FINRA Selected as CAT Plan Processor; Top 100 Players in US Listed Market Structure; Euro-dollar cross

Feb 28, 2019

Lead Stories

CAT NMS Selects FINRA as Consolidated Audit Trail Plan Processor
Business Wire
CAT NMS, LLC (CAT NMS) today announced that the Financial Industry Regulatory Authority, Inc. (FINRA) has been selected as Plan Processor for the Consolidated Audit Trail (CAT), following a vote by the Operating Committee (FINRA recused itself from the voting process). As Plan Processor, FINRA is responsible for all aspects of the continued build out and ongoing maintenance of the CAT.

****SD: It’s official now – don’t know why it took this long to confirm it would be FINRA.

Top 100 Players in US Listed Market Structure
Paul Rowady – Alphacution Blog
How do listed markets actually work? And, how do players discover and capture opportunity from within that market structure? And, what impact – if any – does the proximity of certain players to the centers of market liquidity have to do with the capacity of opportunity that is left over for all others that operate downstream from these players? These are the kinds of questions that we ask ourselves all the time because if you were to adopt the perspective that markets – and the fortunes of market actors – are interconnected, then what happens in close proximity to liquidity is likely going to have an impact on those who operate farther afield from that liquidity.

***SD: The graphics generated by Alphacution are always neat.

World’s Biggest FX Trade in Tightest Range Ever as Vol Collapses
Katherine Greifeld – Bloomberg (SUBSCRIPTION)
The world’s most actively traded foreign-exchange pair is on track to post its tightest quarterly range since the inception of the euro two decades ago.
The euro-dollar cross, which sees roughly $1.25 trillion of transactions a day, has traded in a 3.4-U.S. cent range since the beginning of 2019. With turbulence in developed-nation currencies at the lowest level in over a year, strategists at Goldman Sachs Group Inc. and Societe Generale SA don’t expect it to break out anytime soon.

Tesla Options Show Market Unfazed by $920 Million Bond Paydown
Gregory Calderone and Esha Dey – Bloomberg (SUBSCRIPTION)
As Tesla Inc. closes in on the deadline to make its largest debt payment ever, markets are signaling that the electric-vehicle maker will do so with what amounts to barely a blip in its notoriously volatile stock. Options prices indicate a 3.7 percent move in Tesla’s shares between now and Friday, when the $920 million debt comes due. The implied volatility is around 2.5 times lower than levels reached when the stock was roiled last October.

It All Started With Wedbush
Paul Rowady – Alphacution Blog
If you’ve ever had the distinct pleasure of driving around downtown LA, particularly heading north on the 110 just past the famed Staples Center where the LA Kings hockey team and a couple little-known basketball teams play, then you can’t help but be confronted by the sign at the top of the building just up ahead: Wedbush. Beyond the tony Wilshire Boulevard address, it is here – certainly more metaphorically than physically – that our fascination with the SEC’s Form 13F reports truly began in the Spring of 2018 – and later, by extension, where our Hiding in Plain Sight (#HIPS) series was born in the Fall of 2018. Prior to stumbling over this data, I did not know Wedbush all that well beyond the fuzzy belief that it was mainly a brokerage operation.

Stock Market Index Volatility Is Down. Single-Stock Volatility Is Soaring.
Crystal Kim – Barron’s
Stock market jitters appear to have subsided for now. Jitters for individual stocks are another story.
The Cboe Volatility Index, or the VIX, broke below 15 in early February, while the S&P 500 has enjoyed a steady upward rise this year, despite a lower open on Thursday. The benchmark index is within reach of its all-time high. A February month that saw dizzying swings in 2018 has seen nothing of the sort this time around. In fact, index volatility has declined more over the course of this corporate earnings season than in the previous 10 seasons, noted Vinay Viswanathan, a derivatives strategist at Macro Risk Advisors.

Barclays Activist Sherborne Puts Cap on Potential Stock Gains, Losses with Loan
Margot Patrick – WSJ (SUBSCRIPTION)
Sherborne Investors, the activist firm seeking a strategic U-turn at Barclays, is financing around half of its 5.5% stake in the British bank with a $1.38 billion loan. Sherborne, in a Feb. 8 filing, said it bought shares with the loan and purchased put and call options from the lender to cap its exposure. These protect against losses if shares fall below a particular level and limit potential gains. The options expire between October and March 2021. People familiar with the matter said Bank of America is the lender and counterparty on the options. The securities filing and the Bank of America loan were first reported by the Financial Times.

