ECB calls for end to speculative HFT competition; Banks Sound Warning Bell on Trading Slowdown

Jun 12, 2019

Observations & Insight

Vol Fund Returns and Other Miscellany
Spencer Doar – John Lothian News

RCM Alternatives sent out an email that provided a snapshot of some miscellaneous fund returns. On the volatility side, the firm provided these updates:

-Deep Field Vol Arb lost 2.05% last month, but remains up 12.44% for the year.
-Orion Algorithmic Trading Portfolio lost 3.44% last month but is still up 1.07% for the year.
-Covenant Tactical lost 11.51% last month, bring it to -4.22% for the year.

Did you catch all of the Options Exchange Leader Series? See the below links for exchange updates:

A new episode of the Coffee with Cott podcast is now live – listen here.

Total cleared volume at the OCC yesterday, June 11, was 17,733,218 contracts. Monday’s total was 18,831,562 contracts. Both totals are well below the year-to-date average daily volume and the average daily volume in June thus far.


A Look Back with Steve Staszak
John Lothian News sat down with former CME Group director of clearing operations Steve Staszak for a look back at his career, which spanned the days of grains and meats to the modern era of futures trading and all the great events in between.
Watch the video »

Lead Stories

ECB calls for end to speculative HFT competition
GlobalCapital (SUBSCRIPTION)
The new ECB working paper entitled “Competition among high-frequency traders, and market quality” suggests that high-frequency trading competition both adversely affects market quality and increases volatility due to an increase in speculative trading.

****SD: The ECB paper can be found in full HERE.

Morgan Stanley, Citi Sound Warning Bell on Trading Slowdown
Jennifer Surane and Sonali Basak – Bloomberg (SUBSCRIPTION)
Wall Street executives continued to sound the warning bell that a slump in client activity has crimped trading and investment-banking revenue after a tough start to June.
“I’d be very surprised if we beat the first quarter,” Morgan Stanley Chief Executive Officer James Gorman said Tuesday at an industry conference in New York. “The last two weeks have been quite hard. Up until then, it was solid. We’re not going to have a bad quarter in the securities business, but you’ve got to be realistic with the environment.”

CFTC attacks insider trading in futures market
Lynne Marek – Crain’s Chicago Business
The Commodity Futures Trading Commission is working closely with exchange operator CME Group to take on insider trading in the futures market, with help from a recently established CFTC task force.

Hedge funds sell oil as economic fears intensify
John Kemp – Reuters
Hedge fund managers are liquidating bullish oil positions at the fastest rate since the fourth quarter of 2018 amid increasing fears about the health of the global economy.
Hedge funds and other money managers were net sellers of 104 million barrels of futures and options linked to the six most important petroleum contracts in the week to June 4.

Inside Volatility Trading: June 11, 2019
Cboe Blog
A confluence of conflicting market news around tariffs, Fed action, and the weekly jobs report sent stocks, bonds and volatility all higher on Friday, June 7. It’s very uncommon for all three to rise at the same time. In fact, Friday, June 7 was only the third time in the last 10 years when volatility (as measured by VIX Index) rose on the same day that the S&P 500 was up more than 1% and bonds (as measured by U.S. 30 Year futures) were up more than 0.5%. Prior dates where the market experienced this level of uncertainty were Dec. 7, 2016 and July 20, 2009.

Exchanges and Clearing

CME Group Reaches New Open Interest Record of 150.4 Million Contracts
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, announced total open interest (OI) reached a record 150,400,590 contracts on June 11. Since the end of 2018, overall OI has grown 30%.
Interest Rate futures and options OI reached a record 109,070,205 contracts. Interest Rate OI has been climbing steadily in 2019, increasing 41% since year end 2018. Additionally, overall exchange options OI reached a record 96,293,580 contracts, including a record 54% growth since the end of 2018.

Japan Exchange Group: 30th Anniversary Of Stock Index Options
This year marks the 30th anniversary of the launch of stock index options in Japan. Over the past 30 years, as well as providing a diverse range of investment opportunities along with futures, options have provided an efficient risk avoidance tool for investors as a product with greater suitability for hedging. Osaka Exchange will continue to contribute to the development of Japan’s market through further expansion of our derivatives offering.

Johannesburg Stock Exchange adopts Millennium platform for equities and FX derivatives; JSE to run all equities, equities derivatives and FX derivatives markets on Millennium Exchange platform.
John Brazier – The Trade
The Johannesburg Stock Exchange (JSE) has gone live with a new trading platform from LSEG Technology for its equities and FX derivatives markets.

Equity Index Highlights
Eurex Exchange
May marked a retracement of broad equities, coming after a strong rally to start the year, thus confirming technical analyst calls that markets have formed a double top reversal pattern. The U.S. president has renewed his global trade war with China and more recently also Mexico, taking markets by surprise and thus triggering an acceleration of the sell-off towards the end of the month.

