No rejoicing yet over Volcker ; Options liquidity concerns
Observations & Insight
Vela’s Plans Post-Acquisitions
In this video from the 36th annual Options Industry Conference (OIC) in Amelia Island, Fla., Vela CEO Jennifer Nayar talks about where the company sees opportunity after its acquisition of OptionsCity and Object Trading in the summer of 2017.
****SD: Other Vela news this week – Alexandria McGrath of Vela recognized as a Rising Star; CEO Jen Nayar also named Woman of the Year by Markets Media
Why Wall Street Traders Aren’t Rejoicing (Yet) Over Volcker Rule
Yalman Onaran – Bloomberg
Wall Street has long derided the Volcker Rule, complaining it’s so complex that traders would need to be psychoanalyzed to comply.
Now, banks are poised for a break, as authorities overhaul the fine print. Still it’s not exactly what traders wanted: A return to the golden era before 2008, when they could make big, bonus-boosting bets with their companies’ money.
Options vols to hit records amid liquidity concerns – report
Louisa Chender – Global Investor Group (SUBSCRIPTION)
The options ecosystem is fragile and could not handle a market maker imploding, according to a report.
Options volumes are set to reach record highs this year, building on a strong start to 2018 amid liquidity concerns, according to a report.
In the latest Aite Group report, author and senior analyst Audrey Blater, said: “While volatility has returned to historical levels and the exuberance of options market participants is palpable, many challenges remain.”
****SD: It’d be one thing if a market maker imploded. It’d be another thing if one of the select handful clustered at the top went belly up – namely Susquehanna, Citadel and the big banks, but also including the likes of firms such as Group One, Parallax and Walleye.
Italian bond shock uncorks yet another ‘low volatility’ bottle
Jamie McGeever – Reuters
The panic in Italian bonds this week again exposed the risks associated with periods of unusually low market volatility that lure traders into leveraged bets on the calm persisting forever – and magnifying the blowout when uncertainty rears its head again.
Sudden bursts of volatility and evaporating liquidity in even some of the world’s most-traded instruments is a dangerous cocktail for traders and hedge funds caught on the wrong side when the explosion comes. But investors should get used to it.
****SD: What do they say about people being doomed to repeat history?
We Asked Risk-Parity Practitioners If We Should Worry About It
Brandon Kochkodin – Bloomberg
Market crash with no obvious culprit? Struggling to identify systemic risks? Unforeseen asset rotation? Blame risk parity. You won’t be the only one to do so.
The portfolio strategy made famous by Ray Dalio has ballooned in popularity over the past two decades to an estimated $175 billion of assets. Check out Bridgewater Associates LP’s account of developing the company’s All Weather strategy, and you’ll see the attraction. By identifying “timeless and universal” laws of investing, namely that markets tend to go up and that diversification mitigates risk, risk parity can provide equivalent returns with lower risk than a traditional 60-40 portfolio.
****SD: The answer given here is, “No, risk parity was not responsible for the February selloff.”
Credit Suisse AG Announces the Reverse Splits of its VIIZ and TVIX ETNs
Credit Suisse AG announced today that it will implement a 1-for-10 reverse split of its VelocityShares VIX Medium Term ETNs (“VIIZ”) and a 1-for-10 reverse split of its VelocityShares Daily 2x VIX Short Term ETNs (“TVIX”), each expected to be effective as of June 8, 2018.
Exchanges and Clearing
Good luck on NSE and SGX burying their hatchet through arbitration
Mobis Philipose – Livemint
National Stock Exchange (NSE) has thrown a spanner in the works of Singapore Exchange (SGX), which was all set to list new India equity derivative products—essentially Nifty futures and options by another name. NSE filed for and was granted an injunction by the Bombay high court against SGX’s planned 4 June launch. The court said the two exchanges are at liberty to raise all their contentions, including on “jurisdiction and/or arbitrability” in an arbitration process.
