Goldman and JPMorgan lead in equity derivatives; Harvest Vol Mangement profile; Spot Trading layoffs

Nov 14, 2017

Observations & Insight

30 Under 30 Finance: The Top Young Traders, Dealmakers And Big Money Innovators
Antoine Gara, Lauren Gensler, Kristin Stoller and Nathan Vardi – Forbes
The Wall Street landscape is becoming younger, digitized and more entrepreneurial. Technological and innovative forces are reshaping the world of money and they can be seen on this year’s Forbes 30 Under 30 Finance list.


Well You Did Ask…
Highly Evolved Vol
We recently moved into some new offices in a co-working space. I love it. It makes admin tasks so much easier. There is free coffee. The staff is friendly and enthusiastic. And the other companies based in the space are, um, interesting…
As far as I can tell, there is an “Uber for event planning”, several management consultancies run by people who have never run anything and at least two companies that advise other companies on how to market profitably while they themselves are losing money.
I literally just wrote a paragraph on how dumb some millennial start-ups are, and I did that because I’m about to write a thousand words from the opposite cliched direction: the old man who thinks the new generation needs to sit down, shut up and listen to his wisdom.

****SD: Given that this is advice for young (but really any) people in the industry and the above is a list of the cream of young people in finance, I figure we have a good pairing as there is some options talk in-vol-ved. Here’s the end – “Finally, if you make money don’t go on about it. There was likely to be a huge amount of luck involved. And if you lose money, don’t talk about that either. No one likes a whiner.”

Lead Stories

Goldman and JPMorgan lead in lacklustre equity derivatives market
Elizabeth Pfeuti – Financial News (Soft Paywall)
Goldman Sachs and JPMorgan have taken a lead in the US and European equity derivatives markets, but stubbornly low volatility and changes to investor habits have created a subdued environment, a new report says.

****SD: Goldman leads as a broker in the U.S., but keep in mind the news earlier this month that the bank will stop making markets on U.S. options exchanges.

If You’ve Got $5 Million to Invest, Here’s Your Volatility Play
Brandon Kochkodin – Bloomberg
Rick Selvala stands up from a conference room table in the Graybar Building above Grand Central Terminal and starts drawing up his play on the glass walls of the office: Sell S&P 500 index call and put spreads. Generate cash flow in a tax-efficient manner. Limit downside and liquidity risk.

****SD: Key to the pitch is simply being bigger than an individual investor and having different relationships. The theory goes that the firm can execute complex orders at better prices with different fee structures than a person with $5 million in, say, a Schwab account. Not to mention the time angle when it comes to trade management. Heads up – the last subsection is pretty much an advertorial for a Bloomberg Terminal’s volatility functionality.

Spot Trading cuts headcount significantly in Chicago
Lynne Marek – Crain’s Chicago Business
Chicago trading firm Spot Trading has cut employees in recent weeks, part of a significant reduction in headcount over the past year, according to people familiar with the firm.

Bitcoin vs. VIX
Russell Rhoads – Cboe Blog
Recently, Cboe announced plans to list futures contracts on bitcoin which is still in the works pending regulatory approval. Since that announcement I’ve been paying much more attention to the cryptocurrency space and even spent time with an 8th grader in my neighborhood who is mining ethereum. In watercooler discussions at Cboe (which take place in our coffee shop), we were discussing the volatility of bitcoin and one smart guy said it was probably similar to VIX. That statement got me crunching numbers with one result being the chart below.

Large corn, soybean, wheat trading volumes ‘down to growth of algo funds’
Mike Verdin – Agrimoney
Growing levels of investor bets on corn, soybean and wheat derivatives, despite price weakness, reflects mounting interest in the market of algorithmic funds – which have overturned the dominance of swap traders.

