Observations & Insight
Take Our Survey – Again
By Jim Kharouf, JLN Editor-in-Chief & CEO
Sometimes these things happen. The link we provided yesterday only allowed one person to take the survey. We know there are more than one of you willing and able to take it. Here’s the link.
Please take a few minutes to help us out about what you like and what you don’t like about our publications and websites. The questions are supposed to be fun, funny and for us, enlightening.
It’s also a great place to leave us comments and suggestions for future content and services.
If that’s not enough, we’re offering a chance to win an Amazon Echo. And yes, Alexa can answer almost anything.
By John J. Lothian
We have added three speakers to our MarketsWiki Education World of Opportunity event in Stockholm on March 1.
Pierre Nyquist is a visiting assistant professor in the Division of Mathematical Statistics at KTH.
Stefan Carlsson is a professor of computer science in the Division of Computer Vision and Active Perception at KTH, specializing in artificial intelligence and big data.
Lastly, Karl Hagerman has taken over the spot we slotted for Christer Wennerberg, both of the bank SEB.
Sign up for the event is now being handled by KTH, so you need to email Jim Domeij at email@example.com to sign up.
Thank you to CME Group, our Global Premier Sponsor, and Cinnober, KTH Finance Society and Nasdaq for helping support this event and the video series to follow.
For more information on our speakers and the event, go to www.marketswikieducation.com
Euro Hedging Costs Surge as Traders Respond to Political Risk
Vassilis Karamanis – Bloomberg
Investors in the euro are getting increasingly concerned about the risks surrounding the French presidential elections, pricing in the options market shows.
****SD: Briefer take from Reuters here.
Understanding the Trump Rally
Ben Carlson – Bloomberg
As the election results began to come in on Nov. 8, many people were caught off guard. One such group was those trading stocks in the after-hours markets. U.S. stocks fell more than 5 percent in just a few hours late that evening as it became apparent that Donald Trump was going to defeat Hillary Clinton.
****SD: I don’t believe this is an exact Latin translation, but I think the best way to describe the current market is “stercus accidit” accompanied by a shoulder shrug.
Taxes more than gains? Yes, if you don’t exit your options in time
Mumbai-based Chirag Gupta felt on the top of the world after trading hours on January 25 -the expiry day of the month’s futures and options contracts. The 27-year-old trader had made a stupendous 5,300% gross returns betting on Nifty through options. But the celebrations were short-lived after he received the contract note from his broker. The statement showed that Gupta owed the broker Rs 18 lakh, which was 15,900% more than the money he had put in to initiate the trade.
****SD: Ouch! Know thy regs when trading in India (or anywhere else for that matter).
Have Equity Doomsters Succumbed To Gambler’s Fallacy?
Harry Kourouklis – Seeking Alpha
US equities seem to be in their most complacent state ever. All-time high share prices in concert with historically low realized as well as implied volatility make the perfect mix for doomsters to cry out for sanity. Extreme bullish conditions, they say, will eventually cause extreme pain. Still, they miss an important point. Extremely bullish positioning and sentiment should be expected to swing closer to its historical mean than completely reversing towards an extremely bearish one. In other words, doomsters systematically succumb to a bias called gambler’s fallacy; the tendency to expect markets to move from the one extreme straight to the other.
****SD: I thought the gambler’s fallacy was convincing yourself the buffet looked good.
Exchanges and Clearing
Stock exchange crown jewels must stay in London: UK lawmaker
John O’Donnell and Andreas Kröner – Reuters
Britain should block any attempt by Germany to shift the headquarters of the London Stock Exchange to Frankfurt after it merges with rival Deutsche Boerse, a British lawmaker said on Tuesday.
Deutsche Boerse, LSE plan further concession for EU merger approval
Deutsche Boerse AG (DB1Gn.DE) and the London Stock Exchange Group Plc (LSE.L) are planning further concessions to satisfy the European Commission’s concerns about their planned merger, two sources familiar with the matter said on Tuesday.