****SD: Equity collar alert.

An explanation on this year’s flash events
James Sinclair – MarketFactory
Twice this year … the FX press shouted, “flash crash!”. Both events merit explanation as they were vastly different. We offer ours.

Pakistan an Afterthought in Market Eyeing Future
Eric Lam – Bloomberg (SUBSCRIPTION)
There’s no doubt of the seriousness underscoring the worst military standoff between India and Pakistan in decades, yet investors appear to be looking past the tension for now, at least when it comes to their stock markets. India’s NSE Nifty 50 Index of blue-chip companies erased its gain Wednesday and the Pakistan benchmark plummeted as much as 3.8 percent as headlines emerged of fighter-jet skirmishes, with an Indian MiG 21 jet later reported to be shot down and its pilot captured. The dramatic escalation came just a day after Indian forces bombed a terrorist training camp in Pakistan.

****SD: “Meanwhile, the options market is showing that investors are concentrating their attention further into the future. The cost of hedging against Nifty 50 swings in the next month remains lower than protection prices for three months out, despite a rebound in the past couple of days, implied-volatility data show.”

Exchanges and Clearing

Technology is the Foundation of Efficient and Effective Capital Markets
John Davidson – OCC
The U.S. has the world’s deepest and most liquid capital markets in part because it has the best and most innovative technology from a plethora of highly competitive users and providers. Within the market infrastructure industry, I see technology as an enabler of efficient and effective capital markets.

Hong Kong exchange primed for some M&A trades
Alec Macfarlane – Reuters
Hong Kong Exchanges and Clearing is primed for some M&A trades. The $43 billion bourse operator enjoyed a blowout 2018, but its three-year strategic plan unveiled on Thursday offers few bold ideas for reducing dependence on trading in local equities. Looming Chinese reforms pose a further threat. A trio of new blue-chip advisers may be able to help.

****SD: WSJ has Hong Kong Exchange Eyes New Chinese Trading Opportunities.


Prop trading firm adds new managing partner as hiring ramps up
Beecher Tuttle – efinancialcareers
Chicago-based high-frequency trading firm 3Red Partners has hired a new managing partner as it seeks to grow out its quant-focused business. George Monogyios began this month as 3Red’s new head of trading.

****SD: It’s been a bit since I’ve seen an update regarding “Snuggle Bear” and his firm. (That was apparently Igor Oystacher’s nickname.)

Regulation & Enforcement

Johnson Fistel, LLP Files Class Action Suit against ProShares Short VIX Short-Term Futures
Johnson Fistel, LLP announces that it has filed a class action on behalf of purchasers of ProShares Short VIX Short-Term Futures ETF shares (“SVXY” or the “Fund”) (NASDAQ: SVXY) or options pursuant to the May 15, 2017 Registration Statement and/or between May 15, 2017 and February 5, 2018 (the “Class Period”).

****SD: It had been a few weeks since I’d seen a SVXY release.

CFTC seeks trading venue equivalence in Asia
Joanna Wright – (SUBSCRIPTION)
Having taken steps to ensure trading venue equivalence with the UK as it hurtles toward Brexit, the United States has been trying to do the same, quietly, in Asia.


Clearing Up Some Misconceptions About Alternative Data
Steve Wilcockson, Geospatial Insight, and Mike O’Hara, The Realization Group – Tabb Forum
You don’t need to search long before you’ll hear stories about quantitative analysts (“quants”) who have used mobile phone- or credit card-based information to build valuable snapshots of the specific shopping habits of millions of people. And there is no shortage of fund managers who have begun to use satellite data to gain advance notice about crop yields or consumer retail traffic trends. But as word spreads about just how powerful alternative data can be and the many ways it can be applied, so too do a lot of misplaced ideas, leading to myth, obfuscating hype and a biased skewing of an otherwise exciting industry.

