Investors take out record number of options to trade ‘no-deal’ Brexit

Sep 19, 2019

Donna Heidkamp: Futures Market Myths
JohnLothianNews.com

In this video from our MarketsWiki Education World of Opportunity event in Chicago, Donna Heidkamp, the executive director of RJO Futures, says the financial industry gives people the opportunity to be lifelong students, continuing to learn about the economy, politics, culture and many other topics. She also explores some of the myths about the futures markets, including that there is too much leverage in commodities, that you have to take delivery, and that nobody makes money in futures.

Watch the video »

Lead Stories

Investors take out record number of options to trade ‘no-deal’ Brexit; Boom in traders seeking to hedge against or speculate on moves in UK bond market
Philip Stafford – FT
Investors have taken out a record number of options contracts to bet on or hedge against moves in UK interest rates, amid rising concerns that Britain may depart the EU at the end of October without an agreement on its future relationship with the bloc.
/on.ft.com/31zuFZx

Saudi Attack Drives Crude Options to Most Bullish Since 2011
Todd Walt and Eddie van der Walt – Bloomberg
Options traders have become the most bullish on Brent crude in eight years as the aftermath of last weekend’s attack on a Saudi Arabian processing facility stirs up concern about the security of oil supplies.
/bloom.bg/2M3trPD

****JB: See also Reuters’ story, Oil traders reassess interruption of Saudi output

Top Norway Stock Fund Is Cutting Risk in Shift to Defensives
Jonas Cho Walsgard – Bloomberg
The top Norwegian equity fund is shifting into defensive stocks as the market wobbles.
“This year it has moved from a cyclical to a more defensive tilt, but with a reaction in the past months,” Leif Eriksrod, head of equities at Alfred Berg Kapitalforvaltning AS, said in an interview on Friday.
/bloom.bg/2M02Gfb

Bond King Gundlach says this contradiction in stock and bond markets is ‘danger signal’
Mark DeCambre – MarketWatch
Bond-market guru Jeff Gundlach says he’s watching a few areas of the market to gauge whether the current bullish dynamic is starting to unravel in earnest. On Wednesday afternoon, during a CNBC interview, he said that he sees some early cracks that are worth investors’ attention.
Those include readings of consumer sentiment and a disparity between gauges of volatility in the bond and the stock markets.
/on.mktw.net/2M6gGUN

The Fed Cut Rates Today. Repairing Money Markets Comes Next.
Alexandra Scaggs – Barron’s
Short-term interest rates soared early this week, forcing the Federal Reserve to step in twice to keep its policy rate within the target range and raising expectations that the central bank might take major steps to repair the market’s plumbing.
bit.ly/2mr3X5R

Chicago options exchange to move headquarters, open new trading floor; Cboe Global Markets, parent company of the Chicago Board Options Exchange, will move its headquarters to the Old Post Office; the trading floor is moving to the Chicago Board of Trade Building.
David Roeder – Runtimes
The parent company of the former Chicago Board Options Exchange said Tuesday it will move its headquarters into the Old Post Office and will build a new trading floor in the Chicago Board of Trade Building at 141 W. Jackson.
bit.ly/307Zbfv

Bursa Malaysia Extends Agreement to Host its Derivatives Products on CME Globex, and Plans to Acquire the Remaining 25% Equity Interest in Bursa Malaysia Derivatives
Press Release
Bursa Malaysia Berhad today announced that it has extended its agreement with Chicago Mercantile Exchange Inc to host Bursa Malaysia Derivatives Berhad’s (“BMD”) products on CME Globex until September 2025 (with the option of successive renewal terms of 3 years thereafter). Bursa Malaysia will in turn acquire the 25% equity interest in BMD currently held by CME Group Strategic Investments LLC (“CMEGSI”) following the exercise of the Put Option as prescribed under an agreement entered into on 30 November 2009..
bit.ly/31v1t68

