Mexico moves to launch world’s largest oil hedge program; Years of forex market calm sends currency funds to the wall

Sep 6, 2019

Observations & Insight

Leo Melamed – Open Outcry Traders History Project

JohnLothianNews.com

The first video we are releasing from the Open Outcry Traders History Project is of Leo Melamed. In this video, Leo tells of his start as a law student and runner, how he financed his first membership with help from his father and how many times he went broke. Three. There are lots of great stories from Leo – from how he makes his trading decisions to the impact of his career on his family and what kind of father he was. The Chairman Emeritus of the CME has had a long, history-making career.

Here is his story.

Watch the video »

Lead Stories

Mexico moves to launch world’s largest oil hedge program – sources
Devika Krishna Kumar and Stefanie Eschenbacher – Reuters
Mexico has made the first moves to launch its annual $1 billion oil hedging program by asking banks for quotes, sources familiar with the deal said, while buying in financial oil options contracts for 2020 has risen in recent days, consistent with the giant trade.
/jlne.ws/30VPAFX

Years of forex market calm sends currency funds to the wall
Olga Cotaga – Reuters
The Chinese yuan’s tumble is stirring hopes of a long-awaited volatility boost for forex markets but any rise will be too late for the currency funds that have shut down this year, and it may be too small to hold out much hope for those that remain.
Currency traders who wring out more profits when prices move wildly consider themselves cursed by the prolonged calm in forex markets brought about by rock-bottom interest rates and central banks moving more or less in tandem on monetary policy.
/jlne.ws/3111tdN

Investors turn to credit derivatives amid fears of liquidity freeze in next market crisis
Sunny Oh – MarketWatch
Concerns about illiquidity in corporate debt trading are leading some money managers to look to credit derivatives as a way of swiftly moving in and out of their positions when the next downturn hits.
Mutual funds that specialize in hard-to-trade corporate debt say indexes tracking the performance of credit default swaps serve as a useful tool to deal with redemption requests during times when trading in corporate bonds is at a standstill. This comes as global financial regulators led by the Bank of England have flagged how funds holding illiquid assets could struggle to sell their holdings and potentially fan market panic during a selloff.
/jlne.ws/2Lz02Nj

****SD: From Bloomberg – With 49 Deals in 30 Hours, U.S. Corporate Bond Market Ignites.

CAT scan: what’s the latest?
bobsguide
The news in January that Thesys – the originally chosen consolidated audit trail (CAT) processor – had been fired, was seen by many in the Capital Markets industry as something of a mixed blessing.
Here was a small, agile, disruptive technology firm ready to draw on emerging technologies and build an optimal solution without the tiresome issues associated with legacy trade reporting solutions such as OATS and Bluesheets. Yet, there were also concerns about soaring expenses associated with this path. FINRA, one of the other original bidders, might have simply extended its existing OATS set-up to support additional CAT requirements, giving way to a faster and less expensive option for the industry. Certainly, Capital Markets participants are becoming jaded by all of the added administration and IT expense that keeps coming their way each time there is a new set of regulatory reporting requirements.
/jlne.ws/2zW8ksZ

****SD: I missed this last week. Also see WatersTechnology’s Finra CAT Lays Out Security Plans. Also, FINRA CAT hired David Yacono as chief information security officer in February and Scott Donald as chief technology officer in April.

Top banks’ first half commodities revenue down 1 percent: consultancy Coalition
Reuters
Commodities-related revenue at the world’s 12 biggest investment banks was 1% lower in the first half of the year than in the same period in 2018 due to weaker activity in power and gas, consultancy Coalition said on Thursday.
/jlne.ws/2LoCtq4

Stock Doomsayers Hushed by Latest Signs of Economic Strength
Bloomberg (SUBSCRIPTION)
What is making stocks so turbulent lately? The trade war is half of it — the bad half — while on the other side are signs that should the economy be left to its own devices, the tidings for bulls get rather tempting.
It may be difficult to recall, but it’s a case premised on stimulus, consumer demand, bond-adjusted valuations and even earnings.
/jlne.ws/311GXcV

Wall Street CEO Seth Merrin: ‘Trading is an industry in crisis’
Samuel Agini – Financial News
‘Before the financial crisis it was just high margin, high profit. That’s just not the case today’, says Liquidnet boss
/jlne.ws/2LuRPJZ

Exchanges and Clearing

HKEX blames software bug for outage as website comes under attack
Daniel Shane and Hudson Lockett – Financial Times (SUBSCRIPTION)
Hong Kong’s stock exchange has blamed a software bug for disruptions that forced it to suspend operations of its derivatives market on Thursday, as the bourse’s website came under an apparently separate hacking attack on Friday.
/jlne.ws/2HQbZwM

****SD: Our quote of the day comes from the above story: “‘To say there’s a software problem, that doesn’t really take us even one foot forward in explaining what happened,’ the South China Morning Post. Here is HKEX’s statement on the resumption of trading: “Hong Kong Exchanges and Clearing Limited (HKEX) today confirms that its derivatives market has successfully opened and the market is operating smoothly. There have been no connectivity issues on the trading system reported this morning to date from Exchange Participants. HKEX confirms that the software issues in the vendor supplied trading system that caused the market outage yesterday have now been isolated. HKEX will update the market again once a full and detailed analysis of the incident and the vendor software issue has been completed.”

