Gulati’s Hedge Fund Becomes Victim of Too-Calm Markets

Mar 14, 2019

Observations & Insight

How Chris Giancarlo Helped The Futures Industry Get Its Groove Back
Jim Kharouf – JLN

Chris Giancarlo will go down as perhaps the most popular regulator in industry history. The CFTC chairman, who will step down this year after joining the agency in January 2017, gave his farewell address at the FIA Boca conference this year with a focus on the agency’s achievements during his term.

Giancarlo breathed new optimism and life into the industry at the FIA Boca conference two years ago with a speech calling for a practical and cooperative approach to regulation. His approach, a stark contrast with prior CFTC chairmen, drew what is thought to be the first ever standing ovation for a CFTC chairman. And his final speech to the audience at FIA Boca that year garnered a second standing ovation.

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Boca Bits – FIA Boca 2019 Day Two
Chuck Mackie for JLN via Medium

If regulation is your thing then day two of FIA Boca was sure to be a treat for you. CFTC Chairman Chris Giancarlo kicked it all off with his “farewell, not goodbye” address and the exchange leaders followed with Exchanging Views. Jackie Mesa’s panel then returned to old ground (with fewer fireworks this time) in “Keeping Markets Cross Border,” Interactive Brokers Chairman and CEO Thomas Petterffy sat down for a sometimes wild and wooly one-on-one interview, and the rousing induction ceremony for the 13 new members of the FIA Hall of Fame finished things off. Not a bad day at all.

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Lead Stories

Gulati’s Hedge Fund Becomes Victim of Too-Calm Markets
Katia Porzecanski and Nishant Kumar – Bloomberg
The lack of market volatility — or swings in the prices of securities — has claimed one of its most high-profile victims.
Argentiere Capital is returning capital to investors from its flagship $940 million hedge fund after years of unsuccessful wagers on rising market turmoil, according to a person with knowledge of the matter.

Wall Street tries to clean up $8tn market for credit derivatives; Industry buffs up code as regulators voice concerns over sharp practices
Joe Rennison and Sujeet Indap – FT
Nine months after Blackstone caused an uproar in a corner of Wall Street accustomed to sharp elbows, the firms which set the rules of engagement for the $8tn market for credit default swaps have tried to impose a little order.

Should stock-market investors watch out for a volatility pickup?
William Watts – MarketWatch
A strong stock-market bounce from the Christmas Eve lows was accompanied by a fall in volatility. One analyst says investors would be well served to look at buying protection against a return to choppier waters.
While implied volatility, as measured by the Cboe Volatility Index VIX, -0.07% picked up last week as major stock indexes suffered a five-day losing streak, the trend has been solidly lower. The gauge, which uses options to measure expected volatility in the S&P 500 SPX, -0.13% over the coming 30-day period, remained below 14 Wednesday after having closed Dec. 24 at 30.11. The long-term average for the index stands near 19.

China Traders Get Deja Vu as Stocks Sink Fastest in Nine Months
A rally in China’s small cap stocks is unraveling as quickly as it began amid signs that officials are attempting to prevent a bubble from forming.
The ChiNext gauge of mostly technology companies slumped 2.6 percent in Shenzhen, taking its two-day loss to 7 percent, the steepest since June. The index had surged 44 percent in just four weeks, fueling demand for leverage and drawing parallels with the mania in 2015 that ended in a $5 trillion rout.

Accounting rules can’t be blamed for volatility
Peter Malmqvist – Financial Times
Jonathan Ford, in “Accounting has become the opposite of useful for users” (Inside Business, March 11), concludes that corporate data now provide worse information than before. His proof? More volatility in company accounts nowadays, compared with what is filed to the taxman.

Pound Falters as Brexit Fog Leads Wealth Fund to Sit Out Rally
Anooja Debnath and Charlotte Ryan – Bloomberg
It’s too early to express optimism on the outcome of Brexit by buying sterling, according to the world’s biggest wealth manager.
The pound is 2019’s best-performing major currency and gained the most in almost two years Wednesday, yet UBS Global Wealth Management continues to advise investors “not to chase the rally.” Options gauges of swings in the pound have flipped to signal traders expect more imminent turmoil, with the risk of a no-deal Brexit not completely ruled out.

