ITG and Options Technology Group to establish derivatives execution business; Equifax options

Sep 21, 2017

Observations & Insight

A Brief Visual History of Being Short VIX
RCM Alternatives
If you aren’t using Stocktwits to track your favorite stock symbols, you may be doing it wrong. There are spam and oddballs and all the rest you would expect of a social network, but the gif game is usually off the charts. Here are some of our favorites from the world of short VIX traders of $SVXY.

****SD: For another fun picture from social media, check out Nassim Taleb in Bermuda.

Lead Stories

ITG and Options Technology Group to establish derivatives execution business
ITG, a leading independent broker and financial technology provider, today announced that it has signed a definitive agreement with Option Technology Solutions LLC (OpTech) to form Matrix Holding Group, a newly established derivatives execution and technology business.

****SD: Called Matrix, the new endeavor will be led by Tony Saliba.

The Key Question on Equifax Options Trade Is Who Initiated the Order
Gregory Calderone – Bloomberg
Getting to the bottom of an Equifax Inc. options trade that has reportedly piqued the interest of congressional investigators will require a determination that plagues anyone looking for villains in markets.
Namely, who made the trade. Not the person’s name, necessarily, but whether he came to the market as a buyer or a seller. Getting an answer will be key to telling if the transaction is evidence of illicit intent, or just another weirdly timed options trade that doesn’t amount to anything.

****SD: From CNBC – House Finance Committee seeks information on Equifax options activity

The End of an Era?
John D’Antona – MarketsMedia
Has the day of the high-frequency trader and his hyper fast strategies seen its last days?
Is it time to queue up “This is the End” by the 1960s band The Doors? Or is more akin to February 3, 1959, when rock and roll musicians Buddy Holly, Ritchie Valens, and J. P. “The Big Bopper” Richardson were killed in a plane crash near Clear Lake, Iowa, becoming colloquially in then zeitgeist “The Day the Music Died?”

****SD: More like start of a new chapter.

The Pros and Cons of VIX, the Market’s Fear Gauge
David Hait – Barron’s
As the stock market keeps chugging higher, analysts increasingly point to the persistently low reading of Chicago Board Options Exchange Volatility Index, the so-called “fear index” known as the VIX, as an indication of investor complacency.
The VIX, they say, is forecasting relatively low market volatility; in other words, there is little investor fear of wild swings in the stock market.
But is the VIX really telling us something we don’t already know? Fact is, for all the attention the VIX garners, it actually reveals little that is not already reflected in the current and past performance of the Standard & Poor’s 500 index.

****SD: Key takeaway from the findings: “…no more than 1.2% of the VIX’s daily movement indicates changes in market sentiment that are not already reflected in the S&P 500 index.”

Hong Kong Dollar’s Not So Boring Now After Options Top $100 Billion
Hong Kong’s dollar is shedding its image as one of the world’s most boring currencies.
As swings in the pegged exchange rate increase to the highest level in six months, traders are piling into wagers that stand to benefit from further volatility. The notional value of outstanding Hong Kong dollar options has swelled to about $103 billion from $73 billion at the start of the year, and expectations for future price swings in the currency are jumping at the fastest pace worldwide.

Options hurt Bill Ackman’s cause at ADP
Robert Cyran, Reuters via Nasdaq
Options are hurting Bill Ackman’s cause at ADP. The pushy hedge-fund boss owns only about a quarter of his 8.3 percent stake in the $50 billion payroll processor in common stock, with the rest in derivatives. It’s a standard tactic, but Ackman’s plan is also lackluster and investors can pick from plenty of other activist

Wall Street’s ‘fear gauge’ sees muted reaction as Trump announces fresh North Korea sanctions
A measure of fear on Wall Street was hovering around its lowest level in its history, even as President Donald Trump unfurled executive orders to cut off funding to rogue nation North Korea. The CBOE Volatility Index VIX, -2.25% or VIX, was down 1.5% at 9.63 in most recent trade, putting it on track for its 9th lowest level since 1993 when the gauge of volatility and market fear was created, according to FactSet data.

****SD: Bloomberg is confused about reactions to news like this. From Dealbreaker – Mike Bloomberg Is Starting To Wonder If Anyone Is Reading Their Bloomberg Terminal. This general sentiment is reiterated in a story from TheStreet about the Fed’s decision yesterday – Hoping for Volatility That Just Doesn’t Come.

3 Reasons The VIX Is Low And Why It May Stay That Way
Garth Friesen – Forbes
With the S&P 500 hitting new highs, the valuation debate is getting more intense. Some say the market is rich, pointing to lofty levels of cyclically adjusted price-earnings ratios. Others say it is fairly valued, sighting its relative cheapness to the bond market. Few will argue the equity market is complacent.