EBS Launches Next Generation EBS Direct Platform
CME Group
EBS, a leading provider of electronic trading platforms and technology services in foreign exchange markets, today announced it is launching a next-generation EBS Direct platform with enhanced capacity and speed, which will deliver round trip processing times below 50 microseconds.
The new platform, which is now live in beta-testing with clients, will feature faster market data and will provide greater certainty of execution and improved fill ratios. EBS will transition clients to the new EBS Direct platform in four phases over the next 18 months, adding new functionality and reducing latency at each stage. The rollout is expected to be completed by the first half of 2021, after which time the current EBS Direct architecture will be decommissioned.
bit.ly/31FtisA

CME Group Announces SOFR Futures Trading Volume and Open Interest Records
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced Secured Overnight Financing Rate (SOFR) futures reached a daily volume record of 152,649 contracts traded on Sept. 17, surpassing the previous single-day volume record of 86,459 contracts traded on July 25, 2019. SOFR futures open interest also reached an all-time high of 351,662 contracts on Sept. 17, surpassing the prior record of 311,371 contracts on Sept. 16.
bit.ly/31zvO3r

****JB: While there are no options on these yet, there probably will be soon(ish). From the press release, “CME Group recently announced it will launch options on Three-Month SOFR futures starting on Jan. 6, 2020, pending regulatory review.”

London Stock Exchange chief launches robust defence of Refinitiv deal
Philip Stafford – Financial Times
The chief executive of the London Stock Exchange Group has launched a robust defence of its $27bn acquisition of data and trading group Refinitiv that the Hong Kong Exchanges and Clearing is trying to gatecrash with its bid for the UK bourse.
/on.ft.com/2M33fF2

U.S. derivatives watchdog calls on EU for more trust
Huw Jones – Reuters
The European Union should provide clarity on when it will intervene in a foreign clearing house for derivatives to avoid potentially impeding cross-border co-ordination among supervisors, a senior U.S. regulator said on Thursday.
Dawn Stump, a commissioner at the U.S. Commodity Futures Trading Commission, said the EU should put more trust in the home regulators of foreign clearing houses or central counterparties (CCPs) that serve customers from the bloc.
/reut.rs/32K0xLk

LSE CEO says expects EU to extend ‘equivalence’ for euro clearing beyond March 2020
Huw Jones – Reuters
The European Union is expected to allow EU customers to continue using the London Stock Exchange’s derivatives clearing house beyond next March if there is a ‘no deal’ Brexit, the company’s chief executive David Schwimmer said on Thursday.
/reut.rs/2Mfaudd

EBS Launches Next Generation EBS Direct Platform
CME Group
LONDON and NEW YORK, EBS, a leading provider of electronic trading platforms and technology services in foreign exchange markets, today announced it is launching a next-generation EBS Direct platform with enhanced capacity and speed, which will deliver round trip processing times below 50 microseconds.
bit.ly/31FtisA

Industry veteran Shuster leaves Credit Agricole after 17 years
Julia Barr – FX Week
Dmitri Shuster is set to leave his position as co-head of global markets trading at Credit Agricole in London after almost two years in the role, according to three sources in the market, FX Week has learned.
bit.ly/2mr8ghD

VIIX: Sell The Pop, Capture The Drop
Seeking Alpha
At the time of writing, the VelocityShares VIX Short-Term ETN (VIIX) has risen by about 1% in the wake of the Federal Reserve’s decision to cut rates and about 3% higher on the week. This upside return isn’t that substantial, but it does give us a good opportunity to short into the downtrend of VIIX. Specifically, I believe that in the coming weeks, the long-term trend of VIIX falling will continue and will do so at an accelerating rate.
bit.ly/30wuv3U

Fed Chairman Jerome Powell Masters the Art of Saying Nothing
Greg Ip – WSJ
Asked Wednesday when the Federal Reserve would be done cutting interest rates, Chairman Jerome Powell answered: “When we think we’ve done enough.”
Reminiscent of Supreme Court Justice Potter Stewart’s definition of pornography—”I know it when I see it”—Mr. Powell’s answer was crafted both to convey the imprecision of the task and avoid tying him down with specifics.
/on.wsj.com/30d5wq9

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.”

