Pete Najarian – tough market to trade; The Efficient Market Hypothesis; Goodnight VXX

Jan 24, 2019

Observations & Insight

The record-breaking purchase of a New York City penthouse is the latest in a string of multimillion-dollar real-estate deals by the hedge-fund manager
Katherine Clarke – WSJ (SUBSCRIPTION)
Billionaire Ken Griffin, who is becoming almost as known for his prodigious purchases as he is for his investment acumen, has closed on a New York penthouse for roughly $238 million. The deal sets a record for the highest-priced home ever sold in the U.S.

*****SD: Somehow I don’t think “location” is the only guideline Griffin uses when it comes to real estate. Here is the Bloomberg version, the Reuters version and the FT version

Lead Stories

This is one of the toughest markets to trade Pete Najarian has seen in his nearly 30-year career
Michael Sheetz – CNBC
The short-term outlook of many in the options market has veteran trader Pete Najarian holding the fewest number of trades in his career, he told CNBC on Wednesday. “I have the smallest amount of equity in the options world that I’ve ever had since I’ve been trading,” Najarian, co-founder of options trading hub Investitute, said on CNBC’s “Halftime Report.”

The Efficient Market Hypothesis
Highly Evolved Vol
(This is an excerpt from my upcoming book on positional option trading.) The traders’ concept of the Efficient Market Hypothesis (EMH) is, “making money is hard”. This isn’t wrong, but it is worth looking at the theory in more detail. Traders are trying to make money from the exceptions to the EMH, and the different types of inefficiencies should be understood, and hence traded, differently.

Goodnight VXX, It’s Time to Go
Russell Rhoads – Tabb
It’s hard to believe, but it has been 10 years since VXX and VXZ debuted as the first-ever volatility-related exchange products. Both came to us in the form of an exchange-traded note (ETN), and since ETNs are structured as bonds, they have an expiration date: at the open on Jan. 30, 2019, which means any action by holders to avoid receiving cash should be taken by Jan. 29, 2019.

****SD: There’ll be more of these reminders as the date nears. The WSJ, Bloomberg and the FT have already delivered eulogies.

Market Volatility Drives FINRA’s Volume To New Record In 2018
Exceptional market volatility generated an unprecedented amount of processing volume for FINRA in 2018 – 66.7 billion electronic records per day, an 87.4 percent increase over the average daily volume in 2017. FINRA’s pioneering cloud strategy allowed it to handle the record-setting volume smoothly while continuing to perform vigorous regulatory oversight of securities trading.

****SD: “Trading activity in the stock, options and fixed-income markets creates a variety of electronic records that FINRA monitors for regulatory purposes. Every day, FINRA receives order and trade data regarding 42,000 investment products from 17 securities exchanges, more than 60 alternative trading systems and almost 1,400 broker-dealer firms. FINRA runs almost 200 algorithmic “patterns” to look for more than 300 potential threat scenarios including market manipulation, fraud, customer abuse, insider trading, abusive short selling, inaccurate trade reporting, and other rule violations.”

Money Is Flooding Out of London While the U.K. Bickers Over Brexit
Will Hadfield and Steven Arons – Bloomberg via Yahoo
The U.K. parliament can’t agree on how to leave the European Union, but many finance firms have already decided how much money to move out of the City of London — a shift that’s seen by some as irreversible. The big banks were among the first to plan to move assets out of London, with Frankfurt standing to benefit handsomely. Five of the largest banks looking to serve continental European customers now intend to move 750 billion euros ($855 billion) of balance-sheet assets to Frankfurt, according to people familiar with the matter.

Exchanges and Clearing

Derivatives lobby urges clearing controls after Nasdaq default; Isda chief Scott O’Malia says it is more important than ever that clearing houses have robust risk management
Samuel Agini – Financial News London
The trade body for the world’s $595tn over-the-counter derivatives market has called for better controls at clearing houses in the wake of high-profile defaults. The International Swaps and Derivatives Association published a series of best practice guidelines on January 24 to help clearing houses improve and maintain robust risk management.

SGX reports 2Q FY2019 net profit of S$97 million
Singapore Exchange (SGX) today reported 2Q FY2019 net profit of S$96.5 million (S$88.4 million), against revenues of S$224.1 million (S$205.0 million). Operating profit was S$113.7 million (S$103.0 million), with earnings per share at 9.0 cents (8.2 cents). The Board of Directors has declared an interim dividend of 7.5 cents (5 cents) per share, payable on 12 February 2019.

Stock derivatives gain popularity on Singapore Exchange
Pavan Burugula – ET Bureau
Mumbai: The Singapore Exchange (SGX) has emerged as the leading platform for issuance of offshore derivative instruments (ODI) betting on Indian stocks since the regulatory crackdown on participatory notes (p-notes) in the country. P-notes is a form of offshore derivative instrument. Some of the leading foreign portfolio investors (FPIs) based out of Singapore are issuing hybrid instruments such as ODI swaps and options, with Indian stocks as the underlying, through the over-the-counter (OTC) platform of SGX.

