Observations & Insight
Big Shoes To Fill: What Can Heath Tarbert Do For This Industry?
Jim Kharouf, JLN
As the new CFTC Chairman Heath Tarbert assembled his team last week with some new names and some staff he kept on from his predecessor Chris Giancarlo, it is clear that there is much work yet to be done in the derivatives space. The question is, what mark will he leave on this industry?
If you go back to the days of Gary Gensler, you would be hard pressed to find an industry that experienced a greater regulatory overhaul over the past 10 years than the derivatives markets. And for good reason. While the pendulum of regulation swung far to one side (some argue not far enough), Giancarlo brought a sensibility back to the agency. Gensler was often criticised for meeting with the industry but not listening. To him, the Global Financial Crisis and Congress gave him a mandate to fulfill quickly and sometimes harshly. Timothy Massad carried that hammer in his own understated way. Giancarlo ushered in some practical regulation and started looking forward in a way the agency never did before.
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Options Traders Wager On Smooth Sailing For Tech; Investors betting on below-average moves for Facebook, Amazon, Twitter
Gunjan Banerji – WSJ (SUBSCRIPTION)
Options traders are forecasting a relative calm for shares of some tech behemoths ahead of earnings this week. They could end up being caught off guard. Options pricing indicates investors are girding for smaller moves than normal for shares of some highflying tech companies. For example, traders are currently betting on a 4.1% swing the day after Amazon.com, Inc. reports earnings on Thursday, according to data provider Trade Alert as of early Tuesday. That is below the historical 4.8% move reported after the past eight financial releases.
Standard Chartered goes live with FX options platform as liquidity provider; FX options multi-dealer electronic trading platform expands depth of its liquidity with Standard Chartered.
Hayley McDowell – The Trade
FX options electronic trading firm Digital Vega has onboarded Standard Chartered as a liquidity provider, in a move to add broader liquidity to its trading platform.
Robinhood Is Worth $7.6 Billion After New Funding Round
Julie Verhage – Bloomberg (SUBSCRIPTION)
Robinhood Markets Inc. has closed a new round of funding valuing the company at $7.6 billion. That’s up from its latest $5.6 billion valuation in 2018. The company raised $323 million in the most recent deal. Bloomberg reported in May that Robinhood was seeking to raise money.
****SD: Recall that Robinhood has a commission-free options trading platform. In October 2018, Bloomberg reported that Robinhood brought in some 40% of its revenue from payment for order flow. According to Robinhood’s SEC Rule 606 disclosure for Q1 2019, Citadel Securities routes the majority of Robinhood’s orders. Depending on what exchange the security is listed on, the firms handling the biggest share of the rest of the flow are Wolverine Securities and G1 Execution Services (G1 was ETrade’s old market making unit that the brokerage sold to Susquehanna in 2013). Virtu Americas and Two Sigma Securities have some presence, too.
Analysts warn Johnson victory has increased no-deal Brexit risk; Expected elevation of Mr Johnson has seen investors reprice chances of no-deal exit
Philip Georgiadis – Financial Times (SUBSCRIPTION)
Moody’s and Goldman Sachs have both warned that Boris Johnson’s victory in the race to become the UK’s next prime minister has increased the likelihood of an economically damaging no-deal Brexit. The rating agency, which earlier this month warned no-deal would likely lead to a recession, said the risk of a credit-negative crash out of the EU has risen.
Deutsche Securities Korea to Leave S. Korean Stock Market
Yoon Young-sil – Business Korea
Deutsche Securities Korea Co. is closing down its stock brokerage business in South Korea. The company’s board of directors decided on July 18 to wind up its stock sales and trading, exchange-traded derivatives trading and research businesses, according to investment banking industry sources on July 22. Accordingly, the company is planning to ask the Financial Services Commission to cancel its license for investment trading.
****SD: When I think of Deutsche in Korea, my mind goes to this controversy: “Employees sold $2.2 billion worth of stocks that are part of the benchmark Korea Composite Stock Price 200 index, known as the Kospi 200, in the last 10 minutes of market trading on Nov. 11, an expiry day for Kospi 200 options… The position was basically to be long South Korean stocks and short mostly options, meaning that it held a number of stocks outright and held other investments that would profit if stock prices fell. The Hong Kong-based group of traders instructed Deutsche Bank traders in South Korea to unwind the position, which had been in place almost a year, in the hopes of making a profit. After the decision to unwind the arbitrage had been made, the same Hong Kong-based group decided to buy options related to the Kospi index because it thought they were priced too cheaply.”
TD Ameritrade Begins Search for New CEO
Lisa Beilfuss – WSJ (SUBSCRIPTION)
Discount brokerage TD Ameritrade Holding Corp. said Monday that Chief Executive Tim Hockey will leave the company in February 2020. On a call with analysts and investors, Mr. Hockey said he and the board agreed it was the right time for a transition. He will stay in his role while the company’s board of directors conducts its search for his replacement. If his successor is named before February, he will move into an advisory role to help with the transition, he said.
****SD: Barron’s here and Financial Planning here.
Exchanges and Clearing
Eurex Exchange’s Quarterly Equity Derivatives Highlights – Q2/2019
Considering the overall low volatility environment at a broader index level, we could observe several company specific events and news offering trading opportunities in the single equity segment. Those specific events are reflected in stable or increased volumes in Q2 in options such as Daimler and Bayer. The overall lower trading activities where mainly driven by specific drops in traded volumes such as Deutsche Bank and Deutsche Telekom.
****SD: Overall equity options volume was down 3%, mostly on the back of a large decline in German volumes. On the positive side, Swiss, French and Dutch options all had 10%+ increases in Q2 volume.
