Lead Stories

Investors seek more protection against risk of a Wall St plunge; A gauge that tracks hedging against a fall in US stocks is near a record level
Joe Rennison and Nicole Bullock – Financial Times
Investors are stepping up efforts to insure their portfolios against a sharp drop in US stocks, as fears intensify that Donald Trump will struggle to deliver an economic stimulus package that has helped propel the market to record levels this year.

****SD: A CBOE SKEW index story. For more, check out Matt Moran’s blog from last Friday – Demand for Disaster Protection Increases as CBOE SKEW Index Tops 142 Each Day This Week. Key takeaway – daily average for SKEW since 1990 is 118.8; this year through August 17 its daily average is 134.5.

Asia’s Top Stock Market Is Suddenly Drawing a Crowd of Skeptics
Livia Yap – Bloomberg
Volume of bearish options on Hong Kong’s benchmark gauge jumps; The cost of hedging the index is above its annual average
Even as Hong Kong shares are holding on to their eighth straight monthly gain, recent derivatives activity shows investors are getting jittery about Asia’s best-performing market this year.

****SD: Bearish options activity highest since August 2011.

The Volatility Of Cryptocurrencies
BitMEX – Investing.com
CNBC anchors are now shilling s***coins they just heard about last week only because of their violent price rises. The S&P 500 has performed tremendously since 2009, however, volatility, trading volumes, and general investor interest has collapsed alongside a secular bull market. For those who make their money in financial media and advice, volatility is needed.

****SD: Related story follows. Whoever “coin”ed (hehe) that vulgar phrase I censored is a genius. I’ve added it to the repertoire. Also, the Bank of England’s Bank Underground blog has Bitesize: The very volatile value of cryptocurrencies. One more coin story – SEC halts trading in First Bitcoin Capital, after it gained more than 6,000% in 2017

ETF Firm REX Seeks SEC Approval for Bitcoin Derivatives Fund
Stan Higgins – CoinDesk
An ETF firm based in Connecticut is launching a new fund that will invest in bitcoin-based derivatives and other exchange products, public records reveal.
REX ETFs, founded in 2014, filed to create the “REX Bitcoin Strategy Fund” yesterday, according to a new filing with the US Securities and Exchange Commission (SEC). Instead of investing directly in the cryptocurrency itself, the fund intends to buy bitcoin tied futures contracts and exchange-traded notes, among other areas, in a bid to create exposure to market.

****SD: Keep in mind REX has the VolMAXX suite of ETFs that offer VIX futures exposure.

SPDR ETFs: Will debt ceiling debate end low volatility?
Michael Arone, State Street – ETF Strategy
This summer, investors have been saying “hakuna matata” to the turmoil emanating from Washington and using a problem-free philosophy to send stocks to fresh highs and market volatility to multi-year lows. But investors should be prepared: September may bring a sudden dose of volatility to mellow markets.

****SD: Another take from fxstreet – Here’s What To Expect For Stocks If There’s A Government Shutdown…. The options industry would inevitably face increased volatility but from a market structure perspective would be fine with one potential exception — firms with U.S. debt posted as collateral would have to scramble for an alternative or switch to a longer term maturity (all present issues).

Currency Rallies Test Central Bankers’ Powers to Sway Markets
Lananh Nguyen – Bloomberg
Prospect of tighter policy offers support, negating jawboning; Euro, antipodean, Scandinavian currencies highlighted
This week’s gathering of central bankers in Jackson Hole presents policy makers a chance to talk down their currencies after months of gains versus the dollar. They can’t all win.

****SD: A larger picture look at electronic FX trading – Electronic FX Trading Hits Plateau, Future Growth Uncertain

Regulation & Enforcement

How Fair Is Stock Trading? The SEC May Soon Decide
Annie Massa – Bloomberg
When it comes to fairness on U.S. stock exchanges, nobody really knows the truth.
There’s never been a comprehensive study on the desirability of the system in place at the three biggest U.S. stock exchanges, which pay some traders to use their platforms and charge others. That hasn’t stopped advocates on both sides of the issue from making arguments in favor or against the practice with similar near-religious zeal.

Three challenges facing investors ahead of Mifid II; Looming regulation aims to inject greater transparency into all markets
Philip Stafford – Financial Times
Europe’s big bang of market reforms, known as Mifid II, is approaching faster than the financial services industry would like.

Amsterdam’s Secret Brexit Sauce Is a Friendly Regulator
Will Hadfield and Ellen Proper
Dutch financial center becomes a magnet for traders and venues; While speed traders flourish, the bonus cap is deterring banks
Frankfurt has the banks, and Paris has the culture, but for trading firms looking for a post-Brexit European home, Amsterdam may have the best attraction of all: a friendly regulator.

****SD: If someone in Amsterdam offers you secret sauce and you for some reason take it, clear your near-term schedule. You will not be functional.

Exchanges and Clearing

Chinese-Backed Singapore Bourse Gets Regulator’s Nod
Bloomberg News
Venue would be third derivatives exchange in city state; Firm appoints KKR senior adviser, ex-CME executive to board
Asia Pacific Exchange Pte, has received in-principle approval from the Monetary Authority of Singapore to start a third derivatives exchange in the city, according to people with knowledge of the matter.

EEX New Participant: ADM Investor Services International Ltd.

****SD: ADM trading all sorts of power futures and options.

STT: Now, ‘Do Not Exercise’ to escape STT blow on in-the-money option
Rahul Oberoi – Economic Times
The National Stock Exchange will introduce a facility in equity options contracts that would allow trading members to opt for a ‘Do Not Exercise’ instruction on certain in-the-money contracts on the expiry day.

****SD: In case you missed the news yesterday.


The Big Bullish Options Bet on Global Stocks
Karee Venema – Schaeffer’s Investment Research
Options traders blasted the iShares MSCI EAFE ETF (EFA) on Wednesday, with 178,341 contracts on the tape — two times what’s typically seen, and volume settling in the 93rd annual percentile. Most of the action occurred on the call side, with 98,840 contracts traded versus 79,501 puts. By the looks of it, one option trader in particular made a big bet on more upside for global stocks through year’s end.

Crude: Storm surge
Phil Flynn – Futures Magazine
Tropical Storm Harvey has the potential to be the first Hurricane to hit the Texas coast since 2008 and could be on a path to hit directly into the heart of the U.S. “Refinery Row” which equates to about one-third of capacity and running about 7 million barrels a day. One track of the storm has it hitting a cluster of about five refineries.

Unlike Total Eclipses, Volatility Doesn’t Operate on a Schedule
Fisher Investments – thestreet.com
A major feature of financial markets thus far in 2017 has been stocks’ uncharacteristic calm — popular measures of volatility like the VIX have remained low, most-days-without-a-big-drop records have been tested, and the media has waxed fearful about the dangers of complacency.

****SD: But, much like eclipses, when it comes on the scene, people flock to the action.


FCM Rankings & Concentration: Q2 2017
Tod Skarecky – Clarus Financial Technology
We have Q2 data for Clearing Brokers, showing any changes in the US clearing landscape.

Stock Split Is All But Dead and a New Study Says Save Your Tears
Lu Wang – Bloomberg
One minor mystery of the bull market has been the almost complete disappearance of stock splits. New research suggests there’s more to it than just passive investors who don’t care what a share costs.

****SD: In case you missed this story yesterday. This story applies to companies, but reminded me of yesterday’s VXX action — fifth reverse split went into effect. Plenty of prop firms going to the models and tweaking them as a result.

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