Kessler Topaz wants to oust ex-partner from leadership of index-rigging MDL
When a lawyer wins appointment to lead a big, complex multidistrict litigation that will require thousands of hours of work from other lawyers at her firm, who owns that plum job: the lawyer or her firm?
That’s the big question right now for U.S. District Judge Manish Shah of Chicago in an MDL alleging that the Chicago Board Options Exchange, now known as Cboe Exchange, Inc, rigged the volatility index, or VIX, to favor certain options traders.
****SD: Some serious drama on the plaintiff side of the courtroom.
Remembering the range-accrual bloodbath
Kris Devasabai – Risk.net
Flatter US yield curve spurs demand for a product with a painful history
For interest rate volatility traders of a certain vintage, the flattening of the lower reaches of the US yield curve has dredged up some unpleasant memories.
****SD: The key as described in the story: “dealers are long gamma when the forward curve is positive and short gamma when it inverts. Put crudely, this forces them to unwind the steepeners they use to hedge and replace them with flatteners. The result can be a feedback loop, known as a ‘gamma trap’, in which hedging pushes the market against the dealer, forcing them to re-hedge again and again, at significant cost.”
With Bank Earnings on Deck, Financial Hedges Center on ETFs
Gregory Calderone – Bloomberg (SUBSCRIPTION)
With big banks poised to kick off the first-quarter earnings season in earnest, investors appear to be favoring options in exchange-traded funds over single stocks to hedge their financial-sector positions.
****SD: JPM reported record revenue and profit. Analysts estimated earnings per share of $2.35 – $2.65 was the final tally.
China’s P2P Crackdown Pushes Millennials Into Speculative Trading
Shuli Ren – Bloomberg (SUBSCRIPTION)
A millennial problem is arriving in China. The nation’s 350 million young people are morphing into day traders.
In recent years, China’s millennials have resorted to innovative financial products to accumulate wealth. Jack Ma’s Ant Financial Services Group, for instance, offers Yu’e Bao, a money-market fund, to anyone with a dollar to save. And those with a bigger appetite for risk can lend on peer-to-peer platforms. Everyone knows that depositing money into traditional savings accounts is a losing game – the paltry 1.5 percent isn’t even enough to cover inflation. And while banks’ wealth management products offer better yield, you need to be a VIP client to invest. But for young, middle-class savers, the path to riches has been narrowing.
Podcast: Ronn on using a financial-economics approach to forecast crude oil spot prices
Ehud Ronn is professor of finance at the University of Texas at Austin. In this podcast he talks about his latest research into forecasting oil prices by using equity, commodity and market options to infer idiosyncratic variances for individual oil stocks and forward-looking betas for oil futures contracts.
Sterling struggles for direction as volatility falls further
Tommy Wilkes – Reuters
The British pound struggled to find direction on Friday as the immediate risks around Brexit were pushed back by this week’s delay to the exit date and traders searched for reasons to bet on the currency one way or the other.
****SD: In other currency news, yuan implied volatility is at a 20 month low.
Exchanges and Clearing
Nasdaq increases stake in Norway’s Oslo Bors
U.S. stock market operator Nasdaq Inc said on Thursday it has increased its stake in Norway’s Oslo Bors VPS with a purchase of 844,071 shares in the Norwegian bourse.
ForexClear To Expand in FX Options
LCH, the London Stock Exchange Group’s clearinghouse, will introduce more currencies for foreign exchange options clearing next year and said up to 50% of the market could eventually be cleared.
Regulation & Enforcement
Opening Statement Of CFTC Chairman J. Christopher Giancarlo Before The Agriculture Advisory Committee Meeting, Overland Park, Kansas
… Chairman Hineman was not only a proponent of marketplace engagement, he was a champion of market innovation.
One of his signature achievements was the re-emergence of options in agricultural markets.
The original Commodity Exchange Act of 1936 banned options outright and for the next several decades they were not traded on U.S. exchanges. Finally, in 1982, redesigned options were reintroduced to agricultural markets.
ISDA CEO O’Malia on Libor Reform, Brexit, Asia Derivative Markets
Scott O’Malia, chief executive officer of the International Swaps & Derivatives Association and former commissioner of the U.S. Commodity Futures Trading Commission, talks about the global push to reform benchmark rates, the Brexit negotiations, and Asia’s derivatives markets.
Gamma Scalping 101 – Gamma, Theta Trading
Gontran de Quillacq – Seeking Alpha
OptionSellers, LJM, Catalyst are among the prominent fund managers currently facing litigation for their large option losses. Retail investors regularly lose their savings by shorting options as well.
The secret life of an armchair trader
Nick Johnstone – Financial Times (SUBSCRIPTION)
I placed my first online share deal in June 2016 after eight years of cautious self-education and preparation, and a final lengthy bout of what I would call “shall I, shan’t I” throat-clearing. Almost three years later, I’m trading full-time.
Another Warning on Asia’s $4 Trillion Stock Rally Is Flashing
Divya Balji – Bloomberg (SUBSCRIPTION)
The wall of worry surrounding Asia’s double-digit stock market growth this year just got another impetus: equity ETFs inflows have dwindled.
Despite a 9 percent increase to $502 billion in assets under management for Asia equity exchange-traded funds so far this year, net inflows have been tapering off, according to data compiled by Citigroup Inc. On top of that, a monthly net outflow — the second time in more than two years — was recorded in March.
****SD: More commentary on Asia’s rally from Bloomberg – Watch Out for Market Complacency as Risks Mount: Taking Stock
Attacks by Trump risk damaging the Fed’s credibility
Mohamed El-Erian – Financial Times (SUBSCRIPTION)
Investors have been remarkably calm about the mounting political pressures on the Federal Reserve, the world’s most important central bank, in sharp contrast to what has been seen historically in advanced countries, and to what emerging economies continue to experience.
Cannabis Futures Contracts May Be Headed to an Exchange Near You
Kristine Owram – Bloomberg (SUBSCRIPTION)
Pot will soon join corn, wheat and hogs on the agricultural futures markets — if New Leaf Data Services LLC has its way.