Nasdaq Makes Bet on Sports Gambling; Exchange operator Nasdaq is selling technology to a British soccer betting website that lets users wager on the performance of individual players
Anna Isaac – WSJ (SUBSCRIPTION)
Nasdaq Inc. is lending its technology and brand to a U.K. soccer-betting platform that lets users wager on players by buying and selling stakes tied to their on-field performance.
****SD: Follow this technology. Longitude is the ISE subsidiary with the platform that got handed over to Nasdaq with the exchange’s acquisition of ISE.
Nasdaq to Deliver Matching Engine Technology to the Football Index
Nasdaq Inc. (Nasdaq:NDAQ) announced today it has signed a new agreement with Football Index, where clients can buy and sell shares in professional footballers, and will provide the company with a flexible, cloud-optimized trading engine that offers rich functionality. As part of the Nasdaq Financial Framework offering, Football Index will join a growing list of new markets outside of financial services that are relying on Nasdaq’s marketplace technology to accelerate their business growth and enhance the client experience.
Regulation & Enforcement
Global regulators delay ‘big bang’ derivatives rules by a year; Rules would require thousands of asset managers to set aside more cash to cover swaps deals
Philip Stafford – Financial Times (SUBSCRIPTION)
Global regulators have delayed the introduction in 2020 of a “big bang” set of rules for derivatives markets that will require thousands of asset managers to set aside more cash to cover their swaps deals.
In Data Centers, Lease Beats Own
Buy or lease? The eternal economic question regarding homes and vehicles has come to corporate data centers. For many companies who need data centers for fast and reliable access for their technology infrastructure, the answer is skewing decidedly toward the more flexible option.
Algo wheel adoption picks up in derivs – expert
James Thursfield – Global Investor Group (SUBSCRIPTION)
Buy side firms are adopting algo wheels for futures as well as equities, according to an expert at tech firm TradingScreen
Goldman Says Yen Offers a More Attractive Hedge Than Gold
Cormac Mullen, Bloomberg via Yahoo
Investors looking at haven assets to protect against a risk-off shock should find the yen a cheaper option than gold, according to Goldman Sachs Group Inc. An increase in gold-price volatility has made bullish options on the traditional haven more expensive than yen equivalents, wrote strategists including Alessio Rizzi in a note Monday.
Fading The World’s Most Crowded Trade
In the July edition of BofA’s closely-watched Global Fund Manager survey, “Long USTs” was identified by respondents as the “most crowded trade” on the planet for the second month running. That’s a reflection of the market’s downbeat take on the prospects for growth and inflation at a time when the simmering Sino-US trade dispute continues to weigh on sentiment and the global manufacturing slump threatens to spill over into the services sector and, ultimately, the labor market.
eBay Stock Is Stuck. Here’s How to Bet on a Move Higher.
Steven M. Sears – Barron’s
eBay stock is a riddle – and the options market offers the best solution. The stock (ticker: EBAY) is up some 45% this year, more than double the return of the S&P 500 index. The returns, however, were front loaded and the stock has barely budged since an important early March announcement.
Sheffield university to offer UK’s first degree in derivatives trading Sheffield Hallam University teams up with proprietary-trading firm OSTC to offer work experience
Samuel Agini – Financial News
One of the UK’s largest independent trading houses has teamed up with Sheffield Hallam University’s business school to launch a course designed to educate the next generation of market traders. Students on the financial trading and investment management degree will spend one year of the course in London, with OSTC, a proprietary trading firm.
“It Was a Lot of Dough”: How Jeffrey Epstein, Financial Pasha, Worked Wall Street
William D. Cohan – Vanity Fair
Jeffrey Epstein, the convicted and once-again accused sexual predator, listed $559 million on his audited net worth statement, which was used, unsuccessfully, by his attorneys to try to get him released on bail. But no one on Wall Street can figure out how he made it. There are a number of theories making the rounds. There is the blackmail theoryóthat his knowledge of the sexual peccadilloes of wealthy investors helped make him his money. There is the idea that, like George Soros, he made a killing betting against the British pound once upon a time. There is the theory that he has been providing rich people with tax and estate planning adviceósome of which appears to be true, though it’s difficult to see how he could have made a fortune of that size in those businesses. One thing on which most Wall Street people I’ve talked to agree is that they believe he did not make his money trading options or derivatives or from managing other people’s money.
The Stock Frenzy in China’s New Trading Venue Is Already Fading
The frenzy that greeted China’s new Nasdaq-style stock board is already fading. All but four of the 25 new listings dropped Tuesday, with the market closing down an average 7.9% in Shanghai. China Railway Signal & Communication Corp. and Western Superconducting Technologies Co. were among the biggest decliners, while Espressif Systems Shanghai Co. bucked the trend with a 14% advance. The stocks are still higher than their listing prices, after they surged an average 140% on the first day.
****SD: There are no price limits during the first five days of trading on the STAR market. Come next Monday, there will be a 20% cap in either direction. Reuters has Top investors lose $1 billion as China’s Nasdaq-style board reverses on day two.
Trading platform IG confident of turning corner after profit slump
Muvija M – Reuters
IG Group expects to return to revenue growth in the second half of this year after the online trading platform reported a 31% slump in annual earnings due to Europe’s clampdown on high-stakes financial betting by amateur traders.
10 Market Bubbles Just Waiting to Pop
Connor Smith – Barron’s
Both the U.S. Federal Reserve and the European Central Bank are set to meet in the next two weeks. Fed Chairman Jerome Powell has already signaled a possible July rate cut.
But rate cuts have already been priced into equity markets, according to Wolfe Research’s Chris Senyek. He wrote in a note to clients Monday that another round of global easing would likely fuel existing asset bubbles and create new ones that could turn a “run-of-the-mill recession into a full-blown financial crisis.”