Debating Market Data
Rob Daly – MarketsMedia
The Investors Exchange launched the latest salvo in the fight between exchange operators and clients over market data access fees.
****SD: The Trade on IEX’s data service here.
This Is the World’s Tiniest Stock Exchange
Kate Smith – Bloomberg
Myanmar has a stock exchange. Who knew? Not many people, inside or outside the country formerly known as Burma. Now a year old, the Yangon Stock Exchange is home to just four companies. None of them has raised new capital, and trading is dominated by small investors, many of whom buy stock for less than 20,000 kyat, or $15. On a recent day, fewer than 17,000 shares changed hands, about as many as the world’s biggest stock market in New York traded in an eighth of a second.
****JB: The NYSE started under a Buttonwood tree with 24 traders in New York. You never know where things may go from humble beginnings.
Updated Nasdaq Announces Additional ISE Gemini UAT Session
Nasdaq will provide an additional UAT session on Saturday, February 25, 2017 between 9:00 a.m. and 1:00 p.m. ET. Set up during this UAT will mimic the production set up for the ISE Gemini launch on February 27, 2017.
****SD: More Nasdaq ISE info from Nasdaq – ISE Gemini Disaster Recovery Connectivity Available and ISE Gemini INET System Settings Published
Regulation & Enforcement
Wall Street challenges U.S. regulator over proposed commodities rule
Olivia Oran – Reuters
Wall Street is pushing back against a proposed rule to force U.S. banks like Goldman Sachs Group Inc to hold more capital against investments in commodities, placing what some see as an overly restrictive limit on banks’ ties to the sector.
In a comment letter filed late on Friday and not yet made public, the industry argues the proposed rule would hurt the economy, and that fears about environmental risks from physical commodities activities are overblown.
SEBI Eases Derivative Participation Norms For Mutual Funds [India]
In a circular released on 20th February by SEBI, the securities markets regulator has done away with the archaic norms restricting the investments that Mutual Funds can make in derivatives. The previous rules, in place since 2005, required schemes whose Scheme Information Documents didn’t envisage derivative investments to “obtain positive consent from majority of the unit holders before commencing investment in derivatives”. With the number of unit holders running into lakhs in many schemes, this rule had joined the ranks of the ornamental.
SEC Nominee Has Represented 8 of the 10 Largest Wall Street Banks in Past Three Years
Pam Martens and Russ Martens – Wall Street On Parade
President Trump’s nominee to head the Securities and Exchange Commission, Walter J. (Jay) Clayton, a law partner at Sullivan & Cromwell, has represented 8 of the 10 largest Wall Street banks as recently as within the last three years.
Binary Brokers Rush to Add FX Platforms
Is FX a natural transition for binary options brokers given less obstacles to regulation and licensing?
Most binary options brokers have to operate their businesses in an increasingly tightening environment. Authorities in many countries have a tendency to oppose binary options businesses, however there is not only a financial aspect to this.
With Big Data, this Chicago startup wants to protect retirees from going broke
Andreas Rekdal – Built In Chicago
here are tons of startups out there with flashy apps designed to help millennials start saving money for retirement. But the money you put in is only one side of the retirement ledger. “The industry helps you a lot to grow that account, and there are some very good tools to get you to whatever your secret number is,” said Jay Singh. “But the minute those people retire, they’re really facing some new challenges. You’re deciding not to work anymore, or work less, so how do you make sure that nest egg you’ve built lasts?” Singh is the founder and CEO of Hedgeness, a Chicago-based fintech startup that uses Big Data to protect retirement savings from market swings.
Largest futures broker and clearing firm in the US updates global connectivity
Hayley McDowell – The Trade
R.J O’Brien has decided to update its global connectivity across its services through a partnership with BSO. The largest futures broker and clearing firm in the US has opted for BSO’s 10G low-latency network to improve access points for those using its brokerage, clearing and trading services.
