Hedge Funds Behaving Like We Just Had a Financial Crisis; MiFID II SI derivatives regime delayed til 2010

Jan 31, 2019

Observations & Insight

Eyes on the House: STA’s Outlook
The midterm elections ushered in a new legislative balance of power. That means that the U.S. House Committee on Financial Services will have roughly 20 new members. Luckily, the Security Traders Association will have affiliates in some 13 to 15 of those new districts represented on the Committee.

In this video from 93rd Annual Midwinter Meeting, STA CEO and President Jim Toes talks about the STA’s focus and legislative outlook for 2019.
Watch the video »

****SD: What timing! The picks for U.S. House Committee on Financial Services were just announced and can be found in our “Regulation” section.


The Polar Vortex Could Freeze Economic Growth
Matthew C. Klein – Barron’s
The U.S. economy always shrinks in the winter, with or without a “polar vortex.” Since 2002, America’s gross domestic product has dropped about 13% at an annual rate, on average, between the last three months of each calendar year and the first three months of the next one.

****SD: Things that everybody in Chicago (and courtesy of the internet, most everyone everywhere) now knows: there is such a thing as a “frost quake” and the Metra lights the train tracks on fire to keep things moving in frigid temperatures.

Lead Stories

Hedge Funds Are Behaving Like We Just Had a Financial Crisis
Luke Kawa – Bloomberg via Yahoo Finance
Hedge funds haven’t been chasing the January rebound in U.S. equities on the heels of their worst year since 2011.
According to Macro Risk Advisors, these big-money managers are acting much more like it’s the aftermath of the 2008 financial crisis than the relatively low-volatility environment that’s dominated for most of the past five years.

****SD: Another example of what can be gleaned from options data analysis. “Periods of higher hedge fund exposure to equities tend to occur in tandem with elevated option skew, he observes, offering a trading opportunity in options for investors willing to bet that these managers will warm to U.S. stocks and juice the current rally.”

MiFID II SI regime for derivatives delayed for a second time until 2020; ESMA cites bad data but gives no further details on when the regime will be implemented for derivatives, other than it will be in 2020 at the latest.
Hayley McDowell – The Trade
The systematic internaliser (SI) regime for derivatives under MiFID II in Europe has been postponed by the EU markets regulator, marking the second delay to implementation since MiFID II came into force in January last year.

****SD: ESMA press release here.

Fed’s Message Leaves Rate-Hike Bets Hanging, Raises Odds of Cut
Emily Barrett and John Ainger – Bloomberg via Yahoo Finance
Federal Reserve Chairman Jerome Powell’s first press conference of 2019 left market expectations for an interest-rate hike this year hanging by a thread, and raised the chances of a cut in 2020.
A move to tighten policy in March was already seen as a long shot, but the Fed’s tone on Wednesday cast doubt on the prospects of any rate increase this year, after nine hikes since 2015.

****SD: “Another sign of waning prospects for a rate hike this year was the drop in near-dated implied volatility on swaptions … which dropped to the lowest since November for one- to two-year contracts.”

Pearl Capital Advisors Hedged VIX program ends 2018 up +14.85%
Bailey McCann – Opalesque
While many volatility traders were caught out with directional bets in 2018, one fund managed to stay above the fray and end the year positively. Pearl Capital Advisors Hedged VIX program ended December up +1.00%, net of fees. The program was up +14.85% for 2018, according to performance data obtained by Opalesque.

2019 Viewpoints: John P Davidson President & Chief Operating Officer, OCC
The WFE Focus Team
Q: Please outline the three most important macro trends that you believe will impact the market infrastructure industry in 2019?
A: The first important macro trend that I believe will impact the market structure industry in 2019 is political event risk. Particularly in Europe and the Americas, I believe political event risk will continue to drive market volatility spikes and associated volume. The second trend will be market fragmentation and algorithmic trading. This will drive transaction volume and increase the complexity of meeting audit trail requirements. The third trend will be cybercrime and the potential for activities by nation-state actors. This will require continued high levels of focus and expenditures on all forms of information security.

Exchanges and Clearing

Kenya bourse aims to launch derivatives market in first half 2019
George Obulutsa – Reuters
The Nairobi stock exchange aims to launch a derivatives market in the first half of 2019 after long delays and wants to list at least two new firms by the end of the year, executives at the Kenyan bourse said on Wednesday.

****SD: Ken-ya dig it?

CME releases reference data API to support trading automation; More than 60 firms have requested onboarding or training already, CME executive says
Bennett Voyles – MarketVoice
These days, trading takes place in nanoseconds. But the process of setting up the mechanics of that trading process has remained cumbersome manual work. That is changing now for traders of CME products. The Chicago-based exchange has released the CME Reference Data API that contains detailed specifications on all available products including futures, spreads, strategies and options, making it possible for much of this information to be uploaded automatically. Clients can pull the product definitions from the API to their systems, reducing the manual work involved in setting up new products and the chances of data entry errors.