****SD: Whaddya mean I can throw some alt data at it and achieve miraculous alpha?!

OpenFin Launches Cloud Services To Accelerate Digital Transformation Across Capital Markets
OpenFin, the operating system (OS) of finance, today announced the launch of OpenFin Cloud Services, providing every bank, asset manager, hedge fund and wealth management firm with its own FDC3-standard private app store and workspace management solution out of the box, eliminating the need for time-consuming and costly internal builds.


Goldman Sees Overwriting Options as Way to Beat Vapid S&P 500
Gregory Calderone – Bloomberg (SUBSCRIPTION)
Interest in an options strategy that involves selling bullish calls while holding the underlying stock to generate income has increased substantially over the past six months as slowing economic growth shakes investors’ faith in U.S. equities, according to Goldman Sachs.

****SD: “‘Since 2003, every buy-write strategy we tested outperformed the total return of S&P 500 on a risk-adjusted basis, regardless of strike selection,’ the strategists wrote in a report Wednesday.” Whether or not anybody could have consistently achieved that outperformance, even if it backtests well, is my real question (I’m assuming none of the research in the report incorporates fees/comms for one). And why 2003 for the start date? I would like to presume the Goldman strats have crossed their T’s and dotted their I’s, but…

Warren Buffett Hung On to Kraft Heinz Stock. Here’s How to Handle Your Shares.
Steven M. Sears – Barron’s
Warren Buffett must have a special gene that turns volatility into essential nutrients. He lost more than $2.7 billion on a soured investment in Kraft Heinz , but seems unfazed. He’s not selling his position in Kraft Heinz (ticker: KHC), created through a merger he helped to orchestrate in 2015. Of course, if he said he was selling, the news likely would trigger a stampede out of the stock, and his losses would increase. Buffett’s Berkshire Hathaway (BRK.A) owns about 27% of the company.

Rare VIX Signal Points To Spring Volatility Spike; VIX call options have been popular this week
Karee Venema – Schaeffer’s Research
he Cboe Volatility Index (VIX) has imploded by historical measures in 2019, falling from a Dec. 26 intraday peak at 36.20 to a Feb. 22 four-month closing low of 13.51. However, a rare technical signal just flashed for the stock market’s “fear gauge,” which could suggest a short-term spike in volatility, if past is precedent.

Still Plenty Of Pessimism To Go Around
Clif Droke – Seeking Alpha
Despite the best start for the market in over 30 years, retail investors aren’t exactly lining up to buy stocks. Lingering fears from the December panic remain and to date, there are no signs that investor confidence levels have increased, even after an uninterrupted rally in the last two months. In today’s report, we’ll look at the market signals which continue to support an optimistic outlook for equities. We’ll also discuss a possible time frame for the next breakout above the nearest round-number benchmark level in the S&P 500 Index (SPX).


A Flattish S&P Is the New Melt-Up. The Vix Agrees.
Brad Olesen – Bloomberg (SUBSCRIPTION)
There’s a lot of red this morning, and it seems appropriate. The moves, however, are muted in the aggregate, as we’re only down 9 handles — par for the course this week in terms of the volatility in the major averages. An abrupt end to the North Korea summit that was called “productive”, though sans the formally signed agreement that had been planned, the worst China PMI figures in three years, a host of poor tech earnings and a teetering health mega merger are all serving to weigh.

Ex-Barclays Banker Didn’t Ask Why Euribor Trader Sought Help
Jonathan Browning – Bloomberg (SUBSCRIPTION)
A former Barclays Plc banker on trial for rigging a key interest rate benchmark said she never considered why traders asked for rate submissions or discussed it with her manager.
Sisse Bohart, 41, who worked as a junior trader on the money desk, said she would always try to accommodate Philippe Moryoussef when he requested higher or lower fixings for the euro interbank offered rate. Moryoussef, who worked at Barclays, and Christian Bittar, a trader at Deutsche Bank AG, had amassed huge trading positions that would be affected by the rates.

****SD: “Manipulation? I was just trying to be nice!”

Quant Famed for Ray Dalio-Like Trades Has Battle Plan for Stocks
Ksenia Galouchko – Bloomberg (SUBSCRIPTION)
Risk-parity principles touted for defensive factor portfolios; PanAgora is home to Edward Qian, who coined term for strategy
A Boston-based quant firm is channeling Ray Dalio’s playbook in an attempt to navigate late-cycle markets that are flipping between giddy rallies and gut-wrenching losses.

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