Observations & Insight
FIA Law & Compliance Conference Kicks Off
Thom Thompson – John Lothian News
The 41st annual derivatives industry regulatory confabulation was called to order on Wednesday afternoon in Washington, DC, by Law & Compliance Division President Tammy Botsford.
Botsford’s daytime job is executive director and assistant general counsel at J.P. Morgan. Botsford called on attendees to make new working connections at this year’s conference so that, in a Ghostbusters meme, they have an answer to “Who you gonna call?” (Somebody you got to know at L&C.) Botsford said that this year’s panels are challenged to address the practicalities of responding to issues. “What you gonna do?” (Something you learned about at Law & Compliance.)
***SD: If you’re in D.C. for the conference, drop Thom a line at firstname.lastname@example.org
Bridging the Gap Between OTC and Exchange-Traded – Brad Levy, IHS Markit
There still exists some polarization between listed derivatives markets and OTC markets. In this video, Global Head of Loans at IHS Markit and CEO of MarkitSERV Brad Levy talks about why the gap between the two is slowly closing and the generational shift it is going to take to fully transition financial markets to a digitally-enabled world.
Watch the video »
****SD: Brad and I had a chance to talk about quite a bit of neat stuff regarding how technology disrupts our everyday lives. Having spent ~25 years in this industry and also having teenage kids gives him a great perspective into how this next wave of market professionals is going to really change things up. Just one tidbit: did you know that studies have shown that while the average human has way more connections/acquaintances now than ever before, people consider themselves to have fewer close personal relationships over a lifetime than decades prior? Makes sense, unfortunately.
Bcause in Talks With Bitmain, Others To Climb Out of Debt
Matt Raebel – John Lothian News
Bcause, the cryptocurrency mining company whose name is most likely to be autocorrected by one’s phone, is attempting to fight its way out of bankruptcy. Its battle plan? Raise some capital and start new businesses. The company’s bankruptcy was filed last month, less than two weeks after it lost a lawsuit to Wesco Distribution, which allowed Wesco to garnish the Chicago bank account of Bcause LLC and Bcause Mining LLC. On May 8th, 2019, Bcause’s bankruptcy hearing took place in downtown Chicago. Thomas Flake, the founder of Bcause, was in attendance, along with his legal representatives, Scott R. Clar and Jeffrey C. Dan of Crane, Simon, Clar & Dan; so were almost a dozen lawyers representing Bcause’s creditors.
****SD: Given that there is supposed to be (eventually…) a derivatives angle with this exchange, and that it is such an oddball case, I think it’s worth our options audience taking a look. (Also, CEO Fred Grede is a longtime futures exec with the CBOT who also had a stint at HKEX.)
Investors Are More Optimistic on Trade Deal Than It Might Seem
Randall Jensen and Luke Kawa – Bloomberg (SUBSCRIPTION)
Volatility hasn’t spiked to levels seen during big risk events; Stocks, bonds and currencies mostly see accord getting done
For all the carnage in U.S. stocks over the past few days, a look at the options markets show investors are still wagering that a trade deal will eventually get done.
****SD: Betting on bluster.
Eerie Calm in FX Leaves Market Vulnerable in More Volatile World
Liz McCormick – Bloomberg (SUBSCRIPTION)
Foreign-exchange options traders may seem out of step, given that the outlook for currency swings has barely moved despite fears of a breakdown in U.S.-China trade talks sending global shares spiraling and volatility in other assets surging.
****SD: More context from Reuters – FX trading volumes slide in April as calmer markets deter investors.
Virtu Financial: When Life Imitates Art
Paul Rowady – Alphacution Blog
…Though it’s disclosures about key attributes of their business are quite good relative to others, Virtu – like any other public company – is under no obligation to provide a view on matters that is beyond what the disclosure rules require, which is often a 2-3 year window of financials (and sometimes 5 years). All public companies are given a chance to put a favorable spin on the numbers, in part, by limiting the perspective to a reasonably short window of time – which means, in the case of companies that have been highly acquisitive, no one is going to go back and piece together the history of the various companies before they were acquired and then back through to the present beyond a minimally-required point.
