Stock Investors Hedged for a Crisis Risk a New ‘Pain Trade’; Bankers brace for no-deal Brexit markets mayhem 10 days early

Oct 9, 2019

Lead Stories

Stock Investors Hedged for a Crisis Risk a New ‘Pain Trade’
Cecile Gutscher – Bloomberg
Stock investors are hedged to the teeth, anticipating a looming crisis from fraught U.S.-China trade talks, recession risk or political bombs in Washington. That’s making it dirt cheap to bet on the bull market defying the odds.
Traders in S&P 500 Index options have rarely been this bearishly positioned, with nearly 2.5 puts outstanding for every bullish call. The cost of hedging, or skew, has spiked to one-year highs across multiple equity benchmarks and options tenors, according to an Oct. 7 note from Credit Suisse Group AG.

Bankers brace for no-deal Brexit markets mayhem 10 days early
Financial markets could go into a Brexit tailspin about 10 days earlier than expected if a potentially chaotic no-deal departure at the end of the month looks inevitable, bankers say.
Five banking sources said contingency plans were in place to deal with a possible rout in stocks, bonds and sterling on Oct. 21, rather than immediately after Britain’s scheduled departure date of Oct. 31.
Traders are preparing to eat, sleep and work round the clock in their offices.

****JB: The article notes that, so far, there is no sign of panic in the options markets.

Germany, France want massive markets push after Brexit
Huw Jones – Reuters
The EU must encourage consumers and venture capital companies to make a “massive” push into financial markets after its main financial centre London leaves the bloc in Brexit, the biggest remaining members said in a paper on Wednesday.
No matter what form Brexit takes, it will cause a big shift of financial activity from London to other financial centres in the EU, the paper said. It called for more action to make sure the bloc remains one of the world’s two top financial centres, even without London.

Stock Market Doesn’t Want to Hear Goldman Sachs’s Happy Talk
Robert Burgess – Bloomberg
In normal times, a bullish call on stocks from the chief global strategist at Goldman Sachs Group Inc. would send equities soaring. But these aren’t normal times. The S&P 500 Index not only fell on Monday after Peter Oppenheimer issued a report saying investors can still expect “a reasonable relative return” by holding stocks, it declined even more on Tuesday for good measure, dropping 1.56%. This isn’t an indictment of Goldman’s influence, but rather proof that even Wall Street analysts can’t provide the one thing markets want most.

Chinese Stocks Have Become Less Volatile Than Their U.S. Peers
Elena Popina – Bloomberg
U.S. equities have become wilder than their Chinese peers.
Realized 60-day volatility in the CSI 300 Index of Shanghai and Shenzhen stocks fell to 14 at the end of last month, compared with 15.6 for the S&P 500 Index. China’s financial markets were closed for the first week of October.

Fed’s Powell: Outlook favorable, steps to address money market volatility coming soon
Howard Schneider and Ann Saphir – Reuters
U.S. Federal Reserve chairman Jerome Powell on Tuesday flagged openness to further rate cuts amid global economic risks, and said the time to allow the Fed’s asset holdings to begin to expand again “is now upon us” in order to ensure money markets function smoothly.

Exchanges and Clearing

Cboe Global Markets Successfully Completes Major Technology Integration, Next Innovations Underway
Cboe (press release)
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, announced the successful migration of Cboe Options Exchange (C1), the largest U.S. options exchange, to its proprietary Bats technology on October 7, 2019. The C1 migration was the final step in the company’s multi-exchange, multi-year technology integration, which unites Cboe’s options, futures, U.S. equities and European equities markets on Bats technology.

Miami International Holdings Reports September 2019 Trading Results for MIAX Exchange Group
MIAX (press release)
Miami International Holdings, Inc. (MIH) today reported the September 2019 trading activity for its three fully electronic options exchanges – MIAX , MIAX PEARL and MIAX Emerald (together, the MIAX Exchange Group). The MIAX Exchange Group collectively executed over 35.9 million equity option contracts in September for a combined average daily volume (ADV) of 1,799,882 contracts, representing a total U.S. equity options market share of 9.98%.

Intercontinental Exchange Announces New Milestones in TTF and JKM trading
Press Release
Amid the liberalization of liquefied natural gas and the corresponding globalization of natural gas markets, Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today announced new milestones in the trading of the TTF natural gas and JKM LNG (Platts) contracts.
In September, TTF Futures and Options hit an all-time monthly volume record of more than two million lots (2,023,848), equivalent to 1,484 TWh. TTF Futures set a new daily volume record on September 10 of 193,695 lots, equivalent to 142.1 TWh. TTF is the most liquid European natural gas benchmark, followed by ICE’s UK Natural Gas Futures (NBP). Europe’s interconnected natural gas infrastructure allows it to absorb LNG arriving on the continent and has propelled the adoption of TTF Futures and Options as risk management tools for commercial traders to manage their exposure to global natural gas price volatility. TTF volume is up 97% year-over-year, versus 1,027,977 lots in September 2018.

