the full Senate for consideration.
CFTC Commissioner Behnam Named Sponsor Of The Market Risk Advisory Committee
The Commodity Futures Trading Commission (CFTC) today announced that Commissioner Rostin Behnam will sponsor the Market Risk Advisory Committee (MRAC). The agency also announced temporary sponsors for the Agriculture Advisory Committee and the Global Markets Advisory Committee, until additional Commissioners are confirmed by the U.S. Senate.
Derivs tax breaks to boost foreign participation in Indian markets
Jack Ball – Global Investor Group (Subscription)
Tax breaks on profits made from derivatives traded at India’s international financial service centre would open the “floodgates” to foreign participation in the country’s capital markets, according to the head of the Indian International Exchange (INX).
Preventing Manipulation in Cryptocurrency Derivatives
Bharath Rao – PaymentsJournal
Itiviti Integrates ETF Data From IHS Markit in Delta One Solution
Itiviti, a global technology provider for the capital markets industry, today announced a strategic alliance with IHS Markit, a world-leader in critical information and analytics solutions, to create a turnkey ETF solution integrating the multi-award winning Tbricks by Itiviti trading platform with SOLA, the comprehensive ETF data service from IHS Markit.
Kardashians And Tails
Aneet Chachra, Janus Henderson – Seeking Alpha
The S&P 500 index reached its pre-financial crisis high the same week that the Kardashians debuted on TV. Both then had an unexpected tail event – the market crashed while the show was an astonishing success.
Three-month S&P 500 straddle prices imply that the S&P 500 index is expected to move less than 3.6% over the next three months, in either direction. This is a forecast that the range of future outcomes will be much smaller than in the past.
Finally Times to Buy Stock Market Vol?
The Macro Tourist
“You’re such an idiot,” one of my new hedge fund manager reader friends wrote me the other day. “You spent the last couple of years warning about the possibility all of this Central Bank monetary madness causing a huge rip higher in risk assets. And here we are, it is finally here, and instead of taking a victory lap, you are monkeying around trying to fade the rally by buying Nasdaq put spreads. You’re incorrigible”
Straddles and Strangles: Basic Volatility, Magnitude Strategies
The Ticker Tape Editors
Editor’s note: A recent article introduced basic call and put strategies—selling covered calls for potential income and buying puts for downside protection. This follow-up article looks at buying straddles and strangles combinations for the option trader who’s expecting a stock to move significantly in one direction or the other, but not certain which way.
Perhaps there’s an earnings report coming up in a stock you’re considering. Or maybe there’s a product launch on tap, and you think it’s either going to be revolutionary…or a colossal flop. One way or the other, you believe price volatility is on the way.
FX Option Market Update: October 31, 2017
Dan Larsen – TradingFloor.com
Please click on the attached PDF for the latest FX options market update, for a week that includes a Bank of England meeting (rate hike expected), the selection of a new Fed chair (the dovish Jerome Powell currently the favourite) and NFP numbers on Friday (a rebound from September’s hurricane-hit undershoot expected).
Pimco Quants Find Stocks Need a Better Hedge Than Just Bonds
Adam Haigh – Bloomberg
Using multi-pronged strategy boosts volatility-adjusted return; ‘Lot of hedges have disappointed,’ says Pimco’s Jamil Baz
The old recipe of using bonds to hedge against risks from equity holdings may not be a winner anymore, and investors would be better off with a more complex approach that relies on multiple tactics, according to Pacific Investment Management Co. analysis. option for shoring up returns.
Oil and metals trading gives Glencore further boost
David Sheppard and Neil Hume in London – Financial Times
A good year for oil and metals trading has led Glencore to upgrade its full-year guidance for the division for the third time since January, even as production volumes at its mining operations fell.
Bank of England believes Brexit could cost 75,000 finance jobs
The Bank of England believes that up to 75,000 jobs could be lost in financial services following Britain’s departure from the European Union.