****JB: See also Reuters’ Pound rally falters as doubts creep in before parliament’s Brexit delay vote and the Financial Times’ Currency markets eyeing sterling rally

Fearing new oil glut, OPEC builds case for keeping supply cuts
Alex Lawler – Reuters
OPEC on Thursday cut the forecast of global demand for its oil this year as rivals boost production, building a case for extending supply curbs beyond June to stop any new glut.

Exchanges and Clearing

Cboe to Launch Suite of Derivatives-Based Strategy Benchmark and Volatility Indexes Based on MSCI Emerging Markets and EAFE Indexes
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, announced today it has entered into an agreement with MSCI Inc. (NYSE: MSCI), a leading provider of indexes and critical investment decision support tools and services, to launch a suite of derivatives-based strategy performance benchmark and volatility indexes based on the MSCI Emerging Markets Index (MXEF) and the MSCI EAFE Index (MXEA), key indexes for investors seeking exposure to international and emerging markets.

Fixed Income Highlights – March 2019 edition
Eurex Exchange
Equities have been the focal point for the start of the 2019, with many pockets of Fixed Income performing well. Q1/2018 saw a very strong base from which to start the year while, 2019 is proving more of a sanguine start. Month on Month (MoM) we have seen a small uptick in our core markets in both futures and options in February, helped by the futures roll towards the end of the month.

CBOT market worn out by stagnant U.S.-China negotiations
Karen Braun – Reuters
Chicago-traded futures have endured a rough few weeks, and while it is not the only explanation, the lack of a trade deal between the United States and China has likely been an anchor on prices.
Originally, December’s agreement between the two sides to talk and establish a trade deal within 90 days was supportive of prices, as U.S. leaders suggested that China might return to the U.S. agriculture export market in a big way.

Regulation & Enforcement

EU clinches deal on derivative clearing ahead of Brexit
Francesco Guarascio – Reuters
European Union governments and lawmakers agreed on Wednesday new rules that could force large foreign clearing houses with operations in the bloc to relocate to the bloc if they want to continue servicing their EU clients.
Euro clearing has been one of the main battlegrounds between London and Brussels in talks that will shape how Europe’s financial market is divided up when Britain leaves the European Union.


Vela links options trading platform to BNP Paribas FIX order gateway; Vela has completed a connection of its Metro trading platform to the FIX order gateway at BNP Paribas.
Hayley McDowell – The Trade
Trading and market access technology provider Vela has connected its trading platform to the FIX order gateway at French investment bank BNP Paribas.

BTS Introduces BTS Spark Lite for Significant Speed and Cost Benefits; Announces ICE Connectivity Coming Soon
Press Release
Blue Trading Systems today announced the addition of BTS Spark Lite to their derivatives offering. Committed to continuing a software evolution, BTS is delivering significant speed and cost benefits to their dedicated customers with their new futures trading solutions. With BTS Spark Pro priced at $1200 a month, users will soon be able to leverage the lite version for half the cost at $600.


What Bollinger Bands Tell Us About the Next VIX Move
Andrea Kramer – Schaeffer’s Investment Research
Unless you’ve been hiding under a rock, you’re probably aware that the U.S. stock market has been on fire in 2019. In fact, the S&P 500 Index (SPX) is on pace to top the key 2,800 level today, eyeing its highest close since early October, before the massive fourth-quarter sell-off. As such, the Cboe Volatility Index (VIX) — also known as Wall Street’s “fear gauge” — has cooled its proverbial jets, more than halving since its late-December peak above $36. However, if recent history is any indicator, the VIX could be on the cusp of a breakout.

Factors Don’t Always Work As Research Suggests. Here’s Why.
Evie Liu – Barron’s
Factors are characteristics of stocks identified by academic research with the proven ability to outperform over the long run. But as factor investing gains popularity—and assets—investors should consider the biggest risk for the group: That what has worked in the past won’t work in the future.


Brokerages Brace for Japan’s Longest Market Shutdown Since WWII
Shoko Oda and Gareth Allan – Bloomberg
Japanese brokerages are taking steps to help relieve at least some investors worried about getting trapped by the country’s unusually long holiday next month related to the emperor’s succession.
Markets in Japan are scheduled to be closed from April 27 through May 6 because the government has designated national holidays around the abdication of Emperor Akihito, in addition to annual Golden Week days off over that period. In total, markets will be shut for six trading sessions, sparking concerns of volatility.

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