Liquidity concerns to fuel vol; CTC expands; Sebi’s derivatives rules

Jul 24, 2018

Liquidity concerns to fuel vol; CTC expands; Sebi’s derivatives rules

Jul 24, 2018

Spencer Doar

Spencer Doar

Associate Editor

Lead Stories

Goldman Warns of Liquidity-Fueled Sell-off After ‘Volmageddon’
Tracy Alloway – Bloomberg (SUBSCRIPTION)
Weakened liquidity might have set stage for volatility surge; February event stands as warning to consider hedges: Goldman
More than five months after February’s so-called volmageddon, the causal connection with a sudden slide in U.S. equity liquidity is only now becoming clear, according to Goldman Sachs Group Inc.

****SD: Seems to be the bank concern de jour – the below story regarding Morgan Stanley’s research is also about liquidity. The Heisenberg Report has more on the notes here.

Volatility highest since financial crisis, Morgan Stanley recommendation
Joe Ciolli – Business Insider Prime (SUBSCRIPTION)
If you’ve noticed a recent uptick in market volatility, it’s not just your mind playing tricks on you. By multiple measures, price swings have stormed back in a big way.
It’s a newfound phenomenon facing asset classes of all shapes and sizes — from stocks to rates to commodities. And while an optimistic trader might tell you that turbulence creates opportunity, others will be quick to express concern about the potential for quick losses.

****SD: MS’s cross-asset strategist thinks Brent, credit and small-caps are the most vulnerable. CNBC has more on MS’s note here.

Sebi plans to curb speculation in future and options
Partha Sinha – Times of India
The Indian market will complete its first month of trading in the stock options segment with settlement through physical shares on July 26. Originally planned for introduction by the end of 2001 – six months after futures and options trading on single stocks were introduced in India – the move by markets regulator Sebi is aimed at reducing volatility and make trading safer, especially for retail investors, traders said.

Chicago Trading Company expands at Loop office tower – News
Danny Ecker – Crain’s Chicago Business
Chicago proprietary trading firm is adding more office space while most of its industry consolidates, and it’s a much-needed boost for its landlord.
Chicago Trading recently renewed its lease and expanded its footprint by about 27,000 square feet in the 39-story Loop office tower at 440 S. LaSalle St., the company announced.
Adding the sixth floor to its operations in the building will give CTC 114,186 square feet in the property, which includes a little more than 1 million square feet total.

****SD: CTC’s trading floor is the old CHX floor – pretty cool.

Options Traders Are Seeking Short-Term Pound Protection: Chart
Cormac Mullen – Bloomberg

Hedge funds place record bet on higher five-, 30-year U.S. yields
Jamie McGeever – Reuters
Not everyone buys into the view that the marathon U.S. economic expansion has enough momentum left to warrant interest rates and yields going much higher, but one group of investors is going all in: hedge funds.

Exchanges and Clearing

Eurex round-up: Equity segment in Q2
Eurex Exchange
We at Eurex offer roughly 750 equity options and 800 single stock futures from more than ten countries. Below you will find the latest news on our Equity segment in Q2.

****SD: I find it easy to forget sometimes how much options trading happens on U.S. exchanges compared to European ones. In Q2 2018 there were 21.9m German equity options traded. Eurex’s whole Q2 total for equity options was 48.4m contracts. There were 20.8m options cleared by the OCC on just July 20. (Then again, there is more robust activity in single stock futures in Europe, but still.)

The art of designing markets
Randolf Roth – Eurex
Market design recognizes that well-functioning markets are more than the confluence of supply and demand. They depend on detailed rules. Market designers try to understand the rules and procedures as well as the workings and requirements of particular markets well enough to fix problems or to build completely new markets when they seem promising.


TRADING UP: Skrypnik to Citi; Bridgewater Vet Quay Hangs Shingle
John D’Antona – MarketsMedia

****SD: A nice roundup of all the activity of late.

Regulation & Enforcement

Former Equifax employee pleads guilty to insider trading
Nate Raymond – Reuters
A former Equifax Inc employee pleaded guilty on Monday to having engaged in insider trading before the credit reporting company last year disclosed a cyber attack that exposed the personal data of about 148 million people.

Pension funds cannot afford Sanders’ tax on financial transactions
Kirsten Wegner – Pensions and Investments
Institutional investors continue to navigate a challenging landscape marked by geopolitical risks, low yields and sizable long-term obligations. Now, coming from Sen. Bernie Sanders, I-Vt., is another challenge posed by the so-called financial transaction tax included in the Inclusive Prosperity Act of 2017.

Brokers move appellate tribunal against NSE’s plan to retro levy STT
Palak Shah – Hindu Business Line
Mumbai – based stock brokers association (ANMI) has dragged the NSE to the Securities Appellate Tribunal with regard to securities transaction tax (STT) on newly introduced physical settlement of equity derivative trades. ANMI has particularly challenged NSE’s circular of July 17 on a specific clause that says the exchange reserves the right to collect more STT from brokers in a retrospective manner if and when specified by the tax department, source told BusinessLine. A hearing will be held on Tuesday.


Trump’s Tweets Aren’t Expected to Hold Down the Dollar
Liz McCormick – Bloomberg
When it comes to the dollar and President Donald Trump’s signals that he’d prefer it to be weaker, as the Rolling Stones sang, “You Can’t Always Get What You Want.”

****SD: Has somebody started an inverse Trump fund?

FX Options Market Update: July 24, 2018
Dan Larsen –

AI&ML abstract: news sentiment everywhere, trading global equities
In this study, RavenPack showcases the value of news sentiment as a source of alpha on a global scale. This is done by creating long/short equity strategies across 49 countries, focusing on large- and mid-cap companies.


Cboe Hosts 7th Annual Risk Management Conference Europe
Cboe Global Markets, Inc. will host the 7th annual Cboe Risk Management Conference (RMC) Europe Wednesday, 12 September through Friday, 14 September 2018, at the Powerscourt Hotel, Enniskerry, County Wicklow, Ireland.


A trade war win for Trump could mean a loss for Americans
Dion Rabouin – Yahoo Finance
U.S. President Donald Trump appears to be winning the trade war. China is reeling from the effects of trade tariffs imposed by the United States and may be facing a major slowdown in its growth that could be worsened by additional tariffs, analysts say.
China’s rock solid economy has already started showing cracks. Growth in its manufacturing sector has slowed, its stock market has tumbled and the country has faced “extremely complicated and severe” domestic and external conditions in the first half of the year, statistics authority spokesman Mao Shengyong said in a statement earlier this month. The country’s political leaders are also trying to roll back massive credit and debt expansion.

China Hedge Funds Trigger Investor Unease With June Implosion
Bei Hu, Suzy Waite, Nishant Kumar, and Klaus Wille – Bloomberg
For the most die-hard bulls among the China-focused hedge fund community, June was a month of reckoning.
Funds with the highest net exposures to China’s markets suffered hefty losses after the benchmark stock index posted its biggest monthly decline since January 2016. Among them are Top Ace Asset Management’s China-focused Scienart Advantage Fund, which plunged an estimated 20 percent in June, according to people with knowledge of its returns. Greater China funds run by Yuanhao Capital Management and Modus Asset Management also slumped.

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