Observations & Insight
Can LedgerX Deliver?
Thom Thompson – John Lothian News
On Monday, June 24, the CFTC licensed LedgerX as a futures market and it joined the ranks of the CFTC triply crowned: swap execution facility (SEF), derivatives clearing organization (DCO) and now designated contract market (DCM). CME and ICE also have SEFs tucked into their conglomerates. The futures market designation lets LedgerX deal with a broader swath of cryptocurrency traders than SEF trading allows because access to SEFs is limited under federal law to eligible contract participants (ECPs), which are natural or legal persons who have at least $10 million in investable assets (lower amounts if they are hedging). ECPs are the much-sought but until now elusive bitcoin trader called an “institution” or “institutional investor.”
LedgerX focuses exclusively on bitcoin trading and clearing. The SEF has offered day-ahead forward contracts and longer-dated options cleared by its own clearinghouse since November 2017. So far, trading volumes have been modest in the contracts listed on the SEF.
To read the rest of this commentary, go here.
Signal Generation: Growing the Options Industry’s Footprint
In this video, Matt Amberson, principal of Option Research & Technology Services (ORATS), talks about how getting people to use options data is a good first step on the road to their eventually trading options.
Watch the video »
****SD: Check out ORATS’ most recent blog post – Strike Skew Killer Metrics.
US lawmakers called EU derivatives markets plans ‘retribution’
Philip Stafford – Financial Times (SUBSCRIPTION)
US lawmakers have hit out at new plans from Brussels to toughen supervision of the global derivatives markets in the wake of Brexit, labelling the EU’s proposals as “retribution”.
****SD: Yesterday, the Commodity Exchanges, Energy, and Credit Subcommittee had a hearing titled “Brexit and Other International Developments Affecting U.S. Derivatives Markets.” Testimonies of CME Group CEO Terry A. Duffy, ICE SVP Chris Edmonds, LCH CEO Daniel Maguire, FIA President and CEO Walt Lukken, and Citadel Global Head of Government and Regulatory Policy Stephen Berger can be found here.
Video of the hearing can be accessed here.
It was clear that all of the congressmen agreed that European regulatory overreach was a pressing matter. The chairman of the committee, Representative David Scott, had some fiery words about EMIR 2.2 and recent EU regulatory rhetoric: “We need to devise a way in which we can use our leverage to respond to this. We are the strongest, most powerful, and fairest, economy and financial system in the world. And the European Union is really messing with the wrong tiger here.”
One thing that was left unspoken but was all over the subtext of comments by the industry: Donald Trump’s election to the presidency combined with Brexit (and the general populist/nationalist wave spreading through Europe) has changed the way this game is played. Deference, equivalence, and compliance substitution are based on a foundation of trust.
20190624 – Critical System Updates
CME Group Notice
In Q3 2019, CME Group will implement the following changes to User Defined Spreads (UDS) functionality on CME Globex
****SD: Also in this notice update is a section on CME Globex Market Segment Gateway Enhancements. I’m sure the latency sensitive folks out there have taken notice of the following: “Customers are strongly encouraged to ensure all messages are contained within a single network packet by the following methods: 1) Ensure any packet sent to CME group contains only complete messages; 2) Limit the number of quote entries in a mass quote message that fits within a single TCP packet; 3) Disable nagling, an algorithm that concatenates a number of small buffer messages to decrease the number of sent packets, on your order routing systems.”
Egypt Completes 2018-19 Oil Hedge and Plans Program Next Year
Mirette Magdy, Catherine Ngai and Javier Blas – Bloomberg (SUBSCRIPTION)
Cairo is buying protection against rising petroleum prices; Egypt hasn’t yet decided whether it will hedge wheat prices
Egypt is becoming a significant player in the global oil derivatives market, planning to buy protection against a higher crude import bill for a second year.
North Africa’s largest economy plans to hedge against rising oil prices in the fiscal year 2019-2020 that starts in July, following a similar effort to lock-in prices for the current fiscal year, Finance Minister Mohamed Maait said.
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****SD: Mexico has had some issues with its annual oil hedge but Egypt’s is smaller. From the piece: “Egypt hedged its exposure to oil prices through Citigroup Inc. and JP Morgan Chase & Co. in the current fiscal year, according to a person familiar with the matter. Cairo plans to use both of them again for the 2019-20 hedge, but is considering hiring extra banks, the same person said, asking not to be named because the information is private.”
A $1,800 Drop in Minutes: Bitcoin Volatility on Full Display
Gregor Stuart Hunter and Olga Kharif – Bloomberg (SUBSCRIPTION)
This week’s jump in Bitcoin prices revived themes well known to the digital currency that inflated then burst less than two years ago. Among them: enormous volatility, and exchange overloads.
****SD: Bloomberg also has this: Greenspan: For Bitcoin, Volatility is by Design (AUDIO).
Slumbering FX confounds traders, prompts fear of rude awakening
Tommy Wilkes and Tom Finn – Reuters
Currency markets are so listless, the head of European foreign exchange sales at Nomura has taken to selling bonds instead.
Pitching currency opportunities to clients is pointless without the big exchange rate swings that pique investor interest, Fabrizio Russo told Reuters.
Back to the futures: fearing another crash, investors pile into EU derivatives
Josephine Mason – Reuters
Investors are piling into European equity futures at a record pace, preferring derivatives to cash markets, in a sign they are worried the market is hurtling towards a major rout amid concerns about a slowing global economy and the trade war.