Super funds warming up to derivatives
Money Management
Australian superannuation funds are embracing derivatives for various investment functions, according to a new Milliman survey.
The survey showed roughly four in five funds (79 per cent) used derivatives “always” or “often” for risk management and hedging while other popular uses included fund manager transition management and portfolio rebalancing.

Exchanges and Clearing

Bitcoin steadies as CME Group CEO says futures trading set to debut 2nd week of December
CME Group CEO Terry Duffy on Monday said he expected the exchange he heads to debut futures trading in bitcoin in the second week of December.

****SD: For some more bitcoin news, see Bitcoin price swings translates into big volumes

Nasdaq Intellicator Leaks Your Trading Information
Themis Trading Blog
We have written extensively and critically about how stock exchanges have taken their customers’ data and used it to sell “edge” to the highest bidders. In fact one of the chapters (It’s the Data, Stupid) in our book Broken Markets was devoted to the topic. At a time subsequent to the stock exchanges becoming “for-profit” and going public, the exchanges stopped seeing themselves as efficient destinations for the fair secondary trading of corporate ownership – which aids in capital formation – and started seeing themselves as arms dealers. They make more money selling edge and catering to fast traders than they do matching trades.

IEX thinks it caught Nasdaq red-handed
Frank Chaparro – Markets Insider
“Enough is enough.”
IEX, the startup stock exchange, isn’t a fan of Nasdaq’s latest foray into data. The exchange operator’s newest product — called Intellicator — has raised opposition from a number of market participants, including IEX and SIFMA, a large organization representing big trading firms. The objections are all basically around the idea that the product might give away information about large firms’ trading strategies.
But IEX, which was made famous in Michael Lewis’ “Flash Boys,” says Intellicator is just the tip of the iceberg.

SGX sees first few coking coal options trade since debut
Platts News Article & Story
The Singapore Exchange (SGX) saw its first few coking coal options contract traded Monday and last Friday. Q1 2018 contracts with $195 strike calls saw 30,000 mt traded at $7.60 premium last Friday. Another 150,000mt of Q1 2018 contracts were traded on Monday, with strike calls at $195 and a premium of $7.60.

****SD: Our piece earlier this month on SGX’s efforts to grow can be found here.

Regulation & Enforcement

UK markets regulator takes on binary options scams
Britain’s markets regulator is bringing quick-fire binary options under its remit in an effort to crack down on scams that have conned investors out of nearly 60 million pounds ($78 million) over the last five years, it said on Tuesday.

****SD: Given the seemingly unending news stream regarding illicitly operated/unregulated/generally shady operations, I would have estimated investor losses in UK scams to be more than $80 million. Wealth Recovery International, a firm specializing in the recovery of binary options assets (!), pegs the global phenomenon in the multi-billions.

Dutch central bank adopts European rules for proprietary traders
The Dutch central bank (DNB) said on Tuesday it will adopt European rules governing capital requirements for proprietary trading firms, those that use their own money to trade for profit or loss.
Until the now, the DNB had been using its own system to assess capital requirements for such firms, which include several high-frequency trading houses such as Flow Traders , Optiver, and IMC Financial Markets.


TradeStation Announces Plans to Support CME Group, Inc. and Cboe Global Markets, Inc. Bitcoin Futures Trading Immediately Upon Launch
TradeStation, a Monex Group company and award-winning* online broker-dealer and futures commission merchant, today announced plans to offer its futures clients the ability to trade new Bitcoin futures contracts from CME Group (CME) and Cboe Global Markets (Cboe Futures Exchange, or CFE) immediately upon their launch. The Chicago-based exchanges recently announced plans to introduce the new contracts, pending all necessary internal and external regulatory approvals.

Thomson Reuters unveils suite of MiFID II reference data capabilities
Demonstrating its commitment to deliver a comprehensive suite of solutions to assist the financial services industry in complying with impending January 3, 2018, MiFID II reference-data requirements, Thomson Reuters has enhanced its reference-data capabilities, available on its integrated data and analytics delivery platform, DataScope.