****SD: More good stuff from Paul.
Why Markets Aren’t Sweating the U.S.-China Trade War Much: The ‘Trump Put’
Neil Irwin – NY Times
The real question is not why the stock market is down this week. It is why it is down so little.
After all, the world’s two largest economies have seemed to be hurtling toward a major escalation of their trade war. American officials have complained that Chinese negotiators have been playing a bait-and-switch, backing away from concessions they had agreed to.
****SD: Explanation of a put coming in 3, 2, 1… (It actually takes 8 grafs to get to the explanation.)
Volatility Views 351: Live From OIC 2019 (AUDIO)
Host: Mark Longo, The Options Insider Media Group
Co-Host: John Smollen, EVP, Head of Exchange Traded Products and Strategic Relations, MIAX
Co-Host: Simon Ho, CEO, T3 Index
****SD: Had a chance to talk more with Simon and his business partner John Zhu at OIC – good guys. They’re accessible, so if you have questions about their volatility product, SPIKES, definitely hit them up.
Stock-market volatility? Gyrations in 2019 pale compared with past years
Mark DeCambre – MarketWatch
Powerful tariff-induced price swings in global stock markets have made an unwelcome return for bullish investors, lately.
On Tuesday, the Dow Jones Industrial Average tumbled 473.39 points, or 1.8%, to 25,965.09, suffering its largest percentage decline since Jan 3. Meanwhile, the S&P 500 index dropped 48.42 points, or 1.7%, to 2,884.05, and the Nasdaq Composite Index fell 159.53 points, or 2%, to 7,963.76, marking the worst daily declines for those benchmarks since March 22.
****SD: Also from DeCambre – ‘Policy decisions’ are ‘creating havoc’ in global stock markets, says Goldman luminary
Testimony of Chairman J. Christopher Giancarlo Before the Senate Committee on Appropriations Subcommittee on Financial Services and General Government, Washington, DC May 8, 2019
Thank you, Chairman Kennedy, Ranking Member Coons, and Members of the subcommittee. I appreciate the opportunity to appear before you today, along with my fellow colleague from the Securities Exchange Commission (SEC), Chairman Jay Clayton.
****SD: TL;DR – Giancarlo asked for a $315 million for 2020, a 12% increase from fiscal 2019.
Mystery trader makes nearly $2 million bet against financials
Tyler Bailey – CNBC
The wave of volatility that washed over the markets this week sent the financials falling. The XLF, the ETF that tracks the sector, is down 2% as worries about global growth and the U.S.-China trade war remain center stage. Despite the losses, the XLF is still up more than 15% this year and outpacing the S&P 500, but that isn’t stopping one options trader from making a big-time bet against the group.
When you have options, volatility is your friend; The jumpier prices are, the more valuable is a right to buy or sell
Imagine that, by some twist of fate, you become the ruler of an oil-rich state. A crash in the oil price has left a hole in its budget. You are forced to consider selling the kingdom’s assets. Among them is a mothballed oilfield in a remote part of the country—so remote that it costs $90 to retrieve each barrel of oil. That is above the prevailing price of $70 a barrel. Even so, you are advised to try to sell a licence to operate the field.
Exchanges and Clearing
Traiana provides connectivity to Eurex central clearing
Hayley McDowell – The Trade
CME Group’s risk management services provider Traiana is to provide direct central clearing connectivity to Eurex in a bid to streamline clearing processes for clients.
****SD: The obvious part of CME buying NEX is having spot in the same silo as futures on the Treasurys side of things. But an angle that hasn’t gotten as much attention is all “the Ts” (as I call them) that came with NEX – Triana and TriOptima. TriOptima has a ton of potential on the derivatives compression side of things.