HKEX Monthly Market Highlights
Mondovisione
…The average daily turnover of equity index options for the first eight months of 2019 was 160,325 contacts, an increase of 2.3 per cent when compared with the 156,760 contacts for the same period last year.
/jlne.ws/34pjzrT

****SD: The outage was not a “highlight.”

Record highs for Eurex KOSPI 200 Options
Eurex Exchange
In close partnership, Eurex Exchange and Korea Exchange (KRX) have successfully offered after-hours trading of KOSPI 200 Options and Mini KOSPI 200 Futures since 2010. In August 2019, KOSPI Index, the nation’s benchmark cash market index, has shown a downward curve with high volatility due to the ongoing geopolitical issues.
/jlne.ws/2POu5Wm

SR-NASDAQ-2019-072 Extension Pilot Related Rule
Nasdaq Rule Filing
The Nasdaq Stock Market LLC ( “Nasdaq” or “Exchange “), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 1 and Rule 19b- 4 thereunder, 2 is filing with the Securities and Exchange Commission a proposal to extend the pilot related to the market -wide circuit breaker in Rule 4121.
/jlne.ws/34rNjo7

Moves

Nasdaq Elevates Ed Knight to Vice Chairman and Promotes John Zecca to Chief Legal Officer
Globe Newswire
Nasdaq, Inc. today announced Executive Vice President Edward S. Knight will assume the role of Vice Chairman, effective October 1. Knight will continue to manage global government relations and will serve as a senior advisor on public policy and litigation. With Knight’s transition to Vice Chairman, John A. Zecca has been named Executive Vice President and Chief Legal Officer. Zecca will be responsible for managing Nasdaq’s regulatory oversight, legal counsel, and compliance across the company’s global businesses.
/jlne.ws/34nAhrP

Regulation & Enforcement

Lawsuit alleges ADM manipulated cash ethanol market to profit from derivatives
Mark Weinraub – Reuters
Global grain trader and food processor Archer Daniels Midland Co allegedly manipulated the price of ethanol to profit from a short position it was holding in the derivatives market, according to a lawsuit by a rival firm.
/jlne.ws/310OGYQ

Special Notice: FIA Provides FCMs with Template Disclosures regarding Separate Accounts
FIA
FIA is circulating this notice to inform FIA members and futures market participants that an important new set of template disclosures have been added to the FIA’s online documentation library.
/jlne.ws/2UBj5KE

Margin Xchange iced after regulators lift IM burden
Helen Bartholomew – Risk.net (SUBSCRIPTION)
Two law firms have been vying to create a service that would help derivatives users comply with new margin rules. Now, after regulators cut the industry’s workload by an estimated 90%, only one is left.
/jlne.ws/2Lux7Ke

SEC Delays Rule 606, Again
MarketsMedia
The U.S. Securities and Exchange Commission is giving a bit more time for broker-dealers to comply with new rules that mandate more transparency in trade routing.
/jlne.ws/34uMPh9

FIA’s Commodities Members Urge CFTC to Take Deliberate Approach to Improving Swaps Reporting Rules
FIA
FIA’s commodities members wrote in support of the CFTC’s efforts to improve its swap data reporting rules and stressed the importance of the Commission and public having access to accurate and reliable data. In the letter, FIA’s commodities members urged the Commission to take a deliberate approach to amending the reporting rules that refine the required data fields before imposing new verification or other potentially burdensome regulatory requirements on market participants.
/jlne.ws/2UxBWqh

Technology

The explosion of ‘alternative’ data gives regular investors access to tools previously employed only by hedge funds
William Watts – MarketWatch
“Alternative data” is going mainstream as fund managers are projected to spend more than $1 billion this year to beat the market averages and stave off the rise of low-cost passive investing.
The explosive growth in the amount of alternative data sets — an array of information gleaned from the web, satellites and even consumers’ wallets — hasn’t proved to be a panacea. But what was once considered the domain of quantitatively oriented hedge funds and other well-heeled investors has become a must-have for traditional asset managers struggling to deliver market-beating returns.
/jlne.ws/310OrwL

Reengineering Financial Operations with an Eye on Data Integrity
Larry Tabb – TABB Forum
Given the increasing cost pressures and the ever-important choreographic ballet of electronic messages among client, firm, trading venue, custodian, clearing bank, and clearing utilities, the seamless processing of financial information has become increasingly critical. Unfortunately, most companies’ operating infrastructures and the collective financial industry processing ecosystem continue to leak, says Larry Tabb. But easy-to-implement AI-based operational infrastructure that leverages machine learning can help firms ingest, compare, and spot differences in data, improving data integrity.
/jlne.ws/34sHXZW

Miscellaneous

The qualification for a $125k ‘strat job’ on Wall Street
Sarah Butcher – eFinancialCareers
As we’ve observed plenty of times on this site, ‘strats’ (a kind of hybrid of quants, programmers, data scientists and traders) have become some of the most in-demand people in finance. Becoming a strat isn’t easy: you’ll need to be exceptionally good at math and exceptionally good at programming. It might help, too, to take a strat-focused qualification like a top masters in financial engineering course.
Carnegie Mellon University just released its employment report for graduates of its masters of science in computational finance course. 30% of the class of 2019 went into ‘strats or modelling’ jobs, with another 29% going into quant research and 15% going into trading. Nearly 60% work in investment banks, with the remainder on the buyside, in fintech, consultancies or insurance.
/jlne.ws/34rLo2T

Over 100 London investment firms get EU licences for Brexit hubs – regulator
Huw Jones – Reuters
More than one hundred asset managers, trading platforms and investment firms in London have so far obtained licences to run new hubs in the European Union after Brexit, a top EU regulator said on Thursday.
/jlne.ws/2UJfASR

Fed Lines Up Another Quarter-Point Rate Cut
Nick Timiraos – WSJ (SUBSCRIPTION)
Federal Reserve officials are gearing up to reduce interest rates at their next policy meeting in two weeks, most likely by a quarter-percentage point, as the trade war between the U.S. and China darkens the global economic outlook.
/jlne.ws/34sJb7u

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