Market Makes History; More Bitcoin; Cboe Mini-SPX XSP Options Record

Oct 24, 2017

Lead Stories

The stock market just made history
Akin Oyedele – Business Insider
The S&P 500 on Monday broke its previous record of the number of days without a 3% drawdown.
As it’s continued to make new highs, it has broken records of other percent-move sizes.
These illustrate the rock-bottom volatility that has characterized stocks this year and is showing few signs of rising anytime soon.

****SD: Feels like it makes history every day now…

Bitcoin Meets OTC Derivatives
Tod Skarecky – Clarus Financial Technology
I attended the FIA event last week in Chicago. Much of the same stuff. Bank capital, swaps regulation, clearing, MIFID. And the obligatory panel on bitcoin. Over the past couple years, Bitcoin panels in our industry have tended to start out with the moderator making clear “we’re not going to talk about bitcoin the currency, but rather the blockchain”, and over the course of 75 minutes you would hear each panelist ponder how great it would be to settle a syndicated loan in 30 seconds instead of 30 days. Basically everything that Jamie Dimon extolls as the valuable part of bitcoin technology. But this panel was different. This panel was about bitcoin the asset class. It was a refreshing perspective on changes within the derivatives industry in response to one of most exciting and volatile asset classes in a decade.

Record Volume for Mini-SPX XSP Options at Cboe
Matt Moran – Cboe
In recent years many investors have expressed interest in more flexibility for index options in terms of both contract size and and more expirations. So far this month (through October 20) Cboe’s options on the Mini-SPX Index (ticker XSP) have had average daily volume of more than 30,800 contracts. XSP options are on track to set an all-time record for average daily volume in a month (the previous high for average daily volume in a month was around 23,760 contracts)

****SD: This is why exchanges always have eyes open for new product ideas. Can’t always know what will catch on ’til you try. Miss every shot you don’t take, etc.

Wall St. Eyes Bitcoin Trading
Rob Daly – Markets Media
With one coy tweet, Goldman Sachs CEO Lloyd Blankfein pushed J.P. Morgan Chase CEO Jamie Dimon’s criticism of digital currencies as an investment vehicle to the back pages and may have changed the nature of the digital currency conversation on Wall Street.

Exchanges and Clearing

LME WEEK 2017: CME builds momentum while LME hits reset
Dalton Barker – MetalBulletin
It has been a tumultuous year for exchanges, with new leadership, wide-sweeping regulation and a commodities recovery fueling seismic changes at the CME and the London Metal Exchange.

Battle hots up for London clearing business post-Brexit
Philip Stafford in London – Financial Times
As negotiations over the UK’s exit from the EU grow more urgent, another critical battle is playing out with ramifications for global markets. Clearing interest rate derivatives is not glamorous nor does it have much resonance beyond London’s Square Mile, but control of this important industry is up for grabs thanks to Brexit.

Deutsche Boerse board to consider Kengeter’s fate on Thursday: source
Deutsche Boerse’s (DB1Gn.DE) supervisory board will meet on Thursday to consider the fate of Carsten Kengeter, a source said on Tuesday, after the embattled CEO suffered a court setback in an insider trading investigation.

***SD: Not good for Carsten.

Clearinghouses Push Back Against Worries Over Their Size; Industry officials say the system has been improved, and let markets decide structure and competition issues
Gabriel T. Rubin – WSJ
Swaps clearinghouses are pushing back against the suggestion by a top Trump administration official that they have become too big and pose a market risk, saying regulatory and internal “stress tests” prove there is no cause for alarm.

Intercontinental Exchange Named to Inaugural Fortune Future 50
Intercontinental Exchange
Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, has been named to the Fortune Future 50. The innovative methodology employed by Fortune and The Boston Consulting Group includes a set of forward-looking metrics to determine the top 50 companies that are best positioned to adapt and deliver growth in a complex environment.

Regulation & Enforcement

Israel ban on binary options gets final parliamentary approval
Israel’s parliament on Monday gave final approval to a law that bans local firms from selling binary options overseas by online trading, giving market regulators the authority to begin a broad crackdown.

FCA Issues GBP34.5m Fine Against Merrill Lynch International
Jeff Patterson – Finance Magnates
The UK’s Financial Conduct Authority (FCA) has taken its first enforcement action against a firm for improperly reporting details of trading in exchange traded derivatives under EMIR. This shows the hardened stance that the FCA is taking towards these type of reporting obligations, resulting in a GBP34.5 million fine against Merrill Lynch International.

