HFTers Jump Into Bitcoin; Oil Volatility; Calm Sterling

Nov 22, 2017

Observations & Insight

Why ISPs Are About To Spoil Your Thanksgiving Dinners: Food For Thought on Net Neutrality Repeal
By Jeff Bergstrom – JLN

Yesterday it was announced the F.C.C. plans a net neutrality repeal. This is not a particularly new story. The telecoms have been working towards this for years. But now it seems they are about to achieve their goal and that is not a good thing unless you are a major investor in telecom stocks.

It is a truism that the last thing anyone should talk about over Thanksgiving dinner is politics. We all have that crazy uncle who goes off on some tirade about how Bhutan is ruining the vegetable oil market. That said, this is a topic well worth bringing up because it affects all of us. (Protip: If you scan the table and cannot find the crazy uncle you are probably the crazy uncle…I speak from experience.)

The John Lothian Newsletter wades infrequently into politics, but sometimes keeping silent is clearly wrong and this is one of those times.

On the face of it this may not seem like that big a deal but this ruling will have broad implications and affect everyone in the country, and I do mean “everyone.”

The short version of net neutrality is internet service providers such as AT&T, Comcast or Time Warner Cable must treat all internet traffic the same. Your email to your sister is routed with the same alacrity as an email between Elon Musk and NASA planning the colonization of Mars. Put another way, the ISP cannot give preference to some data over other data. It is all the same to them.

Ending net neutrality means your ISP can start picking who gets internet fast lanes, who gets slow lanes and perhaps who gets any lanes at all.

Read more HERE


Editor’s Note
Due to the Thanksgiving holiday, JLN Options will not be published tomorrow or Friday. As always, be safe and enjoy the turkey!

Lead Stories

High-Speed Traders In Search of New Markets Jump Into Bitcoin
Annie Massa – Bloomberg
DRW, Susquehanna, Jump, HRT said among firms trading bitcoin; Risks abound in evolving, unregulated cryptocurrency markets
Electronic-trading firms that have already transformed markets from stocks to foreign exchange to futures are diving into bitcoin and other cryptocurrencies.

Saudi Arabia: Turbulence on the Horizon?
Erik Norland – CME Group
There is considerable change underway in Saudi Arabia, from how the country is governed and managed to an even more activist role in the politics of the volatile Middle East. Options markets, however, appear to be almost entirely unconcerned about recent developments in the country, the world’s largest exporter of crude oil and a key U.S. ally in the Middle East. At-the-money implied volatility on West Texas Intermediate (WTI) Crude Oil options has been trading near its lowest point since late 2014 and is well below its long-term average. For example, on November 17, 90-day WTI options closed at 23% implied volatility, well below their 31% average so far this decade (Figure 1). Are markets too complacent in the face of potential political disruption in Saudi Arabia and its neighboring countries

Sterling seismograph eerily calm on EU summit
Saikat Chatterjee – Reuters
For a currency that has seen some of its biggest ever one-day moves on the back of Brexit, there is a peculiar calm in sterling hedging prices surrounding December’s critical European Union summit.

BAML Readies Consolidated Trading Platform
Rob Daly – Markets Media
After years in development, Bank of America Merrill Lynch’s Global Banking & Markets business expects to take its consolidated trading and risk management system, known as Quartz, live on an end-of-day basis in the first quarter of 2018. Its launch will help the investment banking firm start to sunset hundreds of legacy systems, estimated Thomas Montag, COO of Bank of America Merrill Lynch, during a presentation at The Future of Financials conference hosted by the bank.

****SD: They’re not the only ones solving (or trying to solve) a legacy systems problem.

The VIX Is Getting Jumpy
Andrew Hecht – Seeking Alpha
The CBOE volatility index (VIX) is a market vehicle that is a measure of price variance in the S&P 500 equity index. The index attempts to replicate the market’s expectation of 30-day volatility by calculating an average of the implied volatilities of a wide range of call and put options on S&P 500 stocks.

Rand Traders Prepare for Best and Worst as Risks Stack Up
Paul Wallace – Bloomberg
Dollar-rand implied volatility surges to highest in two years; Investors cut bearish bets as Cyril Ramaphosa leads ANC race
The rand’s roller-coaster ride isn’t over yet — but traders appear uncertain about whether it’s heading up or down.

Exchanges and Clearing

LSE lines up interim chief in case of abrupt Xavier Rolet exit; Finance director David Warren ready to step up if exchange head leaves early
Philip Stafford – Financial Times
The London Stock Exchange Group’s board is lining up its finance director as an interim head to prepare for the potential sudden exit of its chief executive Xavier Rolet.