Nasdaq ISE, Nasdaq GEMX and Nasdaq MRX Updated Pricing, Effective June 1, 2018
Effective Friday, June 1 2018, pending filing with the SEC, the following changes will apply to Nasdaq ISE, Nasdaq GEMX and Nasdaq MRX respectively..
Credit Suisse Cuts Rates Traders to Emphasize Electronic Trading
Sridhar Natarajan – Bloomberg
Credit Suisse Group AG is shrinking its rates business in New York and London to focus on electronic trading.
Itiviti Appoints Executive Management Team Following Merger With ULLINK
Itiviti, the leading global provider of multi-asset trading technology and financial infrastructure, today announced the appointment of a new executive management team, following the recent merger of Itiviti and ULLINK. With annual sales exceeding $200 million, 1,000 employees and local presence in major financial markets across Europe, Asia-Pacific and the Americas, Itiviti has evolved into a full-service technology and infrastructure provider for global and regional financial institutions.
Regulation & Enforcement
Trump administration will put steel and aluminum tariffs on Canada, Mexico and the EU
Jacob Pramuk, Eamon Javers and David Reid – CNBC
The Trump administration will put tariffs on steel and aluminum imports from Canada, Mexico and the European Union, the latest action in a string of protectionist policies to crack down on alleged trade abuses.
****SD: And the response just went live (via CNBC) – Canada announces retaliatory tariffs
The Trade and Transaction Reporting Horizon: 10 Key Initiatives for 2018 and Beyond
Eman Galea, JWG Group Limited – TABB Forum
With MiFID II now (mostly) implemented, what trade and transaction reporting initiatives will firms have on the agenda for 2018 and beyond?
Deutsche Bank’s U.S. Operations Deemed Troubled by Fed
Jenny Strasburg and Ryan Tracy – WSJ
The Federal Reserve has designated Deutsche Bank AG’s DB -6.78% sprawling U.S. business in “troubled condition,” a rare censure for a major financial institution that contributed to constraints on its operations, according to people familiar with the matter.
****SD: I didn’t know the Fed had an angsty teen designation.
Artificial Intelligence Could Remake Financial Markets
Aaron Pressman and Jeff John Roberts – Fortune
“Information about money has become almost as important as money itself,” said former Citibank CEO and fintech pioneer, Walter Wriston. The observation is notable because it’s true, and because Wriston made it decades ago—well before the arrival of today’s AI technology that can parse reams of information on a once-unimaginable scale.
****SD: I would have thought they’d go with “Is Remaking” instead of “could remake.”
The Ties That Bind: Market Connectivity Continues to Increase Despite Opposing Rhetoric
Larry Thompson, DTCC – Regulation Asia
Whether it is geopolitical tensions in North Asia, the UK’s exit from the European Union or new U.S. trade policies, globalisation would appear to many to be in retreat in many regions of the world. Wherever one looks, social, political and economic boundaries appear to be isolating nations, reversing a trend that only a few years ago seemed all but unstoppable.
However, are we experiencing a similar move across financial markets?
Dollar recovery seen as an earnings risk on horizon
Caroline Valetkevitch and Saqib Iqbal Ahmed – Reuters
Late last month, the chief financial officer at Akamai Technologies Inc (AKAM.O) identified an emerging risk for the network technology company’s profit outlook: the U.S. dollar.
Specifically, the surprisingly strong American dollar.
Over-extended oil prices were primed for a fall
John Kemp – Reuters
Pay attention to what traders actually do, not what they say, is one of the most important principles for successful oil market analysis.
Cboe to Host 2018 Risk Management Conference Europe in September
Cboe Global Markets, Inc. (Cboe: CBOE | Nasdaq: CBOE) will host the 7th annual Cboe Risk Management Conference (RMC) Europe from Wednesday, September 12 through Friday, September 14, 2018, at the Powerscourt Hotel, Enniskerry, in County Wicklow, Ireland.
Warming Planet Could Mean Bigger Corn Crops for U.S.
Marvin G Perez – Bloomberg
An alarming increase in global temperatures from Earth’s changing climate could bring an unexpected benefit for U.S. farmers who grow corn, the nation’s biggest crop.