Observations & Insight
Vela’s Latency Outlook in 2019: Quality and Quantity
In this video, Vela Global Head of Product Management and Business Operations Ollie Cadman talks about how Vela views latency in today’s market environment.
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The State of the Options Industry: Great, But Not 2018 Great
In this video, Trade Alert President Henry Schwartz talks about trends in the listed options industry, from an increase in FLEX and alternative ETF options to the plight of market participants caught wrong-footed at the end of 2018.
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****SD: In case you missed it yesterday, listen to Henry!
Which Stock Markets Are Closed for the Fourth of July
Sophia Cai – Barron’s
The New York Stock Exchange, Nasdaq, and bond markets will be closed on Thursday, July 4, as Americans observe the Independence Day federal holiday.
SpaceX Is Opening Up the Next Frontier for HFT
Sviatoslav Rosov – TABB Forum
High-frequency trading technology and the business models underlying the practice of algorithmic HFT have reached a level of relative maturity. But Elon Musk may soon launch HFT back into the mainstream with his global satellite internet network, Starlink.
****SD: Wouldn’t it be funny if Elon Musk’s legacy ends up being advancing low latency trading technology, rather than his activities at Tesla?
Eastern District Of New York Dismisses Putative Class Action Regarding Mutual Fund Disclosures For Failure To Adequately Allege Misstatements And Omissions
Shearman & Sterling – Lexology (SUBSCRIPTION)
On June 25, 2019, Judge Arthur Spatt of the United States District Court for the Eastern District of New York dismissed with prejudice a putative securities class action brought by investors in a mutual fund asserting violations of the Securities Act of 1933 (“Securities Act”) against the fund’s registrant, certain executives, investment advisor, and underwriter. Emerson v. Mutual Fund Series Trust, No. 2:17-CV-02565 (ADS) (GRB), 2019 WL 2601664 (E.D.N.Y. June 25, 2019). Plaintiffs alleged that the fund’s offering materials misrepresented that the fund was low-risk, when in fact it engaged in speculative investments that exposed the fund to substantial downside risk in rising markets. The Court held that the complaint alleged “no actionable misstatements or omissions,” and dismissed the complaint with prejudice.
Plaintiffs alleged that the fund sold uncovered call options in early 2017 as a directional bet that the S&P 500 would not rise significantly in value. When the S&P 500 rose dramatically during the first half of February 2017, the fund lost a significant portion of its value.
Oil: What Are Options Signaling? (VIDEO)
Erik Norland – CME Group
The peaks and valleys in the oil market have been astounding over the past year. Where will it head next? Oil options skews might offer some indications.
Inside the Geeky, Quirky, and Wildly Successful World of Quant Shop Two Sigma
Stephen Taub – Institutional Investor
The first time hedge fund legend Paul Tudor Jones met quant maven John Overdeck was over a greasy meal of cut-price pepperoni pizza. It was January 2001, and the two were dining at the Pizza Hut in Greenwich, Connecticut — “my Sunday evening go-to restaurant,” according to Jones — to discuss a business plan for a new quantitatively driven hedge fund firm.
****SD: This fell through the cracks last Friday. Fun read. If you missed it in February, check out Alphacution’s 2s’s Market Making Book: Hiding in Plain Sight.
Empty Desks and Early Beers: Life at Deutsche Bank in New York
Sonali Basak, Steven Arons and Jake Rudnitsky – Bloomberg (SUBSCRIPTION)
Equities staff told leaders for years they should make cuts; U.S. executives grew discontent after a year of limited info
Inside 60 Wall Street, the American headquarters of Deutsche Bank AG, the signs of trouble are everywhere.
****SD: Well, it might stink to be there now, but at least folks are still getting paid to dip out early and drink bellinis.
Can Goldman’s Trading ‘Rainmaker’ Bring Back the Glory Days?
Sridhar Natarajan – Bloomberg (SUBSCRIPTION)
Ashok Varadhan is the last of Lloyd Blankfein’s trading chiefs; Famous mathematician’s son and Coach K pupil overcame tragedy
He’s the last link to another era at Goldman Sachs, to the time when the traders ruled.
****SD: We had this story mentioned as a comment in yesterday’s newsletter but I have a non-trading anecdote to add.
From the story: “The younger Varadhan attended Duke University, where he also had the unglamorous role of a manager on its famed basketball team. It was a period that yielded two championships for the Blue Devils, as well as the famous buzzer beater to beat Kentucky in 1992. He can still be seen in clips bounding off the sideline, clipboard in hand, flinging himself on top of a heap of players celebrating Christian Laettner’s shot…’Even though he was on the team for four years, he’s never left,’ said Mike Krzyzewski, known as Coach K. ‘I love the fact that he still gets so emotionally involved with our basketball program.'”
I have a neighborhood acquaintance who played pickup basketball with Coach K back in the day (Krzyzewski is from Chicago). Whenever my neighbor talks about it, he gripes about how Krzyzewski would call a foul on just about any contact. Needless to say, the locals do not hold K in high esteem.