****SD: I was told early on that “Back to the Future” references in this industry are persona non grata.
Pound gains before G20 meeting, large option bets
Saikat Chatterjee – Reuters
The pound edged higher on Thursday as traders unwound some of their short bets against the British currency before a Group of 20 meeting this weekend, where U.S. President Donald Trump and Chinese President Xi Jinping might agree to a trade truce.
S&P 500 Strategists as Antsy as Everyone Else on Rest of Year
Elena Popina – Bloomberg (SUBSCRIPTION)
Wall Street strategists, a group not known for their restraint, are no more willing than anyone else to go out on a limb predicting gains or losses in stocks over the second half of 2019.
Exchanges and Clearing
CME eyes opportunities in cloud computing
James Thursfield – Global Investor Group (SUBSCRIPTION)
CME Group is examining opportunities in cloud distribution for its market data business
Singapore exchange adapts as regional rivals encroach
Philip Stafford – Financial Times (SUBSCRIPTION)
SGX, the Singapore exchange, is preparing to defend one of its jewels — the futures contracts that allow overseas investors to speculate and insure themselves against sharp, sudden moves in Chinese blue-chip stocks.
Quadrillion-Dollar London Market Bats Away Brexit Blues
Viren Vaghela and Silla Brush – Bloomberg (SUBSCRIPTION)
London Stock Exchange Group Plc has defied Brexit gloom to retain the U.K.’s lead in the multi-trillion-dollar swaps business, realized a long-sought ambition to link up with China and nabbed some of the most coveted assets in its industry.
Cboe Futures Exchange and American Financial Exchange Announce Planned Launch of AMERIBOR Futures
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, today announced plans to launch futures on the AMERIBOR (American Interbank Offered Rate) interest rate benchmark on Cboe Futures ExchangeSM (CFE), subject to regulatory review. The new futures are expected to launch on trade date August 16, in honor of the 42nd anniversary of the launch of Treasury bond futures.
Regulation & Enforcement
Circuit filters for F&O segment: SEBI may scrap plan
Tarun Sharma – MoneyControl
The Securities and Exchange Board of India (SEBI) may scrap a plan of circuit filters for stocks which are part of the future and options segment. In February, SEBI came out with a discussion paper for capping of maximum daily movement of up to 20 percent for all stocks, including F&O stocks.
Moves to Make Before the Fed Meets
Steven M. Sears – Barron’s
Jerome Powell, chairman of the Federal Reserve, stood up this week for the central bank’s independence against President Donald Trump’s strong-arming.
The president wants the Fed to lower rates. He has said—repeatedly—that the bank erred in raising them last year.
‘There are no obvious opportunities’: A Wall Street fixed income investment chief at a $23 billion firm says now is the time to protect returns rather than seek new ones
Carmen Reinicke – Markets Insider
The market adage “buy low, sell high” is great advice. But it becomes more difficult to find bargains when prices are elevated and continuing to rise.
As the S&P 500 hovers near all-time highs, it’s become increasingly difficult for new entrants to see the kind of returns they might expect in the market. As stock prices climb, the upside potential for future gains becomes capped. In addition, a rally in bonds has brought down yields to a point where investors see little incentive to buy them.
BANK OF AMERICA: An under-the-radar trading strategy that profits from market turmoil is at its most attractive since the financial crisis. Here’s how to implement it.
Akin Oyedele – Business Insider Prime (SUBSCRIPTION)
When chaos erupts in global markets, gold is one of the assets in which investors seek shelter.
The precious metal is exhibiting its safe-haven status with a breakout rally to six-year highs.
****SD: BofA’s trade: “For those wary of spending 12 months of premium on outright calls, gold call skew offers an attractive opportunity to cheapen the trade. We like owning Jun20 140-155 GLD call spreads (43d and 23d respectively, ref. 132.9). The structure costs ~2%, a ~50% discount vs the 140 call outright, and has a max payout ratio of ~5.7x.”
How Options Strategist Sosnick Is Trading the VIX
On this edition of “Options Insight,” Interactive Brokers’ Steve Sosnick discusses equity markets volatility and his investment strategy with Bloomberg’s Abigail Doolittle on “Bloomberg Markets: The Close.”
Asia Investors Dive Into Stocks Pushing Volumes Toward Record
Divya Balji – Bloomberg (SUBSCRIPTION)
There’s a slew of reasons not to buy shares in Asia right now: trade war uncertainty, global growth worries and slumping profit estimates.
But stockbrokers aren’t exactly lacking for business.
Random darts beat hedge fund stars – again
Mitch Tuchman – MarketWatch
Can you successfully pick stocks with a dart board? The writers at The Wall Street Journal thought so.
To test their idea, the writers threw darts at a stock list in the newspaper. From those random hits they built a portfolio to stack up against highflying financial elites.
****SD: Have the hard working primates written Shakespeare yet?
The incredible shrinking stock market
Richard Henderson in New York – Financial Times (SUBSCRIPTION)
Axel Springer, a German journalist, turned one Hamburg newspaper into a publishing behemoth that now spans hundreds of titles and billions of euros in annual revenue. The company that bears his name was typical of a growing business that turned to the stock market to fuel its growth, giving a diverse group of investors a claim on an expanding stream of profits.
Now, 34 years since the stock first listed, public investors will no longer have that claim. Axel Springer shares are set to drop off the public market after the company struck a takeover deal this month with KKR, the private equity group
****SD: At least there are fewer options series to quote?