Lead Stories
Emerging-Market Fear Gauge Soars as Traders Brace for Turmoil
Vinicius Andrade and Colleen Goko – Bloomberg
The surging volatility across global financial markets is sending shock-waves through emerging nations, with investors rushing to safety amid fresh turmoil at Credit Suisse Group AG.
A gauge of developing nation currencies fell for a second session Wednesday, with the Hungarian Forint and the Czech Koruna leading losses, down at least 2.9% each. An index of emerging-market stocks is at the lowest intraday level since December, with South African shares posting their longest losing streak in five years. The CBOE Emerging-Market ETF Volatility Index, the VIX equivalent for developing-nation stocks, jumped 15.5 percentage points at the open, set for its biggest one-day jump since January 2022.
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Short Sellers Piled Into Regional Bank Stocks, and Scored, This Month
Al Root – Barron’s
The stock market can be an unforgiving place.
Losses in regional-bank stocks have brought a lot of pain for investors in the lenders, but short sellers are betting even bigger against those companies after making billions in profit over the past few days.
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Funds end Feb with huge short position in U.S. rates, bonds
Jamie McGeever – Reuters
Hedge funds closed February holding huge short positions in short-term U.S. interest rate and Treasuries futures, positions that may have been crushed by the collapse in implied rates and bond yields following the Silicon Valley Bank crisis.
Commodity Futures Trading Commission (CFTC) data published on Tuesday shows that speculators held the largest net short position in three-month ‘SOFR’ rate futures since September, and the biggest net short 10-year Treasuries futures position since 2018.
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Counterparty risk is a major concern for crypto derivatives market following FTX collapse, finds report
Wesley Bray – TheTrade
Crypto derivatives market participants are holding less money at exchanges, onboarding with third-party custody providers and seeking increased regulation of crypto-native markets, according to Acuiti’s latest Crypto Derivatives Management Insight Report. The report marks the first institutional study on the response to the collapse of FTX in November last year, and is based upon a quarterly survey of a group of over 70 senior executives from asset managers, hedge funds, sell-side firms and proprietary trading groups active in trading crypto derivatives.
/jlne.ws/42eVYrL
Why the Fed Is Likely to Stick With a March Rate Hike
Megan Cassella – Barron’s
Turmoil in the banking sector went global on Wednesday, sending equity markets tumbling and sparking renewed calls for the Federal Reserve to pause its monetary-policy tightening efforts when officials meet next week.
Despite widespread market volatility over the past several days, however, inflation remains well above the Fed’s 2% target, particularly in the most-worrisome services sector, and the macroeconomic outlook so far is mostly unchanged. That suggests to many economists that the central bank, in its quest to balance the dual priorities of financial stability and price stability, is still likely to raise rates by a modest quarter of a percentage point when officials meet for their March policy meeting next week.
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ECB likely to stick to big rate hike despite banking turmoil
Francesco Canepa and Balazs Koranyi – Reuters
European Central Bank policymakers are leaning towards a half-percentage-point rate hike on Thursday, as the banking sector turmoil is dissipating, the euro zone economy is picking up strength and inflation is set to remain too high for years.
Investors had begun to doubt the ECB’s commitment to another big rate hike this week after the collapse of Silicon Valley Bank (SVB) in the U.S. sent ripples through global financial markets.
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Exchanges
ICE Reports Record Levels of Trading Activity on March 13 as Markets Manage Risk
Intercontinental Exchange
Intercontinental Exchange, Inc. (NYSE:ICE), a leading global provider of data, technology, and market infrastructure, today announced record levels of trading activity across its futures and options markets. On March 13, 2023, ICE hit record volume across its markets with 14.45 million futures and options contracts traded during the day. The volume surpassed the previous record set three years ago, on March 12, 2020, as the market reacted to the onset of the COVID-19 pandemic. Volume records set on March 13, 2023, included ICE’s financials futures and options portfolio, with a record 10 million contracts traded, the highest level since May 29, 2018.