Also on the basketball front, check out this article from Barron’s – NBA Free Agency Is a Big Deal on Wall Street Too.
(Over a 13 year NBA career, Christian Laettner ended up averaging 12.8 pts, 6.7 rebounds, and 2.6 assists, per Basketball Reference.)
Asset Class Scoreboard: June 2019
RCM Alternatives Blog
It’s like someone put a mirror between asset classes in May and June – with most asset classes performing nearly the exact opposite side of their percentage from the month before.
Exchanges and Clearing
CME Group Reaches Second-Highest Quarterly Volume Ever, Averaging 20.9 Million Contracts Per Day in Second-Quarter 2019
– Record quarterly average daily volume in Agricultural Commodities, Interest Rate options, Agricultural options and Metals options
– Record monthly average daily volume in Agricultural Commodities, Metals, Interest Rate options and Metals options
– Record monthly non-U.S. average daily volume of 6.2 million contracts and quarterly average daily volume of 5.4 million contracts
***SD: Let the vinyl (record) pressing continue!
Eurex June figures: Eurex Exchange falls slightly, EEX and Eurex Repo on an upward trend
Eurex, Europe’s largest derivatives exchange and part of Deutsche Börse Group, saw an increase of 12 percent in the number of traded contracts in European equity derivatives (41m compared to 36.5m in June 2018). Across all Eurex markets there was a slight reduction of 7 percent in the number of traded contracts (185.4m compared to 199.8m in June 2018).
June saw monthly records in the number of traded contracts for numerous products including 3.62 million traded contracts for MSCI indexes, 2.78 million traded contracts in STOXX broadbased/size indexes and 1.65 million traded contracts for STOXX Europe 600 sector indexes.
Regulation & Enforcement
Financial Conduct Authority Statement On The Opinion Of ESMA On Its Final Rules For CFDs And CFD-Like Options
This notice sets out the FCA’s reasons for acting contrary to the European Securities and Markets Authority’s (ESMA) Opinion of our national product intervention measures restricting how CFDs and CFD-like options are sold to retail consumers. This is required by article 43(3) of the Markets in Financial Instruments Regulation(link is external).
Broadcom Stock Options That Could Pay Off in a Trade War Truce
Steve Sears – Barron’s
The on again, off again trade war is off again and that’s good for stocks.
President Donald Trump and China’s President Xi Jinping had an 80-minute lunch in Osaka, stepping away from the G-20 summit meeting. That face-to-face was widely expected in global financial markets, and a world-wide rally is now under way.
Will The Fed Cut Rates in July? Six Key Dates To Watch
Blu Putnam – CME Group
CME Group’s FedWatch Tool expects a rate cut soon. The Federal Reserve (Fed) meets on July 30-31 to decide whether to cut rates and if so, by how much. While some more vocal members of the policy-setting Federal Open Market Committee (FOMC) are ready to accommodate the White House and/or the bond market by cutting rates, others may be more data-dependent, meaning they want to assess and analyze the latest data to see if there are any signs of economic weakness. Here is our take on what the data releases in July 2019 might bring.
London Bankers Brace for Summer Gloom With Thousands of Job Cuts
Harry Wilson, Viren Vaghela and Marion Dakers – Bloomberg (SUBSCRIPTION)
A banker who lost his job as part of Nomura Holdings Inc. cuts recalls the camaraderie at the riverside Oyster Shed bar next to the institution’s London headquarters one evening as the room filled with ex-employees.
Japan’s biggest brokerage let about 30 people go that day in April. Summer has arrived in London, but the smiles are likely to remain frozen in the financial community as HSBC Holdings Plc and Deutsche Bank AG join Nomura in implementing thousands of job reductions. In an atmosphere that may be the gloomiest since the financial crisis, some are jumping before they’re pushed.
One Look at Passive Flows Explains the Story of Markets in 2019
Sarah Ponczek and Carolina Wilson – Bloomberg (SUBSCRIPTION)
To understand market psychology these days, just follow the money.
The $119 billion that’s flowed into exchange-traded funds this year shows investors clinging onto the longest bull market that ever was, even as angst builds that all good things must come to an end. Record appetite for fixed-income funds has coupled with a bid for safety in equities, with investors seeking to sidestep pain from geopolitical risk and slower growth, while pursuing further gains.
Why Ken Griffin and Citadel Staying in Chicago Is a Win For Chicago Tech
Jeremie Bacon – Chicago Inno
Back in May, nearly 2,000 miles away, Citadel CEO Ken Griffin made a small comment that has big ramifications for Chicago. Speaking at the Milken Institute Global Conference in Beverly Hills, California, Illinois’ richest man affirmed his commitment to stay in Chicago. While noting the city’s problems with the “three Cs” of corruption, cronyism and crime, Griffin stated that rather than move his family and company, he planned to “stand and fight for the policies and changes that will make this state better.”