Exchanges and Clearing

After a Huge Run-Up, Can CBOE Still Deliver?
Steven M. Sears – Barron’s
CBOE Holdings is a reminder that the secret to successful investing is finding out what works, and doing more of that, and stopping what doesn’t work.
The exchange company—which exclusively lists options and futures on the CBOE Volatility Index, or VIX, as well as options on the Standard & Poor’s 500 index—has sharply outperformed the broad market at a time when investors all over the world are obsessed with the stock market’s historically low volatility.

CME Group Named ‘International Exchange Of The Year For Asia’ By Global Investor Group For The Fifth Time In Six Years
CME Group, the world’s leading and most diverse derivatives marketplace, announced the company was named ‘International Exchange of the Year for Asia’ by Global Investor Group at the FOW and Global Investor Asia Capital Markets Awards 2017. The awards ceremony held in Singapore today recognized CME Group’s excellence for the products and services launched for the Asian market and for the significant volume growth it has achieved in the past year.

Eurex won GlobalCapital awards
GlobalCapital awarded Eurex Exchange twice this year. For the third time in a row, Eurex was honoured as “European derivatives exchange of the year”. The award as “Global derivatives exchange of the year” is a first. With no less than two awards our overall offering and product diversity to trade and hedge risks across a broad range traditional and alternative asset classes has been widely recognized.


Goldman Sachs partner warns on Amazon cloud risks
Yolanda Bobeldijk – Financial News
A senior partner at Goldman Sachs has warned of the risks attached to the large number of banks using the same cloud-based technology providers.
A raft of tier-one banks, including Citigroup, JPMorgan and HSBC, rely on Amazon’s cloud storage system, as do the Financial Conduct Authority and the Financial Industry Regulatory Authority. This has sparked concerns that the industry has concentrated too much of its resources in a small number of providers and that a major collapse or hack could wreak havoc.

To Buy or to Build? Debunking the Age-Old Debate with the Simple Truth
Matthew Reid, SimCorp – TABB Forum
In today’s fast paced global market, the case for investment technology solutions that are innovated and sustained by established vendors is becoming ever more compelling. This is particularly the case with front-office technology, including Order Management Systems.

Trading Technologies Extends TT Platform Into Hong Kong
Trading Technologies
Trading Technologies International, Inc. (TT), a global provider of high-performance professional trading software, today announced the availability of execution and client connectivity services through the Hong Kong Exchange and Clearing (HKEX) data center via its TT platform.

****SD: Doubt the following is a coincidence – Trading Technologies Expands Asia/Pacific Sales Management Team

Regulation & Enforcement

SEC suspects hackers used stolen insider info for trading
Mariella Moon – Engadget
US Securities and Exchange Commission chief Jay Clayton has made a couple of security-related revelations in his recently published “Statement on Cybersecurity.” He admitted that an attacker infiltrated the agency’s EDGAR database in 2016 by exploiting a software vulnerability to gain access to non-public info. SEC patched the flaw as soon as it was discovered, but it found out just last month that the attackers may have used the insider information they stole to profit from financial trades.


Yen Bears Awaken as Fed Tips Hawkish While the BOJ Digs in
Netty Idayu Ismail – Bloomberg
Yen bears may finally be sensing a window of opportunity.
Options traders are building up bullish bets on the greenback versus the yen, and both Westpac Banking Corp and National Australia Bank Ltd. see it weakening past 113 in the coming days after the Bank of Japan kept its loose monetary policy on Thursday. While other major central banks start to embrace tightening, the BOJ is holding fast to its position amid below-target inflation.

****SD: Also from Bloomberg – Managers of $3 Trillion Buy Dollar Amid Worst Rout in Decade

Short-term returns And Finding Value In Exotic Assets
Rupert Hargreaves – ValueWalk
This is part six of a new ten-part series from ValueWalk on value investing looking back at some of the lessons learned from our historic ValueWalk interview series with a focus on avoiding short-term returns and focusing on the big picture.

FX Option Market Update: September 21, 2017
Saxo Bank – TradingFloor
Outlook for AUD looks weak with the recent selloff in commodity prices and today’s downgrade
of China, together with a slightly dovish RBA

Trump gives desi firms headache, forces many to cover rupee risks
Economic Times
Several large Indian companies have bought currency derivatives to hedge their risks and mitigate the impact of volatility ahead of the likely unveiling of new tax measures by the US President.


Correlation Analysis of VIX and High Yield and Emerging Market Bonds
Hong Xie – S&P Dow Jones Indices
Can VIX-related products be used as hedging tools for some bond sectors that exhibit certain equity-like features? For high yield and emerging market bonds, credit and liquidity risks are more defining than duration risk. Dor and Guan (2017) demonstrated that equity futures can be used to hedge high yield portfolios. We investigated a correlation analysis of high yield and emerging market bonds to VIX and VIX futures.


The Dow just logged a truly historic streak
Alex Rosenberg – CNBC
On Wednesday, the large-cap index rose 0.19 percent. While such a move might not normally be noteworthy, the mild rise marked the ninth positive session in a row for the Dow.
The recent winning streak, in turn, marks the third time that the Dow has patched together nine positive sessions in 2017.

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