NYSE, Nasdaq, CBOE, IEX, And MEMX: Exchanges Doomed By Excess
Kurt Dew – Seeking Alpha
The financial markets need an agenda. The recent focus of financial market commentary has been mostly negative – excessive exchange fees, Balkanization, and fragmentation. However, fulfillment of the promise of electronic trading asks for something more than lower fees.

Cboe shelving plan for bitcoin-tracking product: filing
The U.S. Securities and Exchange Commission said on Wednesday that Cboe Global Markets Inc is pulling its proposal to list an exchange-traded product tracking the price of bitcoin, delivering another blow to cryptocurrency enthusiasts.


Nomura plans more hires in equity derivatives, eyes China
Chris Davis and Narayanan Somasundaram – (SUBSCRIPTION)
Nomura has been on a hiring spree as it fights for a larger share of Asia’s fiercely contested structured products market. And it has no plans to stop: more hires and a push into China are on the cards for 2019. This year the bank intends to recruit between five and 15 structuring and solution sales specialists in Asia ex-Japan, says Rob Webb, who heads Nomura’s equity products unit in the region. The unit has already added 20 staff, mostly traders, in the past 12 months.

Junior traders are leaving Goldman Sachs and Morgan Stanley to pursue technology careers
Goldman Sachs and JPMorgan want to keep their technology staff happy. Goldman has hiked pay for its technology juniors and JPMorgan is letting some of its junior staff take a technology masters course while they work. However, both banks might want to think about keeping their salespeople and traders contented too.

Regulation & Enforcement

Wall Street’s Hopes for the New Congress Go From Not-So-Good to Oh Dear
Elizabeth Dexheimer and Robert Schmidt – Bloomberg (SUBSCRIPTION)
The House Financial Services Committee has long been a coveted gig for any member of the U.S. CongressóDemocrat or Republican. The panel helps shape major economic policies but, more important for members perpetually up for reelection, it virtually guarantees access to campaign cash from the banks, hedge funds, and other financial companies keen to keep them happy.

Brussels to sue UK over tax breaks for commodities traders
Jim Brunsden and Mehreen Khan – Financial Times (SUBSCRIPTION)
Brussels is to sue the UK in Europe’s highest court over tax breaks for commodities traders, according to EU diplomats briefed on the plans, escalating a battle that Britain said risked damaging the post-Brexit competitiveness of the City of London.

Clone Firm of Nadex is Targeting Clients on Social Media
Celeste Skinner – Finance Magnates
Financial scams are everywhere. A quick look at the warning page of your local regulator will clearly showcase this to you. This week, however, it is Nadex, a US-based online binary options exchange, that has published a warning on its website against a suspected scam, Nadex Investment Team.


$1.2 trillion brokerage giant TD Ameritrade is working on a new technology similar to Domino’s pizza tracker, and it could save them millions
Dan DeFrancesco – Business Insider Prime (SUBSCRIPTION)
The future of getting questions answered from your brokerage might be as easy as checking when your pizza will be delivered or if your Uber driver has arrived. That’s the idea behind a new tool TD Ameritrade is developing to help employees, and eventually customers, keep track of processes like adding additional funds into their account or filing paperwork, as they move their way through the organization.


Lower tail risk favors emerging markets
David Goldman – Asia Times
Fear of extreme outcomes blew up risk markets at the end of 2018, and the response of governments as well as central banks has reduced the risk of extreme options. Tail risk is shrinking, and some of the riskiest assets, for example, local-currency emerging market debt, looks attractive.

Credit Suisse strategist shares his top concern about current market conditions
Tyler Clifford – CNBC
“There’s total inconsistency in the underlying earnings data,” says Credit Suisse’s top strategist, Jonathan Golub. “The revenues are knock-the-lights-out good, and the margins are horrifically bad, based on Wall Street consensus expectations,” he says.


Marex Spectron to acquire Energy Broking Ireland Ltd
Commodities broker Marex Spectron said on Wednesday it has agreed to acquire Dublin-based Energy Broking Ireland Ltd (EBI), in a deal expected to be completed in February.

****SD: First RCG, then CSC Commodities, now this – Marex making a splash in 2019.

No-Deal Brexit Risk Recedes as Calls Grow to Delay Divorce
Alex Morales – Bloomberg (SUBSCRIPTION)
The risk of a no-deal Brexit appears to be receding after calls for a delay to the U.K.’s exit from the European Union won powerful backing in London and other EU capitals. The pound rose.

Asia convertible bonds boom as rates, market risk rise
Julia Fioretti – Reuters
Asian companies are borrowing record amounts via convertible bonds as they seek cheaper ways to raise funds amid rising interest rates and volatile equity markets.

****SD: Speaking of Asian convertibles, word on the street is that Toyota is considering a convertible version of its new Supra.

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