Derivs market on “cusp of big change” – O’Malia
Global Investor Group (SUBSCRIPTION)
A “big change” is underway in the derivatives market, according to Scott O’Malia, head of the industry trade body ISDA, citing the advent of emerging technologies on existing market infrastructures.
Speaking at the ISDA Regulators and Industry Forum in Singapore on Monday morning, Scott O’Malia, chief executive officer of the International Swaps and Derivatives Association (ISDA), said: “It feels like we’re on the cusp of a big change in the derivatives market. Existing infrastructure is complex, disjointed and reliant on manual intervention, but new technologies like distributed ledger and smart contracts offer the potential to improve automation, increase efficiency and reduce complexity and costs.”


Hedge Funds Add Bullish Oil Bets With Mideast Tension Heating Up
Jessica Summers and Meenal Vamburkar – Bloomberg
Money managers boost Brent-crude long positions to a record; Short-sellers take positions to lowest in over eight months
The Middle East is kicking things up a notch in the oil market.

Momentum As A Bearish Signal
Seeking Alpha
This is a pretty simple article. Momentum stocks are strongly outpacing the broader stock market in 2017. Momentum stocks, as proxied by the MSCI USA Momentum Index, replicated by the popular exchange traded fund the iShares Edge MSCI USA Momentum Factor ETF (MTUM), have posted nearly a 34% total return in 2017.

Getting Paid to Buy Alibaba
Steven M. Sears – Barron’s (Soft Paywall)
When it comes to Alibaba Group Holding, tomorrow is almost always more important than today. This is a good reminder for investors who are wondering why the stock is not sharply higher after its annual Global Shopping Festival produced extraordinary sales.


GFLC Day One Wrapup
CME Group OpenMarkets
Day one of the Global Financial Leadership Conference in Naples, Florida is in the books, and it carried the political and economic weight the conference has become known for.

Getting Started With Options
The OIC team of experienced instructors will continue the conversation with the introduction to options for beginners. This lively panel conversation will review the basic language of options; how opening and exit trades work; and important details investors and financial advisors need to know before they invest with options. The webinar will also leave plenty of time for your questions so that you walk away with the confidence you need to get started.
Date: Wednesday, November 15, 2017
Time: 03:30 PM Central Standard Time
Duration: 1 hour

Cboe Global Markets to Present at Bank of America Merrill Lynch Future of Financials 2017 on November 15
Cboe Global Markets, Inc. announced today that Edward Tilly, Chairman and Chief Executive Officer, and Chris Concannon, President and Chief Operating Officer, will jointly present at the Bank of America Merrill Lynch Future of Financials 2017 Conference in New York on Wednesday, November 15, at 10:45 a.m. (Eastern Time).

Bremmer, Vance: Tech May Hold Key to America’s Political Future
CME Group OpenMarkets
There’s little question about technology’s expanding role in politics. The 2016 U.S. election was practically waged on social media, with Twitter and Facebook at times becoming a part of the news cycle nearly as much as the candidates themselves.


E*TRADE Financial Corporation Reports Monthly Activity for October 2017
E*TRADE Financial Corporation (NASDAQ:ETFC) today released its Monthly Activity Report for October 2017.

****SD: Derivative DARTs are flat YoY and MoM at 31 percent.

Pound Panic Overblown to Analysts Eyeing Brexit Breakthrough
Charlotte Ryan – Bloomberg
Analysts are more optimistic than the U.K. government that an agreement will be reached with the European Union next month to move Brexit talks on to trade even as Theresa May’s political troubles continue to weigh on the country’s beleaguered currency.

Top central bankers vow to talk investors out of easy money
Balazs Koranyi, Francesco Canepa – Reuters
Four of the world’s top central bankers promised on Tuesday to keep openly guiding investors about future policy moves as they slowly withdraw the huge monetary stimulus rolled out during the financial crisis.

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