Options Market Stability Act of 2019; “Volfefe” index tracks Trump impact on interest rate vol

Sep 9, 2019

Observations & Insight

Editor’s Note
Spencer Doar

Today is my last day with John Lothian News. It is sad to go, but I am excited to learn a new side of the business. As I mentioned earlier in this publication, I will still be bouncing around derivatives (and crypto) industry circles, as my new employer, 3Points Communications, has an array of financial services clients.

This newsletter will be in the hands of Jeff Bergstrom and a new addition to the options beat, Matt Raebel

Also, I fully plan on being at OIC 2020 in Puerto Rico, so no need for any real goodbyes, right?

If you need to reach me, my new email is Spencer@3ptscomm.com. Stay in touch all!

Lead Stories

Text – H.R.4233 – 116th Congress (2019-2020): Options Market Stability Act of 2019
Library of Congress
To require the Federal banking agencies to increase the risk-sensitivity of the capital treatment of certain centrally cleared exchange-listed derivatives, and for other purposes.

***SD: Woohoo! I feel like I’m going out on a nice note. Via David Prosperi of the OCC: “Congressman Lance Gooden (R-TX) introduced on Friday an updated version of the Options Market Stability Act. The bill directs the banking agencies to finalize SA-CCR by the end of the year, or, alternatively, to provide relief by end of year for calculating counterparty credit risk exposure for client listed, cleared derivatives positions.”

JPMorgan Creates ‘Volfefe’ Index to Track Trump Tweet Impact
Tracy Alloway – Bloomberg (SUBSCRIPTION)
Make market volatility great again? Analysts at JPMorgan Chase & Co. have created an index to gauge the impact of Donald Trump’s tweets on U.S. interest rates, which they say is on the rise.

****SD: Imagine reading this story in 2015 and trying to comprehend how it is not from The Onion. Other sources: CNN, CNBC and MarketWatch.

Euronext equity derivatives markets suffer outage
Samuel Agini – Financial News
Euronext, the company behind the Paris, Brussels and Amsterdam stock exchanges, was forced to halt trading in single stock options on those bourses on September 9, becoming the latest exchange to suffer a technical mishap this year.

****SD: Trading was down for about three hours. HKEX and LSEG have also been recent victims of outages. And recall the consolidated tape trading glitch in mid-August that affected closing prices.

The Small Exchange Secures OCC Clearing and Settlement Services
BusinessWire via Yahoo Finance
The Small Exchange, a new futures exchange backed by renowned innovators in the financial industry, today announced that OCC, the world’s largest equity derivatives clearing organization, received approval from its Board of Directors to provide central counterparty clearing and settlement services for the exchange. The proposed clearing agreement with OCC is subject to the regulatory approval process.

Year After Armageddon, Stock Traders Stare Into a Familiar Abyss
Elena Popina and Vildana Hajric – Bloomberg (SUBSCRIPTION)
The variety of risks hasn’t changed much since September 2018; Last year’s plunge continues to reverberate with Fed’s Powell
Nobody knew it then, but this time last year, the rallying U.S. stock market was about to begin a plunge that would erase $5 trillion from share values and convince a lot of people a recession was at hand.

****SD: You know what they say about abysses – it’s not polite to stare. I think Nietzsche is behind that one.

Top Trader Sees `Unprecedented’ Uncertainty Vexing Oil Insiders
Sharon Cho and Dan Murtaugh – Bloomberg (SUBSCRIPTION)
Oil prices might have been relatively calm over the last couple of months, but the levers pushing and pulling them have reached “in some cases unprecedented” levels of uncertainty, according to Vitol Group.

Why next year could be the most volatile in history for investors
Shawn Langlois – MarketWatch
Think 2019 has been hectic? You ain’t seen nothing yet.
According to our call of the day from John Mauldin of Mauldin Economics, 2020 “will be the most volatile year in history” for investors

Exchanges and Clearing

Promising market opportunities with Eurex ETF options
The European market for exchange traded funds (ETF) has grown substantially. Providing the broadest choice of ETF derivatives in Europe, Eurex offers interesting market opportunities to implement option strategies on this portfolio with more than 30 of the most liquid ETFs in Europe. We spoke with Matthew Riley, Equity & Index Sales EMEA, about possibilities and opportunities.

The World Federation Of Exchanges Highlights Competitive Issues To ESMA Regarding Market Data and Consolidated Tape
The World Federation of Exchanges (“WFE”), the global industry group for exchanges and CCPs, has published a letter in response to the European Securities and Markets Authority’s (ESMA) consultation paper on prices for pre- and post-trade data and the consolidated tape for equity instruments.

FIA response to ESMA consultation on market data fees
On 6 September, FIA submitted a response to ESMA to their consultation on the development in prices for pre- and post-trade data and on the consolidated tape for equity instruments. The consultation covers the review provisions on the development in prices for pre- and post-trade transparency data from regulated markets, multilateral trading facilities (MTFs), organised trading facilities (OTFs), approved publication arrangements (APAs) and consolidated tape providers (CTPs) as well as the functioning of the consolidated tape (CT) for equity instruments as provided for in Articles 90(1)(g) and 90(2) of MiFID II and Article 52(7) of MiFIR.

Euronext announces volumes for August 2019
…In August 2019, the overall average daily volume on derivatives reached 622,549 contracts, up +15.2% compared to August 2018 and up +23.8% compared to the previous month. In detail:

Nasdaq Options Markets Update SQF Technical Specifications
Nasdaq Options Technical Update
All Nasdaq options markets have updated the Specialized Quote Feed (SQF) specification documents. These changes add an additional field that is required for exchange CAT reporting, indicating the time a quote event was sent to the exchange.


Refinitiv Survey Reveals That Financial Firms Across The Globe Plan To Ramp Up Use Of Cloud For Financial Data As Technology Delivers On Its Promise
Financial institutions across the globe will allocate almost half (48%) of their IT budget to spending on public cloud services in 2020, up from 41% this year and 34% in 2018, according to the results of Refinitiv’s latest research into the use of cloud technology for financial data. The findings are based on a survey of 300 global financial firms across the financial community.


Hedge Funds Face Off With Analysts in Corn Ahead of Key Report
Michael Hirtzer and Dominic Carey – Bloomberg (via Yahoo Finance)
There’s a rumble brewing in the corn market as hedge funds and analysts take opposite views ahead of a key crop report.
A Bloomberg survey showed that traders and analysts expect the U.S. Department of Agriculture will be aggressive in cutting its outlook for domestic corn yields, with an average prediction of 166.5 bushels an acre. That would be a whopping 3 bushels below the USDA’s August estimate and would likely send the market higher.

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