Stuart Heath on our new Equity Total Return Futures
On 7 October Eurex introduced Total Return Futures on single equities, complementing the Eurex suite of equity index derivatives and supporting the market in complying with new financial market legislation. We spoke to Stuart Heath, Eurex Equity & Index Product Development, about the new futures, how they benefit clients and how they push towards futurization.

Euronext announces volumes for September 2019
Euronext (press release)
Euronext, the leading pan-European exchange in the Eurozone, today announced trading volumes for September 2019. Following the completion of the acquisition of Oslo Børs VPS, below figures include all Oslo activity from July 2019 (of which Fishpool in future commodity and OTC derivatives designated as Taylor Made).

Regulation & Enforcement

ISDA CDM 2.0: Continuation of Leadership in the Derivatives Industry
Russell Rhoads – TABB Forum
ISDA continues to lead the way to standardization in the OTC derivatives industry with the development of the Common Domain Model, which will further automate the full life cycle of a derivatives trade.

Disciplinary Notice: Denial of Trading Access to ICE Futures U.S. Markets: Phillip Ferguson
Intercontinental Exchange
In accordance with ICE Futures U.S., Inc. (“Exchange”) Rule 21.16(d), Phillip Ferguson is barred from directly or indirectly trading on any Exchange market for failing to make payment of a monetary penalty in accordance with the settlement terms of disciplinary action. The trading access denial shall remain in effect until the monetary penalty is paid in full.


Nomura and Standard Chartered FX heads join FX options trading firm Digital Vega
Hayley McDowell – The Trade
FX options electronic trading firm Digital Vega has made two senior hires from Standard Chartered Bank and Nomura to support its expansion efforts.
In a statement, Digital Vega confirmed that it has hired Simon Nursey, previously head of FX options trading in Asia at Standard Chartered, as head of Asia. Nursey had been with Standard Chartered since 2012 and prior to that spent 17 years with BNP Paribas as global head of currency options trading.

Tham Sai Choy appointed SGX Listings Advisory Committee chairman
SGX (news release)
Singapore Exchange (SGX) today announced that Mr Tham Sai Choy has been appointed chairman of the independent Listings Advisory Committee (LAC) effective 7 October 2019, replacing Mr Gautam Banerjee who is stepping down. The appointment was made in consultation with the Monetary Authority of Singapore.


Russell Rhoads’ Derivatives Look Forward: The ESG Wave
Environmental, Social and Governance investing is hot. As the world continues to be more conscious of resource utilization and the impact of businesses on the environment, ESG investment vehicles are getting a lot of attention. In this week’s Derivatives Look Forward, TABB Group head of derivatives research Russell Rhoads highlights some new methods of gaining exposure to ESG indexes, the risk advantages of ESG investing, and some ETFs that score well using ESG measures.

October Volatility Got You Spooked? Keep Calm With Muni Bonds
Frank Holmes – Forbes
For reasons unknown, October has historically been the most volatile month for the stock market—by a goodly margin. Between 1950 and the end of 2017, the S&P 500 Index saw as many as 362 trading days during the month of October in which the market moved up or down more than 1 percent. That’s 58 more days than the second-most volatile month, August.

SVXY: It’s A Great Day To Short Volatility
Seeking Alpha
Over the last week, holders of the ProShares Short VIX Short-Term Futures ETF (SVXY) have taken a small hit with the ETF falling by a little over 5%. Given the recent pop in the VIX, this drop makes sense; however, I believe that the current decline in price represents an excellent buying opportunity in the ETF.

TVIX: Prepare For The Decline In Volatility
Seeking Alpha
Over the last week, holders of the VelocityShares Daily 2x VIX Short-Term ETN (TVIX) have been richly rewarded with shares rising by over 18% in conjunction with a strong gain seen in the VIX. It is my belief that the current VIX rally has exhausted itself, however, and that selling and shorting opportunities should be sought in the immediate future in TVIX.


Columbus Day: Which markets are closed?
Andrea Riquier – MarketWatch
Some U.S. financial markets will be open, and some closed, on Monday, October 14 in observance of the federal holiday Columbus Day.
The New York Stock Exchange and the NASDAQ will both be open regular hours. The next time the U.S. stock market will be closed for a holiday is Thanksgiving, Thursday, November 28.
In contrast, SIFMA, the Securities Industry and Financial Markets Association, has recommended that the bond market be closed.

Matt Amberson To Speak at AltsTX, Educational Alternative Investment Conference
Matt Amberson, Principal of ORATS, will present at MarketsGroup’s AltsTX conference in Dallas, Texas on October 15th. Matt will join long time friend and colleague Eric Metz of SpiderRock Advisors for two appearances moderated by Joe Burgoyne of the The Options Industry Council (OIC), an educational organization funded by OCC, the world’s largest equity derivatives clearing organization.


The All-America Research Team: JPMorgan Triumphs Again
Amy Whyte – Institutional Investor
Every year, thousands of investment professionals vote to determine the top equity research analysts — and firms — on Wall Street. For the fourth year in a row, that top firm is JPMorgan Chase & Co.

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