****SD: BSO’s Fraser Bell spoke at our London MarketsWiki Education event. Video here.
An AI Hedge Fund Created a New Currency to Make Wall Street Work Like Open Source
Cade Metz – WIRED
Wall Street is a competition, a Darwinian battle for the almighty dollar. Gordon Gekko said that greed is good, that it captures “the essence of the evolutionary spirit.” A hedge fund hunts for an edge and then maniacally guards it, locking down its trading data and barring its traders from joining the company next door. The big bucks lie in finding market inefficiencies no one else can, succeeding at the expense of others. But Richard Craib wants to change that. He wants to transform Wall Street from a cutthroat competition into a harmonious collaboration.
Directional Trading: Manage Risk With Vertical Spreads
Scott Connor – The Ticker Tape
Many investors and traders venturing into the world of options begin by learning about single-legged options strategies. With education, persistence and some hands-on learning, they might even start considering that buying and selling single options is their ‘bread-and-butter’ trading strategy. Bearish stance? Long put. Bullish stance? Long call. These basic strategies can help new options traders understand the benefits that single options trading strategies can offer, such as risk management, leverage, and the potential to generate income, as well as the risks which include the potential to lose the entire amount invested in the option. But the next major milestone (or, wakeup call, for some) is the moment they realize that long single options may not always be the most capital-efficient method to pursue.
Indicator of the Week: A Passive Investing Buzzkill in 3 Charts
Rocky White – Schaeffer’s Research
Robo-trading and passive investing are all the hype right now. However, my contrarian streak leads me to be skeptical of anything I describe as “all the hype.” According to some metrics, which I’ll show below, it is getting easier for active managers and stock pickers to beat the market.
Free Money? Explaining The VIX Term Structure
Stuart Barton – Seeking Alpha
With several inverse VIX Index ETPs up more than 80% last year, interest from traders in VIX linked products remains unsurprisingly high. At the time of writing this article, the average daily volume of the three best performing inverse VIX products (Tickers: VMIN, XIV, and SVXY) amounted to almost $1.5bn each day.
3 Ways To Quantify Risk in Today’s Murky Markets
Consumers of financial news will hear the word “risk” thrown around a lot. We hear of “risk-off” moves and “risk-on” days. Although used amply, it’s rarely—if ever—quantified.
Israel needs more brokers, better connectivity – panel
Julie Aelbrecht – FOW
Panelists at FOW Derivatives Israel said local market needs more brokers
Traders have argued the Israeli market needs improved connectivity, more support from international brokers and greater participation from managed funds to compete more effectively on the international stage. During two panels at FOW Derivatives Israel, market experts from Tel Aviv-based firms discussed how the local derivatives market should develop to compete in the global marketplace.
Amy Shelly: New CFO Talks Teamwork, Transformative Growth And Opportunities For Women At OCC
Jessica Darmoni – Title Connection
“If given the opportunity, I would tell my younger self not to be afraid to face challenges or take on additional responsibilities,” said Amy Shelly, Chief Financial Officer at OCC (Options Clearing Corporation). “I think that we forget to tell each other that it is okay to ask for help. We come to this conclusion that we should be able to do everything on our own but we will never get far with the solo act mentality. It’s a team environment. Not only in your department but within your organization and there is nothing wrong with asking for help.”
Kenneth Arrow, Nobel-Winning Economist Whose Influence Spanned Decades, Dies at 95
Michael M. Weinstein – NY Times
Kenneth J. Arrow, one of the most brilliant economic minds of the 20th century and, at 51, the youngest economist ever to win a Nobel, died on Tuesday at his home in Palo Alto, Calif. He was 95.
**SR: “His ideas have worked their way into the design of complicated financial securities, known as derivatives, like options…”
Stock market data pioneer George ‘Mr. Quotron’ Levine dies at 88
John McCrank – Reuters
George Levine, a pioneer in the electrification of the financial markets who helped bring real-time market data to Wall Street early in his 50-year career, died on Feb. 13 of natural causes at the age of 88, a family friend confirmed on Tuesday.