IMF warns volatility products loom as next big market shock; Sports Gambling Is Quant Trading Firm’s Way to Beat Market Odds

Oct 30, 2017

Lead Stories

IMF warns volatility products loom as next big market shock
Miles Johnson – Financial Times
The International Monetary Fund has warned that the increasing use of exotic financial products tied to equity volatility by investors such as pension funds is creating unknown risks that could result in a severe shock to financial markets.

Sports Gambling Is Quant Trading Firm’s Way to Beat Market Odds
Kit Chellel and Annie Massa – Bloomberg
Susquehanna will wager on football, basketball from Dublin; Firm’s founder Yass is a poker whizz who deploys statistics
Susquehanna International Group has always embraced game theory, taking employees to baseball games and using poker as a tool for teaching its traders. Now the U.S. firm is betting that gambling on sports could be its next winning investment strategy.

****SD: A huge market maker in options has to be good at big data analytics – why not put that expertise to work in other areas? I did find it interesting that they’ll also be betting on tennis.

TransRisk, DAT, and Nodal Exchange announce trucking freight futures contracts
Founded with the purpose of addressing volatility for brokers, carriers and shippers in major shipping lanes through risk-management solutions, TransRisk is one step closer to doing just that. The company, along with DAT Solutions and Nodal Exchange jointly announced an agreement to develop, market and list the first and only trucking freight futures and options on futures contracts.

****SD: Also from FreightWaves – A long overdue futures market could decrease rate volatility in trucking. Did you know the trucking industry’s market size is $726 billion? That means it is “70% larger than the agriculture, forestry, and fisheries markets, and it is larger than the iron and steel; basic metals; and basic chemicals and fertilizers as a group.”

Wall Street Resigned to a CAT Delay
Rob Daly – MarketsMedia
Whether the US Securities and Exchange Commission delays the implementation of the Consolidated Audit Trail (CAT), a portion of the industry have already resigned themselves to an expected delay.
When regulator held meetings with self-regulatory organizations, broker-dealers, and other stakeholders to discuss the project’s status “around 30 of the participants hoped that there would be a delay,” said someone familiar with the discussion.”But that was not the majority.”
However, many frustrated market participants see the cyber-security concerns over the CAT as a mere stalking horse.

Trump likely to pick Jerome Powell as next Fed chair: source
U.S. President Donald Trump is likely to pick Federal Reserve Governor Jerome Powell as the next chair of the U.S. central bank, a source familiar with the matter said on Monday.

Trying to make sense of life after Libor
Harry Wilson – The Times
How do you give much of the world an overnight increase in interest rates? Too difficult? Well, how do you tell many of the world’s lenders that they will have to accept a cut in the value of their loan books? And what about all the trillions of dollars of financial products that derive their value from those debts? This, in short, is the scale of the task facing those having to abandon Libor.
The London interbank offered rate will cease to be in 2021. To replace it, the Bank of England, right, is offering Sonia, or the sterling overnight index average. In the United States, authorities have devised the broad Treasuries repo financing rate, or BTR.

Exchanges and Clearing

Deutsche Boerse aims to find CEO “ideally before year end”-CFO
The search is already on for a new chief of Deutsche Boerse with the aim of finding a candidate by the end of the year, the company’s finance chief told analysts on Friday.

LME announces strategic pathway delivery programme
Valentina Kirilova – LeapRate
The LME will look to launch a larger number of contracts in the second half of 2018 than ever before, with four product groups to be expanded. Following demand from market participants, the LMEprecious suite will grow to include gold and silver options, with platinum and palladium futures to follow. Working closely with the battery metals industry, the LME will look to build out its suite of contracts with the addition of a chemical cobalt contract, lithium, and potentially a chemical nickel contract.

NZX To Launch Global Skim Milk Powder (SMP) Option Contract
NZX advises it will launch a Global Skim Milk Powder (SMP) Option contract on Monday 4 December 2017. This follows all regulatory requirements being met, including approval of the contract specification from the Financial Markets Authority.