CME Group Inc. Announces Preliminary Results from its 2019 Annual Meeting of Shareholders
CME Group Inc. today announced the preliminary shareholder voting results from its 2019 annual meeting. At the meeting, shareholders elected Terrence A. Duffy, Timothy S. Bitsberger, Charles P. Carey, Dennis H. Chookaszian, Ana Dutra, Martin J. Gepsman, Larry G. Gerdes, Daniel R. Glickman, Daniel G. Kaye, Phyllis M. Lockett, Deborah J. Lucas, Alex J. Pollock, Terry L. Savage, William R. Shepard, Howard J. Siegel, Michael A. Spencer and Dennis A. Suskind, each for a one-year term expiring in 2020; ratified the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for 2019; and approved, on an advisory basis, the compensation of named executive officers. In addition, the company’s Class B-1 shareholders elected Gedon Hertshten, William W. Hobert and Robert J. Tierney Jr. and the Class B-2 shareholders elected Ronald A. Pankau and David J. Wescott, each for a one-year term expiring in 2020.
Micro E-mini Futures Surpass 1 Million Contracts Traded
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that Micro E-mini equity index futures volume has surpassed 1 million contracts in less than three full days of trading. This total cumulative volume represents trading across all four indexes – S&P 500, Nasdaq-100, Russell 2000 and Dow Jones Industrial Average – making Micro E-mini futures the most successful product launch ever at CME Group.
****SD: Not options, obviously, but focus on that last line – “the most successful product launch ever at CME Group.” Crazy.
SGX reports market statistics for April 2019
Singapore Exchange (SGX) today released its market statistics for April 2019. Total derivatives traded volume rose 37% year-on-year (y-o-y) to 20.8 million contracts, as global demand for risk management across asset classes continued. Total securities market turnover by volume was up 7% month-on-month (m-o-m) to 22.9 billion shares, driven largely by real estate and consumer sectors.
Quants, Algos, and AI
A recent graphic by Tractica shows that over $7.5 Billion dollars is forecasted to be spent on Algorithmic trading strategy improvement via AI in the next 10 years. Wow! That’s a lot of quants in the world’s payroll. What exactly is a quant? How do algorithms (algos) fit in? And what does Artificial Intelligence have to do with all of it?
Stock Option Plays for the Latest Trade Turmoil
Steven M. Sears – Barron’s
With two tweets, and some tongue wagging from his staff, President Donald Trump threw a hatchet in the stock rally this week, triggering fears that the trade war with China may not be resolved as expected. Complicating matters are Iranian threats to alter a nuclear treaty that limited its weapon-grade uranium enrichment production unless some trade restrictions are eased. The Dow Jones Industrial Average is off 2% and counting this week.
Captains of Iron Ore
Michael Syn – The Business Times
It was supposed to be fair winds and following seas. For much of 2018, the good ship “Iron Ore” drifted along with breezy supply and a steady tug of demand through a narrow channel of US$64-US$74 a metric tonne. Market lookouts in the crow’s nest declared not a cloud of price shock on the macro horizon: an economic slowdown was depressing downstream demand in China, where most of the world’s iron ore goes into steelmaking for infrastructure, cars and machinery. Interminable US tariff talks splashed cold water over animal spirits, leaving Chinese consumer and business confidence at 30-year lows.
****SD: Michael Syn, SGX’s head of derivatives, is as well-written as he is well-spoken. If you didn’t see JLN’s recent video with him, check it out: FX Futures, Japanese Equity Repo and Marine Fuel.
Beyond Meat’s Valuation Is ‘Absurd,’ Says Stock’s First Short
Tatiana Darie – Bloomberg (SUBSCRIPTION)
Now that Beyond Meat Inc. has soared about 225 percent since going public last week — and saw the strongest first day of trading for an IPO since the 2008 financial crisis — the first skeptics on Wall Street are coming out with guns blazing.
****SD: Absurd or not, at least 2019 has a nice pipeline of IPOs.
Quant Safety Trade Under Fire Just as Stock Volatility Hits
Ksenia Galouchko – Bloomberg (SUBSCRIPTION)
As the cross-asset calm snaps, one breed of investor is paying through the nose for stocks that hedge doomsday.
Dubbed low-volatility investing, the style beloved by quants has ridden a wave of inflows for 10 straight months as demand for safety booms. That has sent premiums for U.S. companies soaring, just as fears grow that the cohort suffers from overexposure to sector bets like bond proxies.