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CEO, Trading Technologies

Past Newsletters

Investors take out record number of options to trade ‘no-deal’ Brexit

Sep 19, 2019

Observations & Insight

What is going on at LedgerX?
Thom Thompson – JLN
LedgerX may have launched trading on the contract market platform designated by the CFTC in June as reported by the cryptocurrency press on July 31. According to details shared exclusively with CoinDesk, the online news service that broke the story around 9:00 a.m. Chicago time, LedgerX launched deliverable bitcoin futures on Wednesday, making it the first exchange ever to offer deliverable cryptocurrency futures contracts in the United States. CoinTelegraph and Bitcoinist carried similar stories later in the day.
/jlne.ws/2YGhvYI

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“FOMO” as a Motivator
MarketsWiki Education
Whether we like to admit it or not, the fear of missing out, or FOMO, does influence our behavior. FOMO is just as likely to lead to a bad trade as it is to a good career choice (or the other way around). In this video from MarketsWiki Education’s World of Opportunity event in Chicago, RSM Partner Todd Briggs talks about how this fear can both positively and negatively impact our lives.
Watch the video »

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Trump says US will impose 10% tariffs on $300 billion of Chinese goods starting September 1
CNBC
President Donald Trump said Thursday the U.S. is putting an additional 10% tariff on the remaining $300 billion dollars worth of Chinese goods.
/jlne.ws/2YyELYw

****SD: Twitter risk!

Lead Stories

Cboe nears deal to move HQ to Old Main Post Office
Danny Ecker – Crain’s Chicago Business
The parent company of the Chicago Board Options Exchange is closing in on a deal to move its Loop headquarters to the redeveloped Old Main Post Office, adding to a leasing hot streak at the historic structure as it transforms into a modern office building.
Cboe Global Markets is negotiating a deal for about 175,000 square feet in the mammoth building at 433 W. Van Buren St., according to sources familiar with the discussions.
bit.ly/2YxId5u

OCC July Cleared Volume Up 7.9 Percent; Highest Total Volume Ever for July
BusinessWire
OCC, the world’s largest equity derivatives clearing organization, announced today that total cleared contract volume in July reached 403,483,838 contracts, a 7.9 percent increase compared to last July, and the highest total volume for July in OCC’s history. OCC’s year-to-date average daily cleared contract volume is 19,358,621, down 5.8 percent compared to 2018’s record-breaking pace.
/jlne.ws/2YzWjn3

Susquehanna International Group Case Study: Overview and Executive Summary Available for Download
Paul Rowady – Alphacution
The modern capital markets era begins in the mid-1970’s with the emergence and then convergence of three critical factors: derivatives, computers and data feeds. Together, these factors symbolize the birth of the quantitative research revolution and beginnings of trade workflow automation, and therefore, propel the conception of some of the most consequential product developments, trading strategies and trading firms that the financial world has ever known. A subset of the most notable players were the pioneers in the emerging listed option market. In some ways, they were also the pioneers in quantitative research – the “first quant shops” – developing advanced capabilities in the modeling of option pricing frameworks by way of computers and mathematics.
/jlne.ws/2Yygx0l

The Rationale for Ag Options’ Upward Skew
Erik Norland – CME Group
Across most markets, out-of-the-money (OTM) put options tend to be more expensive than OTM call options. This is most obviously true in the equity market, where investors fear downside risks more than upside risks. It’s also true in the crude oil market, where, despite political risks to the upside, downside risk is usually the main concern. Precious metals, fixed income and currency markets are quirkier and, by-and-large, upside and downside risks are more symmetrical or, at least, more time varying. Options on agricultural goods, however, are unique: call options are usually more expensive than puts – between 74% and 99% of the time since early 2017, depending on the product (Figures 1 -3).
/jlne.ws/2YBWNc4

How derivative compression is easing the Libor transition
Thomas Helm – Practice Insight (SUBSCRIPTION)
Market participants have found a new way of managing the colossal amount of administration work associated with the transition from Libor: compressing swaps and options contracts
/jlne.ws/2K8VDRu

