Observations & Insight
The State of the Options Industry: Great, But Not 2018 Great
In this video, Trade Alert President Henry Schwartz talks about trends in the listed options industry, from an increase in FLEX and alternative ETF options to the plight of market participants caught wrong-footed at the end of 2018.
Watch the video »
Miax plans synthetic futures before SPIKES future
James Thursfield – Global Investor Group (SUBSCRIPTION)
Miax plans to offer synthetic futures ahead of its SPIKES future launch in Q3
OCC June Cleared Volume Down 6.3 Percent
OCC via Yahoo
OCC, the world’s largest equity derivatives clearing organization, announced today that total cleared contract volume in June reached 383,474,767 contracts, a 6.3 percent decrease compared to last June. OCC’s year-to-date average daily cleared contract volume is 19,539,313, down 7.0 percent compared to 2018’s record-breaking pace.
Cboe Launches First-Ever Global Options-Based Benchmark Indexes
Matt Moran – Cboe Blog
Over the years, investors have found utility in Cboe’s benchmark indexes that reflect the writing of options based on U.S. stock indexes. These indexes, such as the BXM, PUT and BXRD indexes, can help market participants enhance the cash flow and lower the volatility typically associated with equity investing. For investors looking to replicate the same analysis on global stocks, Cboe introduced BuyWrite and PutWrite indexes based on the MSCI EAFE and Emerging Markets indexes on June 24.
Big Banks’ Trading Desks Suffer Despite Market Rally
Telis Demos – WSJ (SUBSCRIPTION)
Banks are bracing for a third-straight quarter of declines in the business of dealing stocks, bonds and currencies.
Three of the biggest U.S. banks – Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. – have said in recent weeks that trading revenue was on track to fall roughly 5% in the second quarter from a year earlier.
Can you really prepare for the next bear market?
Amin Rajan – Financial Times (SUBSCRIPTION)
“If we were to go through what we did in ’08 and ’09, we’d be screwed,” said Aubrey Layne, the Virginia finance secretary, this year.
The Virginia Retirement System serves more than 700,000 current and retired public sector employees. It sidestepped the solvency crises that hit its peers in Illinois, Kentucky and New Jersey but its latest stress tests show that if the next bear market were to be as bad as the last one, its unfunded liabilities would double to $12bn.
Avoid These 7 Options Backtesting Pitfalls
Matt Amberson – Nasdaq
Backtesting is a simulation of an investment strategy in the past that seeks consistent trading performance in the future. It can help develop and scrutinize the performance of systematic options strategies. The complexity of options market can be simplified by defining rule-based strategies and observing the backtest outcomes.
****SD: In case you missed it, check out our video with Matt filmed at OIC – Signal Generation: Growing the Options Industry’s Footprint.
Fearing stock market rout, investors seek shelter in dependable dividends
Helen Reid – Reuters
Defensive equity strategies focused on high payouts and steady earnings have gained in popularity this year as investors flock to safety, worried the biggest stock market rally in decades is about to come crashing down.
Exchanges and Clearing
Switzerland’s Stock Market Has Been Taken Hostage; The EU’s use of threats over market access to get its way politically is becoming worryingly common. There’s a warning for Brexit Britain here.
Lionel Laurent – Bloomberg (SUBSCRIPTION)
An unnecessary and misguided economic split at the heart of Europe, driven by populist politics and trade spats. Nope, this isn’t Brexit, it’s the bitter diplomatic standoff between Switzerland and the European Union.
****SD: More from Bloomberg. Also see the FT
Trading Overview in June 2019 & First Half of 2019 (January to June)
Cash Equity Market – In the first half of 2019, the daily average trading value for the TSE 1st Section (domestic common stocks) was JPY 2.5555 trillion.
Derivatives Market – In the first half of 2019, total derivatives trading volume was 172,432,174 contracts.
****SD: “In the first half of 2019, total derivatives trading value was JPY 1,451 trillion, and trading value for equity index derivatives was JPY 709 trillion. Both recorded the second highest for the first half year.” That is roughly $13.4 trillion and $6.5 trillion, respectively.
16th Consecutive Nasdaq Closing Cross Sets Record for Number of Shares Traded During 2019 Russell US Indexes Reconstitution
Nasdaq (Symbol:NDAQ) today announced the Nasdaq Closing Cross had a record day as it was used for the 16th consecutive year to rebalance Nasdaq-listed securities in the entire family of Russell U.S. Indexes, part of leading global index provider FTSE Russell, during their annual reconstitution.
Terry Duffy, Chairman and CEO of CME Group: ‘We want to grow our presence in Europe’
Benoit Menou – Asset News
Euronext’s takeover of the Oslo Bors is one example of many recent mergers between exchange operators – including your acquisition of NEX in 2018. Do you see consolidation as necessary?