***SD: In case you missed it yesterday.


TradingScreen responds to allegations of former CEO Philippe Buhannic
A war of words, and possible legal battle, is heating up between the former CEO, and current board and management of electronic trading solutions provider TradingScreen.

****SD: What a distraction for TradingScreen.

Considering Quant? Here Are 5 Tips for Dealing with Data
Andrew Breton, Elsen. Inc – Tabb Forum
Data-driven investment strategies continue to pick up steam across financial services industries, and as technology advances make it easier for everyone to work with data, fundamental investors will be able to implement quant-like strategies. But firms wading in to quantitative analysis will have to begin to understand the basics of dealing with data. Here are five common missteps to look out for when preparing data to drive value.


Hedging China’s Minsky Moment
Steven M. Sears – Barron’s
It has been a long time since investors had to contend with anything but complacent central bankers trying to heal the global economy from the financial crisis. But Zhao Xiaochuan, the governor of the People’s Bank of China, seems intent on a different approach.

Rare VIX Signal Just Sounded for the 5th Time Ever
Andrea Kramer – Schaeffer’s Investment Research
As just another example of the low stock market volatility of late, the CBOE Market Volatility Index (VIX) — or Wall Street’s “fear gauge” — is flashing a signal so rare we’ve seen it just four other times since 1990. Specifically, VIX premium has crested above 200%, according to Schaeffer’s Quantitative Analyst Chris Prybal, which was a really bad signal for the VIX in 2016. Below, we’ll explain what VIX premium is, and what it could mean for the S&P 500 Index (SPX) going forward.

Opinion: This is the greatest bull market in complacency
John Mauldin – MarketWatch
My good friend Peter Boockvar recently shared a chart with me. The University of Michigan’s Surveys of Consumers have been tracking consumers and their expectations about the direction of the stock market over the next year. We are now at an all-time high in the expectation that the stock market will go up.

If You’re Long XIV, Check Your Allocation
Dane Van Domelen – Seeking Alpha
Volatility strategies are fairly popular here on Seeking Alpha. One product that has received quite a bit of attention is VelocityShares Daily Inverse VIX Short-Term ETN (XIV). The most visible Seeking Alpha contributor, Chris DeMuth Jr., named XIV his #1 stock in the world in June 2015. Pretty good call, considering XIV has gained 156.2% since that article was published.

FX Option Market Update: October 24, 2017
Dan Larsen, Saxo Bank –
Please click on the attached PDF for the latest FX options market update, including a look at Shinzo Abe’s election victory in Japan and the large amount of central bank announcements scheduled this week.

ETF Topper: Ridin’ the VIX Rolldown
Crystal Kim – Barron’s
As the S&P 500, the Dow and the Nasdaq settled in the red on Monday, the Cboe Volatility Index spiked sharply. That isn’t saying much for the VIX given it’s still at sub-11 levels, but VIX tracking exchange-traded products were among Monday’s best performers.


Legal Issues in Cleared Derivatives
FIA is pleased to announce its second one-day European legal conference – “Legal Issues in Cleared Derivatives” – which will look at current legal and documentation developments in cleared derivatives markets. This London-based event will feature legal experts from sell-side, buy-side, law firms and CCPs, as well as regulators, discussing: 1) last-minute MiFID II/R implementation issues for market participants in the cleared derivatives industry and 2) FIA’s documentation efforts to create industry standard agreements and templates for centrally-cleared derivatives including for complex clearing structures such as indirect clearing arrangements.


Taper time – Five questions for the ECB
Dhara Ranasinghe, Ritvik Carvalho – Reuters
The European Central Bank is likely to decide the fate of its 2.3 trillion euro (GBP2.05 trillion) stimulus scheme on Thursday in one of the ECB’s most keenly anticipated policy meetings for months.

Supersized Family Farms Are Gobbling Up American Agriculture
Jacob Bunge – WSJ
U.S. growers are swallowing up acreage to survive a harsh agricultural downturn, squeezing smaller operations and transforming America’s rural economy Jacob Rickli heads back to work after a dinner break during the corn harvest on one of Lon Frahm’s fields in Colby, Kan., this month.

****SD: Farm story written by a guy named Bunge. Apropos.

Chinese President Xi cements his grip on power with rare party move
Steven Jiang and Katie Hunt – CNN
China has elevated the stature of President Xi Jinping and cemented his grip on power by including his name and political ideology in the Communist Party constitution. At the end of a pivotal twice-a-decade meeting, party delegates voted unanimously Tuesday to make “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” a guiding principle for the party.

****SD: Huge. China is the elephant in the room and it looks like Xi will be guiding the economic beast for quite some time. At least that’s one uncertainty to cross off the list.

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