Fixed Income Highlights
Eurex Exchange
Fixed Income markets across the globe have rallied hard over the past month as trade tensions between China and the US continue to pressure yields and keep volatility low. Any spike in volatility is sold as yields grind lower. Investors continue to favor safe haven buying and there has been heavy buying of US Treasuries.

Cboe Global Markets Announces Date of Second-Quarter 2019 Earnings Release and Conference Call
Cboe Global Markets, Inc. (CBOE), one of the world’s largest exchange holding companies, today said it will announce its financial results for the second quarter of 2019 before the market opens on Friday, August 2, 2019. A conference call with remarks by the company’s senior management will begin at 7:30 a.m. Central Time (CT), 8:30 a.m. Eastern Time (ET).


Sucden Lures Rafael Caporale to Head LME Options Business
Aziz Abdel-Qader – Finance Magnates
FX and derivatives broker Sucden Financial has onboarded options industry veteran Rafael Caporale to run its fast-growing market-making operations, underscoring its determination to expand that business. Rafael has been named Head of LME Options Market Making and in his newly-created role he will be tasked with overseeing the group’s dedicated options trading team, targeting clients looking for liquidity in LME options across the trade lifecycle, the company said.

Regulation & Enforcement

Irish central bank bans binary options, restricts CFDs
Padraic Halpin – Reuters
Ireland’s central bank announced permanent restrictions on the sale of complex derivatives to retail customers, a ban that will protect against large and unexpected trading losses.
The new measures consist of a permanent ban on the sale of binary options to retail investors and restrictions on the sale, marketing and distribution of so-called contracts for difference, mandating that retail investors cannot lose more money than they put into their CFD account.


Does the Skew Index Have Predictive Value?
Sage Anderson – tastytrade blog
Skew is an important concept in the world of options and although it may sound complicated, it’s fairly straightforward. If you’ve ever noticed that downside puts are almost always more expensive than upside calls (of similar delta), then you’ve officially observed skew in the options marketplace.

China Sends Warning Signal to Yuan Bears Before G-20 Meeting
Tian Chen and Livia Yap – Bloomberg (SUBSCRIPTION)
China’s central bank is making it clear to yuan bears that short-term declines are no sure thing, especially in the run up to a crucial meeting at the end of this month.
The People’s Bank of China set its daily reference rate for the currency at higher than market watchers expected for a 10th straight day on Wednesday, the longest run since September. The strong bias on Tuesday was the largest since Bloomberg began releasing fixing forecasts in August 2017. The central banks also announced plans to sell bonds in Hong Kong in June — which would support the offshore rate.

BNY Mellon’s Derrick Expects Volatility to Increase in Currencies
Bloomberg (VIDEO)
Simon Derrick, chief currency strategist at BNY Mellon, discusses currency volatility, the yuan and how to trade it. He speaks on “Bloomberg Daybreak: Europe.”

S&P 500 ‘Dead Cat Bounce’ Likely: RW Advisory
Bloomberg (VIDEO)
Ron William, founder and chief strategist at RW Advisory, discusses volatility and outlook for U.S. and Chinese stocks. He speaks on “Bloomberg Markets: Asia.”

Future Returns: Investing Tips for an Uncertain World
Karen Hube – Barron’s
President Trump’s threats to impose tariffs on Mexico have been called off for now, but that’s little consolation for investors. The president’s combative rhetoric and knee-jerk responses to issues of global importance have roiled markets since the beginning of his administration and aren’t likely to end anytime soon.


Remember Options Backdating? Nissan Gets Caught Using a Very Old CEO Pay Trick
Erik Sherman
After more than a year of one corporate scandal after anotherófaked emissions tests, claimed improper payments, executive financial misconduct, and even arrestsóNissan may face yet another problem. CEO Hiroto Saikawa reportedly received a bump to a stock-based bonus when the company’s board rescheduled by a week the date it the shares were priced. The result was a $432,382 increase, according to Reuters. The charge, originally from Japanese magazine Bungei Shunju, came from the first interview given by Greg Kelly, a former Nissan director who was an aide to former CEO and chairman Carlos Ghosn, since Kelly was arrested in 2018 and then freed from jail in December.

A Fallen Star: Death Knell Sounds for Neil Woodford
Shruti Chopra and Chris Newlands – Barron’s
When Neil Woodford’s multibillion-pound equity fund finally reopens next month following his unprecedented move to stop investors withdrawing their money, the 2019 Fifa Women’s World Cup will have started and all but finished.
England’s team is tipped for glory when the month-long football tournament comes to an end. When the 28-day suspension is lifted on Woodford’s GBP3.7bn equity income fund, however, the consensus is that the illustrious career of the highly celebrated English fund manager will be all but over.

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