Observations & Insight
OIC 2021: What’s Next for the Options Industry? ‘Not Going to Put the Genie Back in the Bottle’
Suzanne Cosgrove – John Lothian News
Retail participation, education of new investors, seen as ongoing industry themes in 2021
After two days of heralding the record volume that accompanied exceptional periods of volatility in 2020, panelists in the final sessions of the Options Industry Conference generally breathed a collective sigh of relief that the industry had escaped last year’s challenges relatively unscathed.
Even the Federal Reserve’s Randal Quarles, vice chairman for supervision and chairman of the Financial Stability Board, took a relatively sanguine tone on Thursday in his keynote discussion with OCC Executive Chairman Craig Donohue.
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OIC 2021: Yesterday’s panel on options market structure at the Options Industry Conference ushered in a beautiful new word to the derivatives lexicon: retailization. According to the panel, the options industry’s 16 exchanges and five families of exchange operators were able to benefit from retailization over the past 15 months because of the efforts and infrastructure investments expended since the Great Recession. Panelists said they were relieved this year to be able to talk about innovation and growth more than about risk management. On the industry’s agenda are projects to reduce the number of strike prices and to market mini-size products as it competes against cryptocurrencies and sports betting for the retail trader’s dollar. ~Thom Thompson
Parametric fund earns ‘Gamma Hammer’ moniker with bet on tranquil markets
Eric Platt, Joe Rennison, Laurence Fletcher, Colby Smith and Robin Wigglesworth – Financial Times
A big bet on markets remaining docile has captured Wall Street’s attention, with $350bn fund manager Parametric earning itself the nickname ‘Gamma Hammer’ for billions of dollars’ worth of options trades.
People familiar with the fund’s trading activity say it has netted lucrative fees from the strategy of trading so-called gamma, the Greek term used to describe how the value of options fluctuates as stocks move.
Hedge Funds Are Raiding Big Banks to Hire Volatility Traders
Alex Morrell – Business Insider
“These guys have no clue,” a senior volatility trader at a top Wall Street bank recalled thinking last March, after President Donald Trump announced a travel ban to Europe and erroneously said that trade and cargo would be blocked — causing global markets to convulse.
For weeks the trader, and others on equity derivatives desks across Wall Street, had watched the public-health calamity unfolding in Wuhan, China, with alarm. As they purchased options to put on protection trades that pay off in rare cases of intense volatility, most of the rest of the world trudged on, complacently assuming the virus wouldn’t rear its head in the US and Europe.
Barclays, BNP Show Boost for Equity Traders Who Dodged Archegos
Harry Wilson and Donal Griffin – Bloomberg
Booming stock markets and retail-investor fueled volatility have delivered the best quarter in years for many European banks’ equity trading desks, mirroring gains at their U.S. counterparts.
On Friday, Barclays Plc said the first quarter was the “best ever” for its equities unit, which reported a 65% year-on-year jump in revenue to more than $900 million, while BNP Paribas SA posted its highest earnings from equities since 2018.
Stock Market Opportunity in Recent Options Rule Change: Mike Green
Vicky Ge Huang – Business Insider
Mike Green needs no introduction on Wall Street.
The hedge fund veteran has managed the personal capital of Silicon Valley billionaire Peter Thiel, set up a global macro hedge fund that was seeded by another billionaire George Soros, and worked at multi-billion-dollar shops such as Canyon Capital Advisors.
A longstanding critic of passive investing and its huge impact on the markets, Green has also presented his research to audiences including the Federal Reserve, the International Monetary Fund, and the US Department of State.
Exchanges and Clearing
Cboe profit beats estimates amid robust trading volumes
John Mccrank and Sohini Podder – Reuters
Cboe Global Markets Inc (CBOE.Z) on Friday reported quarterly profits that topped Wall Street expectations, helped by robust trading volumes and increased demand for the exchange operator’s proprietary products as the economy reopened from pandemic-induced shutdowns.
Stripping out one-time items, like M&A costs, Cboe earned $1.53 per share in the first quarter, 13 cents above the average estimate of analysts, according to Refinitiv IBES data.
The beat was due to both better than expected revenues and expenses, Jefferies analyst Daniel Fannon said in a client note.
A great step forward in market access: FX derivatives migrate to the standard T7 trading system
With effect from 15 May 2021 Eurex has decided to transfer its FX derivatives from the T7/FX trading system to its standard T7 trading system. This will simplify access and lower the entry barrier to Eurex’s FX products. In addition, trading FX on Eurex also offers several other benefits for participants as Maximilian Dannheimer, Head of FX ETD Sales at Eurex, explains in this video.
UK/EU – Rebuilding a relationship
The Brexit divorce was a long-drawn out process which laid bare tensions over how best to oversee derivatives markets and enable continued cross border market access. The MoU between the UK and the EU is now complete but mutual equivalence appears a long way off. Will Euro denominated derivatives migrate to EU CCPs on a voluntary basis or be mandated? Will UK regulations diverge? What are the prospects for market fragmentation and the financial and operational implications for market participants? Join us on 19 May as speakers answer these questions and highlight core areas of concern for the cleared derivatives industry.
Time: May 19, 2021 09:30 AM in London (3:30a CST)
Goldman Sachs predicts quantum computing 5 years away from use in markets; US bank and QC Ware looked into use of technology to price complex derivatives
Richard Waters – FT
Quantum computing could be brought to bear on some of the most complex calculations in financial markets within five years, considerably earlier than expected, according to research jointly conducted by Goldman Sachs.
Barron’s 100 Most Influential Women in U.S. Finance: Liz Ann Sonders
Shaina Mishkin – Barron’s
For Liz Ann Sonders, the unprecedented volatility caused by the pandemic was a teaching opportunity for new and experienced investors alike.
The Charles Schwab senior vice president and chief investment strategist, who has been at Schwab since 2000, has used her role to educate investors about the pillars of financial literacy—such as diversification and portfolio rebalancing—for over two decades. “A year like the past year reinforces the power of some of those disciplines,” she tells Barron’s.