/jlne.ws/3YNvdaX
Listed derivatives move to adapt as megatrends accelerate
Eurex
The rise of thematic indices and increasing appetite for allocating capital to megatrends have boosted flows to this nascent investing style. These developments prompted some market participants to hail a new era in asset management, with the diversity of indices rapidly growing and ETF creation booming.
Ahead of its Derivatives Forum in Frankfurt this month, Eurex investigated how this evolution is progressing and what influence megatrends will have on listed derivatives markets.
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Regulation & Enforcement
Boom in ‘zero day’ options draws regulatory attention
Nicholas Megaw and Nikou Asgari – Financial Times
The US derivatives regulator is examining the impact on markets of extremely short-dated options contracts after analysts warned the booming trend could be contributing to wild swings in stock prices.
Rostin Behnam, chair of the Commodity Futures Trading Commission, on Wednesday said the agency was assessing the potential risks or systemic issues that could arise from so-called zero-day trading strategies, which have surged in popularity since the start of the coronavirus pandemic.
/jlne.ws/3lk8TIA
Justice Department, SEC Investigating Silicon Valley Bank’s Collapse
Dave Michaels – WSJ
The Justice Department and the Securities and Exchange Commission are investigating the collapse of Silicon Valley Bank, according to people familiar with the matter, after the California lender was taken over by regulators last week amid a historic run on its deposits.
The separate probes are in their preliminary phases and may not lead to charges or allegations of wrongdoing. Prosecutors and regulators often open investigations after financial institutions or public companies suffer big, unexpected losses. Shares in SVB Financial Group SIVB 0.00%increase; green up pointing triangle, which formerly owned the bank, fell 60% last week and have been stopped from trading since Friday.
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Strategy
How Options Traders Played Last Week’s Selloff
Rocky White – Schaeffer’s Investment Research
Traders were buying up put options at the end of last week during the collapse of Silicon Valley Bank. Whether hedging their positions or speculating on downside, it was indicative of the uncertainty heading into the weekend. Focusing on buy-to-open (BTO) data we receive from three different exchanges, put buying spiked on individual stocks leading to one of the biggest single-day BTO put/call ratios we’ve seen over the past 10 years. The chart below goes back to 2015 showing only a few spikes above one including last Friday.
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Trader Seeks 12-Fold Payout If ECB Slashes Rate Below 1% in 2024; Options wager targets the ECB reversing course on rate hikes; Shows investors looking at quicker end to policy tightening
James Hirai – Bloomberg
One trader is betting that European policymakers will slash borrowing costs below 1% next year in a dramatic U-turn. That’s a radical view given money markets see a European Central Bank rate of about 3.5% by mid-2024. If the wager comes off it would return EUR175 million, or more than 12 times the EUR14 million premium paid. The identity of the trader, or whether the move was an outright punt or a hedge, could not be verified.
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Tail risk ETFs see sharp gains as U.S. stocks fall amid investor anxiety over banks
Christine Idzelis – MarketWatch
Shares of exchanged-traded funds focused on tail risk were moving higher Wednesday amid rising worries over the banking sector.
The Simplify Tail Risk Strategy ETF was up 4.6% Wednesday afternoon, while the Cambria Tail Risk ETF gained 3.4%, according to FactSet data, at last check. Both ETFs are actively managed.
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European Banks Affected by American Closings
Cboe (Video)
In today’s #Vol411, @JoeTigay runs through market activity as participants continue to digest news about the health of the #banking sector. $SPX $VIX
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Education
How to Take Your Options Trading to the Next Level
Kevin Davitt – Nasdaq
Seeing the world (again) through the eyes of a child is enlightening. Young people strive to improve daily. They are naturally curious, determined to figure things out and responsive to positive feedback.
In my experience, as we age, there is a tendency to become less curious and more docile, and we typically don’t get the degree of feedback we do as children.
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