CME turns up the heat on LME with new copper contract
Andy Home – Reuters
CME Group’s new copper premium contract, launched this week, is another sign of increased competition in the world of industrial metals trading.
The London Metal Exchange (LME) may still set the reference prices used by much of the world’s physical trade, but CME has been stepping up its challenge with a number of new contracts over the last couple of years.

JPMorgan might be getting into bitcoin even though Jamie Dimon hates it
Frank Chaparro – Business Insider
JPMorgan is considering whether or not to help clients tap into a potential market for bitcoin futures, according to The Wall Street Journal.

****SD: From Bloomberg – Bitcoin’s Growing on Jamie Dimon

Exchange of the year, Asia: SGX
Singapore Exchange has a reputation for innovation. The integration of financial and commodity derivatives in a single market is rare in Asia-Pacific, if not unique, and the November 2016 acquisition of the Baltic Exchange in London increased its international presence. It has worked hard to develop its multi-asset model, covering equities, commodities, foreign exchange and rates on a single platform. An important element of the expansion of products is a strategy for controlled growth.

Derivatives house of the year, Asia: Citi
Citi’s Asian commodities arm boasts a range of expertise across derivatives – from energy to agricultural and soft commodities, emissions and metals. While the skill sets required to perform well in each of these sectors varies, it is the bank’s ability to warehouse large amounts of risk and trade in and out of it in an orderly fashion that holds the key to its appeal.

Nasdaq ISE Port and Connectivity Pricing – Effective January 2, 2018
Pursuant to SR-ISE-2017-62, the below services were established at $0.00 per port, per month. Effective January 2, 2018, pending filing with the SEC, the following port pricing modifications will apply to Nasdaq ISE.

Regulation & Enforcement

MiFID II – redesigning Europe’s markets
The clock is ticking, the suspense is high: Very soon, the biggest market reform in decades kicks off. The Markets in Financial Instruments Regulation (MiFIR) and Directive II (short: MiFID II) will fundamentally redesign Europe’s derivatives markets.


SEC Hack Likely to Involve Eastern European Criminals
Benjamin Bain and Matt Robinson – Bloomberg
Intruders may have had access to test Edgar filings for months; Theft of corporate data may have led to illegal trades: SEC
The hack of the U.S. Securities and Exchange Commission’s corporate-filing database likely involved Eastern European criminals who may have been perusing market-moving information stored in the regulator’s network for months, according to two people with knowledge of the matter.

The Sorry State of Cybersecurity
Jeffrey Kutler – Institutional Investor
If there is one certainty when it comes to cybersecurity, it’s that things will get worse before they get better. So it is unsettling that September’s data breaches look like a nadir.


Goldman Sachs: Here’s how to make a killing in the market this Black Friday
Joe Ciolli – Business Insider
Goldman Sachs says this holiday quarter is going to account for a bigger percentage of annual sales for retailers than in years past. The firm says options investors aren’t adequately pricing in the potential for single-stock volatility, creating opportunities in the market.

Not All Volatility ETFs Are Suffering Right Now (VMIN)
ETF Daily News
We speak about Long Volatility products today in our ETF/Fund Flows recap and their dips to new all-time lows on yet another rally to new highs in equities and a plunge in relative Volatilities across the board.


“Marketing Financial Services to Women”
Financial Communications Society
FCS Chicago focuses on marketing to women for our final luncheon topic for 2017. Join us for a timely and important conversation.
Our program will open with a keynote presentation of Kantar’s recent research on “Winning over Women in the Financial Services Industry.” Our panel of marketing experts will then tackle the critical subject of what today’s women need from financial services brands. The goal of this event is to drill down into the underserved financial needs of women. Our panelists will discuss what every brand, agency and publisher need to know when targeting the female consumer, saver and investor.

Brexit Countdown: Key Dates on the Way to December’s Deadline
Ian Wishart – Bloomberg
The U.K. and the European Union want negotiations on their post-Brexit relationship to start by the end of the year. For that to happen, the two sides must first overcome a stalemate over the financial settlement and the Irish border. If there’s no breakthrough, the prospect of talks collapsing without a deal rises significantly.


FOMO Fails to Drive European Stocks While Rest of World Parties
Sofia Horta E Costa – Bloomberg
While stock benchmarks around the world are hitting multi-year milestones, one region has resisted contagion.

The Dow Hasn’t Done This in a Decade
Andrea Kramer – Schaeffer’s Investment Research
The Dow Jones Industrial Average (DJIA) and S&P 500 Index (SPX) ended last week in the red, marking their first back-to-back weekly losses since August. What’s more, the indexes haven’t suffered a three-week losing streak since mid-2016 — and it’s not looking like another weekly loss is in the cards, with stocks at record highs. There have been just six calendar years in history where the Dow and S&P avoided three straight down weeks.

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