Are the Stock Exchanges Really Gouging Traders?; Fee data make good headlines but miss the heart of the matter.
Stephen Gandel – Bloomberg (SUBSCRIPTION)
Brad Katsuyama, the hero of Michael Lewis’s high-frequency trading book “Flash Boys,” understands the stock market as well as anyone on Wall Street. He’s tossing around numbers, though, that aren’t helping his cause.


Puleston Jones to Depart FIA
FIA’s President and CEO Walt Lukken today announced his acceptance of the resignation of Simon Puleston Jones, who is leaving the organization for other business pursuits. Mr. Puleston Jones has been the organization’s Head of Europe since 2016, when he helped oversee the merger between FIA’s global affiliates into a single organization. Mr. Puleston Jones also chairs the Joint Trade Association Group, a forum of over 20 financial services trade associations that advocate on issues such as Brexit and MiFID II.

Gill to head Asia-Pacific G10 FX trading for Barclays, Singapore; UK bank’s second senior FX hire in as many months in the city-state
Mikael Latreille – FX Week (SUBSCRIPTION)
Foreign exchange veteran Pritpal Gill is joining Barclays to head the G10 and FX options team for the Asia-Pacific region.

Regulation & Enforcement

Chairwoman Waters Announces Subcommittee Assignments
U.S. House Committee on Financial Services
Following Thursday’s announcement of House Financial Services Subcommittee Chairs, Congresswoman Maxine Waters (D-CA), Chairwoman of the House Financial Services Committee, announced Subcommittee assignments for the 116th Congress.

Johnson Fistel Announces Class Action Suit against ProShares Short VIX Short-Term Futures ETF (SVXY); Encourages Investors to Contact the Firm for Additional Information
Johnson Fistel, LLP announces that a class action has been commenced on behalf of purchasers of ProShares Short VIX Short-Term Futures ETF (“SVXY” or the “Fund”) SVXY, pursuant to the May 15, 2017 Registration Statement and/or between May 15, 2017 and February 5, 2018 (the “Class Period”).


Aiming To Capitalize On A Shifting Liquidity Landscape? Think About Your Platform
Gerry Turner – Vela
Financial market participants, it appears, are getting more intrepid by the day. In search of fertile new trading environments, many firms are looking further afield than ever before and entering markets that only a few years ago would not have seemed feasible. From Asia to the Americas, buy-side and sell-side institutions are eyeing opportunities for proprietary trading, market-making, broking and other activities. Highlighting the trend, the Bank for International Settlements, in a recent report, said trading activity in fast-paced electronic markets was becoming increasingly fragmented across new venues.


Whipsawed Tesla Investors Facing More Turbulence After Earnings
Gregory Calderone – Bloomberg (SUBSCRIPTION)
Being a Tesla Inc. shareholder has required a strong stomach over the past year as the stock price routinely posted double-digit price swings from one month to the next. Now options investors are bracing for even more volatility in the wake of the company’s earnings report.


Early-Bird Registration Deadline Approaching!
Secure your spot today for the Options Industry Conference, where you will hear from industry leaders to gain insight on the biggest trends and most relevant issues facing the option industry today. Register now to lock in the lowest rates available. Early Bird registration pricing ends February 15th


Complaints at Nomura as bank signals big rethink: “There seems to be no strategy here”
Sarah Butcher – efinancialcareers
In April 2019 it will be three years since Nomura did the deed – since that one weekend in late spring when it unexpectedly decided to pull the plug on its European equities business and eliminate 500 people almost overnight. “We did let people go back to their desks. We did let people say goodbye to each other. We didn’t let people mill around for a few days,” said Jonathan Lewis, Nomura’s European chief executive officer of the incident. In other words, Nomura tried to be nice even while it was wielding the hatchet. But for people working at Nomura’s global markets business in London, such niceties no longer count.

Deutsche Bank Sees Merger by Mid-Year If All Else Fails
Steven Arons and Birgit Jennen – Bloomberg (SUBSCRIPTION)
Executives are said to worry bank is running out of time; CEO Christian Sewing has pleaded for patience with his plan Deutsche Bank AG executives are worried that they’re down to the last 60 days to turn around their struggling franchise.

EU Is Said Ready to Push U.K. to Brink as Brexit Risk Mounts
Ian Wishart – Bloomberg (SUBSCRIPTION)
The European Union is prepared to take Brexit down to a last-minute, high-stakes summit rather than cave into U.K. Prime Minister Theresa May’s demands over the next few weeks, diplomats said.

John Lothian Newsletter

So you want to know what’s happening in the financial markets?

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Newsletters

Pin It on Pinterest

Share This Story