BME: The Spanish Exchange Traded EUR42.01 Bn In June
…The trading volume in Financial Derivatives increased by 10% in the first half of the year
Regulation & Enforcement
UK regulator makes CFD crackdown permanent; Retail consumers can face large losses from risky type of derivatives trade
Cat Rutter Pooley – Financial Times (SUBSCRIPTION)
The UK financial watchdog has made a temporary crackdown on a risky type of derivatives trade permanent, heavily restricting the sale and marketing of contracts for difference to retail consumers who could rack up large losses. Eleven months after the European regulator Esma introduced tough time-limited rules limiting the leverage unsophisticated clients could use to juice up CFD bets, the Financial Conduct Authority has made restrictions permanent.
****SD:From the piece: “The FCA on Monday said it had also tightened rules on options which operate like CFDs, to stop companies getting around the rules. It added that intermediaries who sold, marketed or distributed CFD-like options in or from the UK would also be subject to the FCA rules.”
Top US regulator in the frame for Mark Carney’s job
David Wighton – Financial News
Christopher Giancarlo, the high-ranking US financial regulator, has emerged as a surprise candidate for the top job at the Bank of the England, Financial News has learnt.
The chairman of the US Commodity Futures Trading Commission has expressed interest in the job of governor at the UK central bank, according to a person with knowledge of the process. The news comes as the race to succeed Mark Carney has been thrown open by Theresa May’s resignation as prime minister.
Sebi slaps Rs 55 lakh fine on 6 entities for non-genuine trades
PTI via Business Standard News
Markets regulator Sebi has levied a total penalty of over Rs 55 lakh on six entities for indulging in non-genuine and manipulative trades in the illiquid stock options segment of the BSE.
The Pros and Non Pros in the Data Fee Wars
John D’Antona – Traders News
Data now drives the trading bus – as opposed to research which so faithfully drove the trading bus for the 20th century. Traders must have more of it, faster and covering a much broader swath than ever before. And as the exchange equity trading business has seen trading commissions diminish from pennies to fractions of a cent, venues like Nasdaq, NYSE and others have turned from trades to data as their main source of revenue generation.
For Nasdaq, as well as its rivals, data generation is big business. For Nasdaq, its Information Services Group (31% of total net revenues) generated revenues of $193 million in the first quarter of 2019, up $19 million, or 11%, from the first quarter of 2018. For market data (16% of total net revenues) – revenues were $100 million in the first quarter of 2019, unchanged compared to the first quarter of 2018, primarily due to an increase in U.S. tape plan revenues from under-reported data usage offset by an unfavorable impact from changes in foreign exchange rates of $2 million.
We’re in A New Era of Market Data Sharing
Adam Honore – CME Group
In almost every industry today, effective decision-making depends on having the right data. You can see the evidence in the race to disseminate business analytics. Google, Salesforce and other major firms are investing heavily in getting customers new, reliable data faster and more efficiently.
It’s ‘Go Time’ for the Riskiest Equities Thanks to G-20 Detente
Luke Kawa – Bloomberg (SUBSCRIPTION)
Investors just got the green light to play offense.
The Group-of-20 detente between the U.S. and China is feeding the green shoots of an equity rotation to riskier and more cyclically-oriented shares. The S&P 500 Index climbed to a record high on Monday after President Donald Trump agreed to ease a ban on American companies supplying Huawei Technologies Co.
Many Asset Classes Look Like Winners in 2019, So Investors Beware
Mohamed A. El-Erian – Bloomberg (SUBSCRIPTION)
Most U.S. investors’ portfolios have registered strong returns so far in 2019 as both risk and risk-free assets rallied nicely in the first half of the year. As data emerge on the performance of different types of investment vehicles, it wouldn’t surprise me if the out-performance were concentrated among those portfolios that not just relied on the less sophisticated asset allocation approaches but also made heavy use of passively managed products.
Currency warrior: why Trump is weaponising the dollar
Sam Fleming – Financial Times (SUBSCRIPTION)
In an industry long dominated by the dollar, it was a move that carried obvious symbolic weight.
Last summer Russian diamond miner Alrosa tested a new system for selling its rocks in roubles to clients in countries such as China and India, as an alternative to the US currency.
As Stocks Hover Near Records, Growth Worries Linger
Akane Otani – WSJ (SUBSCRIPTION)
Stocks are flirting with records again, but many investors are struggling to discern how much longer the bull market can continue.
In a matter of weeks, the Federal Reserve will decide whether it will cut interest rates for the first time since the financial crisis. Should the Fed lower rates, many investors argue stocks would likely rise in the short term.
They Don’t Pay Traders Like They Used To
Matt Levine – Bloomberg (SUBSCRIPTION)
Different times, man:
Varadhan interviewed with a pair of senior Goldman executives including Tom Montag (now Bank of America’s No. 2 man) over a ham sandwich, and spoke with then-CEO Jon Corzine. With the newfangled market for derivatives about to explode on Wall Street, the bank offered the 25-year-old more than $1 million in guaranteed pay when he joined in 1998.
“It was a mind-boggling sum for an associate,” said Michael Karp, a veteran recruiter who was involved in the process. “But he was the right man for the job.”
****JB: Also see Bloomberg’s, Can Goldman’s Trading ‘Rainmaker’ Bring Back the Glory Days?