Hedge funds grasp opportunities from stocks rally
Laurence Fletcher – Financial Times (SUBSCRIPTION)
After a miserable 2018, hedge funds are starting to enjoy trading equities again.
Last year’s global stock market sell-off pushed equity hedge funds to a 7.1 per cent average loss, according to data group HFR, but this year they are bouncing back with a 9.5 per cent gain in the first six months of this year. Helped by widespread rallies in global stock markets, this marks their best first half of a calendar year in a decade.
/jlne.ws/2MyxrJS

BNP Paribas says Deutsche Bank prime brokerage transition will be finalised by summer 2020
Hayley McDowell – The Trade
BNP Paribas has said the transition of Deutsche Bank’s prime brokerage and electronic equities units will likely be finalised by summer next year, despite Deutsche Bank’s hopes that the deal will be completed by the end of 2019.
/jlne.ws/2K9rDVw

Exchanges and Clearing

LSE Still Needs to Prove Logic of Buying Refinitiv; Buying Refinitiv will increase London Stock Exchange’s earnings per share by more than 30%
Stephen Wilmot – WSJ (SUBSCRIPTION)
Do investors like the London Stock Exchange’s $14.5 billion acquisition of Refinitivóor do they just like leverage? LSE shares jumped another 6% Thursday morning after the company formally announced an all-share deal to buy the financial data provider for $27 billion including debt. They are now up 24% since LSE gave preliminary details over the weekend.
/jlne.ws/2ZomTRh

Cboe Global Markets Announces Election of Fredric Tomczyk to Board of Directors
Cboe
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, today announced its Board of Directors elected Fredric J. Tomczyk, former President and Chief Executive Officer of TD Ameritrade Holding Corporation, to its Board of Directors on July 30, 2019.
/jlne.ws/2Yyd1TH

Cboe Global Markets Declares Increased Third-Quarter 2019 Dividend
Cboe
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, today announced its Board of Directors has declared an increased quarterly cash dividend of $0.36 per share of common stock for the third quarter of 2019, representing a 16 percent increase from the prior quarter’s dividend of $0.31 per share.
/jlne.ws/2Yyd9CF

Q3-Q4 2019 Market and Exchange Driven Changes
Vela
Do you know which exchange-driven changes (EDCs) are coming up over the next few months? And are your systems ready?
https://jlne.ws/2KduEEF

TradeZero America Announces Membership on the NYSE American Options Market
Yahoo Finance (Press Release)
TradeZero America, a Brooklyn, New York-based online broker dealer, announced that the firm is now a member of the New York Stock Exchange American Options market. The NYSE American Options exchange provides traders with deep liquidity across listed options contracts with an integrated technology platform offering access to American and Arca options, combined with the benefit of the open outcry trading floor in New York.
/jlne.ws/2MywC3Y

MIAX Options: Amendment To Exchange Rule 520, Limitations On Orders, To Remove Certain Order Entry Restrictions On Electronic Exchange Members
Mondovisione
MIAX Options has amended Rule 520, Limitations on Orders, to allow Electronic Exchange Members (“EEMs”) to enter buy and sell limit orders in the same options series for the account or accounts of the same beneficial owners, other than for the account or accounts of Priority Customers, and the Exchange will no longer need to designate specific classes for EEMs to engage in this type of activity.
/jlne.ws/2KatlpJ

CME Group Inc. Reports Second-Quarter 2019 Financial Results
PRNewswire
CME Group Inc. (NASDAQ: CME) today reported financial results for the second quarter of 2019. The company reported revenue of $1.3 billion and operating income of $699 million for the second quarter of 2019. Net income was $514 million and diluted earnings per share were $1.43. On an adjusted basis, net income was $632 million and diluted earnings per share were $1.76. Financial results presented on an adjusted basis for the second quarter of 2019 and 2018 exclude certain items, which are detailed in the reconciliation of non-GAAP results.
/jlne.ws/2YFfMTv

CME “not overly concerned” by LSE-Refinitiv talks
Louisa Chender – Global Investor Group (SUBSCRIPTION)
Chicago-based exchange says the deal wouldn’t change the competitive landscape
/jlne.ws/2yt8es9