****SD: Did you catch this story – Why Cheese Options and Butter Futures Are More Popular Than Ever – from the end of last week? Apparently there’s more cheddar to be made with cheese ingredients now. More related news from Fortune – ‘Appalling.’ France Is in the Throes of a Butter Shortage

Cboe Global Markets Declares Fourth-Quarter 2017 Dividend
Cboe Global Markets, Inc. (Cboe: CBOE | NASDAQ: CBOE) today announced its Board of Directors has declared a quarterly cash dividend of $0.27 per share of common stock for the fourth quarter of 2017.

MIAX Options And MIAX PEARL – Daylight Saving Time

Golden Future of options
The gold options make debut on MCX , launched by Honorable Finance Minister Arun Jaitley on the auspicious gold buying festival of Dhanteras, where he mentioned that gold options is a step towards formalizing trade in the yellow metal and that it marks a very important evolution in trading of the yellow metal itself.


AI and Deep Learning Drive Technology and Business Strategy Innovation in Finance
Mike O’Hara and Joel Clark, The Realization Group – TABB Forum
Deep learning, or the ability of machines to learn tasks using artificial neural networks, has been around since the mid-1960s. In recent years, however, with advances in computation and storage technologies enabling the large quantities of data required for effective neural networks to be rapidly processed, the use of deep learning is increasingly being explored across multiple industries and geographies. What are the possible use cases of deep learning within financials services, and what are the challenges from an infrastructure and data storage perspective.


This $13bn hedge fund has been hiring a lot of quants
Paul Clarke – efinancialcareers
Call it a sign of the times, but even as Capula Investment Management has been losing senior investment staff in more traditional strategies, it’s been building its quant desk.
Since hiring David Buttle, a former portfolio manager within Citadel’s global quantitative strategies (GQS) unit in April, Capula has gradually been adding quants in London.


New strategies appeasing jittery investors
Douglas Appell – Pensions and Investments
Thomas Lee believes the defensive strategies will calm nervous investors.
Money managers are fielding an array of new strategies targeted at asset owners who feel they can’t pull back from global equity markets now despite growing fears of a correction — or worse.
Many of those strategies rely on put and call options to limit the bite a market sell-off would take from portfolios that are becoming more equity-heavy now — despite record highs for U.S. stocks and hefty valuations elsewhere — as rock-bottom yields rob the time-honored alternative, sovereign bonds, of their defensive charms.

What could cause market volatility in the US?
Grant Bowers – Investment Week
While US stocks reached record levels over the summer months, political turbulence in the US, heightened geopolitical activity – as a result of increasing tensions with North Korea – and investor concerns about the costly impacts of Hurricane Harvey weighed down on markets.

Minsky Cycle 2017: Here’s What Breaks The Spell
Seeking Alpha
I’ve talked a lot here and especially over at Heisenberg Report about what could break the “virtuous” communication loop between central banks and markets.
You are part of that loop – even if you don’t realize it. Even if you are not yourself a trader or not yourself in charge of making decisions about how to allocate large sums of money, the value of the financial assets you do hold is in the thrall of the ongoing two-way information exchange between policymakers and markets.


Weekend Review of Volatility Indexes and ETPs – 10/23/2017
Russell Rhoads – Cboe
Of the four volatility indexes based on SPX option pricing, only VIX was lower last week. This is the second week where the longer dated indexes (VIX3M and VXMT) rose while VIX was lower.

Weekend Review of VIX Futures and Options – 10/23/2017
Russell Rhoads – Cboe
VIX finished the week lower, but notice the change for the standard first, second, and third month futures which was green for the week. VIX may have dropped at the end of the week, but the VIX futures are acting like the volatility players are not expecting the move lower to hold.

Weekend Review of Russell 2000 Options and Volatility – 10/23/2017
Russell Rhoads – Cboe
Large cap stocks continue to dominate small caps this past week as the Russell 1000 gained 0.20% while the Russell 2000 was down 0.06%. I guess dominate is a pretty strong word when referring to last week, but for the year RUI is up 15.20% while RUT is up 11.14%, the term works better when comparing 2017 year to date performance.

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