ICE Reports Second Quarter 2019
ICE
Intercontinental Exchange (NYSE: ICE), a leading operator of global exchanges and clearing houses and provider of data and listing services, today reported financial results for the second quarter of 2019. For the quarter ended June 30, 2019, consolidated net income attributable to ICE was $472 million on $1.3 billion of consolidated revenues, less transaction-based expenses. Second quarter GAAP diluted earnings per share (EPS) were $0.84. Adjusted net income attributable to ICE was $534 million in the second quarter and adjusted diluted EPS were $0.94. Please refer to the reconciliation of non-GAAP financial measures included in this press release for more information on our adjusted operating expenses, adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted EPS and free cash flow.
/jlne.ws/2ZlQbQA

SGX reports FY2019 net profit of S$391 million
SGX
Singapore Exchange (SGX) today reported FY2019 net profit of S$391.1 million (S$363.2 million), its highest net profit in 11 years. Revenues were also the highest since listing at S$909.8 million (S$844.7 million).
/jlne.ws/2YDnzRF

SGX seeks “bolt-on” acquisitions
James Thursfield – Global Investor Group (SUBSCRIPTION)
SGX CEO says the exchange is looking for “bolt-on” acquisitions for its newly formed business units
/jlne.ws/2Kb8oez

Euronext publishes Q2 results
Euronext
Euronext, the leading pan-European exchange in the Eurozone with 1,500 listed issuers, today announces its results for the second quarter of 2019.
/jlne.ws/2GGmjqR

Euronext eyes acquisitions in market data or post-trade services
Inti Landauro – Reuters
Euronext (ENX.PA) is looking for opportunities to buy market data or post-trade services providers, CEO Stephane Boujnah said on Wednesday, after larger rival London Stock Exchange (LSE.L) said it was in talks to buy Refinitiv in a $27 billion (GBP22.1 billion) deal.
/jlne.ws/2K8H3to

Strategy

Profiting From the Fear Premium in Tech Stock Options
Steven M. Sears – Barron’s
Institutional investors pretty much own all of the same stocks, yet another bank recently noted. A realist might conclude that such investors operate expensive index funds that all buy the same things and charge high management fees for doing so.
If you want to give your money to these guys, go ahead. But something tells me that is about as appealing to you as buying stocks that are dancing around highs.
/jlne.ws/2MtQ4yJ

History Points To Rocky Markets Ahead
DataTrek Research Blog
Our historical playbook analysis of what happens after the S&P 500 has outsized gains in January has worked every month this year except May when trade concerns spooked markets. Overall, abnormally strong January returns have been a historically clear signal about market direction in the following months and July 2019 further affirmed that trend.
/jlne.ws/2YDouS7

Miscellaneous

The best and worst performing hedge funds so far this year
Bradley Saacks – Business Insider (SUBSCRIPTION)
The market-beating human stock-picker is far from dead.
Quant funds now dominate hedge fund flows and assets, but the biggest winners midway through 2019 are funds run by old-school investors who take large, concentrated bets.
/jlne.ws/2MBzmO5

Fintech firm Revolut launches a Robinhood-style stock trading service
Ryan Browne – CNBC
Revolut British fintech firm Revolut is jumping into the online brokerage space with its own commission-free stock trading platform. The company launched the service ó which lets users buy or sell popular U.S. stocks from Apple to Beyond Meat at the tap of a button ó on Thursday, looking to lure in millennials who normally shy away from investing.
/jlne.ws/2MAqo3p

PanXchange Launches Industry’s First Institutional Grade Industrial Hemp Exchange
John D’Antona Jr. – Traders Magazine
PanXchange, a physical commodities OTC market structure solutions provider, today announced the launch of the industry’s first institutional-grade industrial hemp exchange. The marketplace will allow producers, processors, trade houses and end-users to participate in a transparent and efficient cash market for industrial hemp products and will ultimately pave the way for the creation of hemp derivatives contracts.
/jlne.ws/2KcFtqt

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

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