Observations & Insight
Monday Funday – Wine, Analytics and a Contest
Spencer Doar – JLN
Always wanted to go to one of ALTSO’s great charitable events to network and listen to musicians from the industry? Here is a special chance to win two free tickets to ALTSO’s annual Rocktoberfest event on October 11 in Chicago. ALTSO’s modular prosthetic limb kit – the Joshi – is made of high quality aluminum and stainless steel. Guess what the closing price of Alcoa Corp (NYSE: AA) will be on Thursday, September 20 for your chance to win. Enter the contest here.
Missed this: Social Market Analytics, the firm providing predictive sentiment data based upon social media, partnered with CME Group to provide sentiment data for 36 contracts across 6 different asset classes. Take a look on the right side of the CME’s E-mini S&P 500 page to see an example of the sentiment gauge.
Last Friday’s episode of “The Spread,” which recaps notable options news, can be viewed here.
According to Bloomberg, Hurricane Florence has already caused $18 billion in damage.
Also in the “missed this” category: How E*Trade CIO Faces Obstacles to Agile (from the WSJ). E*Trade reported its August numbers today – derivatives DARTs were up 3 percent MoM and 36 percent YoY.
The real Charles Shaw – namesake of Trader Joe’s “Two Buck Chuck” – works at the Chicago Board of Trade. He has never seen a cent from the brand that bears his name. For his backstory – it’s really a story on the evolution of wine consumption – see this blog from The Hustle. For a shorter read, see this piece from Business Insider in August.
Surge in Tail-Risk Hedging Rings Alarm Bells for Equity Bulls
Yakob Peterseil and Sid Verma – BloombergQuint
The underbelly of the options market is flashing a warning sign for U.S. stock bulls.
As global trade skirmishes intensify and valuation fears stalk technology stocks, investors are forking over cash for tail-risk protection, even as Wall Street’s traditional fear gauge sits at muted levels.
The Cboe SKEW Index breached 150 last week, reflecting a surge in demand for out-of-the-money put options versus calls on the S&P 500 Index.
****SD: Skewed SKEW skews market’s view?
Election Uncertainty Spurs Investors to Hedge
Gunjan Banerji – WSJ (SUBSCRIPTION)
While the U.S. stock market continues its march higher, investors are increasingly turning to options to protect their bets ahead of the U.S. midterm elections.
Autumn tends to be a volatile period for the equity market; and this year, investors have been increasingly focused on a particular date: Nov. 6, when voters head to polls to determine whether Republicans will maintain their slim control of Congress or lose ground to Democrats.
****SD: More on SKEW…
How US banks took over the financial world
Martin Arnold in London yesterday – Financial Times
Three days before Lehman Brothers filed for bankruptcy in September 2008, Bob Diamond was ushered into a large conference room with “buyer” hand-written on the door at the New York Federal Reserve Bank in Manhattan.
****SD: Tertiary comment: there are three clearers of options liquidity providers – all are large bank affiliated clearers.
Goldman Says Rising U.S. Rates ‘Boiling the Frog’ of Risk Assets
Gregor Stuart Hunter – BloombergQuint
Rising U.S. interest rates are probably just beginning to roil risk appetite around the world, according to economists at Goldman Sachs Group Inc.
Global investors may be underestimating the headwinds to financial assets posed by U.S. rates, they said. While the real rate on three-month U.S. Treasury bills — or the nominal rate minus inflation (or inflation expectations) — remains negative, Goldman forecasts the measure will diverge from other real rates in the developed and developing world over the next year-and-a-half.
****SD: That frog comparison always makes me grimace.
Are Quant Funds The New Chart Traders?
Michael Harris – Quant News
Do new and sophisticated quant funds have better chances to profit than the chart trader of the 1990s that used technical analysis? Is it possible that quant funds are the equivalent of retail traders of the past?
The retail chart traders of the 80s and 90s were easy targets for systematic trend-followers. After all, where did the high returns of CTAs come from during that period? Trading, and especially futures trading, is a zero-sum game. CTAs by being patient trend-followers took advantage of the random methods of chart traders and profited at their expense.
Geely Holding Receives Approval to Become Majority Owner of Saxo Bank
Celeste Skinner – Finance Magnates
Saxo Bank, a multi-asset broker, announced on Friday that it has received all of the regulatory approvals to enable China’s Zhejiang Geely Holding Group Co. Ltd (Geely) and Finland’s Sampo plc (Sampo) to acquire shares in Saxo Bank A/S.
Exchanges and Clearing
How clearing houses aim to avert market disasters
Philip Stafford – Financial Times (SUBSCRIPTION)
Clearing houses have been cast into the spotlight after soured bets from Norwegian trader Einar Aas blew a EUR114m hole in the buffers that are designed to stem systemic losses from trading derivative contracts in the European power markets.
Regulators probe Nasdaq’s derivatives market safeguards
Philip Stafford – Financial Times (SUBSCRIPTION)
Swedish markets regulators are to investigate Nasdaq as the exchange and its customers began rebuilding their defences against defaults in the derivatives markets, after they were badly damaged by soured bets from a Norwegian trader.
Nasdaq says more than 90 pct of clearing house buffer has been restored
Members of Nasdaq’s Nordic commodities exchange have replenished more than 90 percent of clearing house contingency funds that were lost last week when a private Norwegian trader defaulted during a spike in market volatility, the exchange operator said.
HKEX Severe Weather Arrangements
Super Typhoon Mangkhut is approaching Hong Kong, in case any disruption to the market, here are the contingency arrangements for the settlement of September contracts of RMB Currency Futures, Options and HIBOR Futures, the London Metal Mini Futures Contracts and the Physically Settled USD and CNH Gold Futures contracts expiring on 17 September.
Former Goldman Sachs European electronic trading head joins Redburn
Hayley McDowell – The Trade
European agency broker Redburn has hired a former electronic trading head from Goldman Sachs and industry veteran to oversee the firm’s global execution services.
Michael Seigne has been appointed head of execution services at Redburn, based in London and reporting to co-founder and senior partner Jeremy Evans. He will also join Redburn as a partner and a member of the executive committee.
****SD: Redburn also just Implemented Itiviti’s Pre-Trade Risk Framework, Further Leveraging UL Bridge
Regulation & Enforcement
Governing the Give Up of a Clearing Trading Permit Holder by a Trading Permit Holder
SIFMA provided comments to the Securities and Exchange Commission (SEC) on proposed rule change to amend Cboe Rule 6.21. In the Filing, Cboe proposes the requirement that an executing broker obtain authorization from a clearing firm prior to giving up that clearing firm for options transactions. SIFMA supports the Cboe proposal because it would reduce a significant source of risk for clearing firms.
SEC invites comments on C2 plans to expand types of messages that may be submitted into bulk order ports
Maria Nikolova – FinanceFeeds
The United States Securities and Exchange Commission (SEC) solicits comments on a proposed rule change by Cboe C2 Exchange. The Exchange proposes to expand the types of messages that users may submit into bulk order ports.
A bulk order port is a dedicated logical port that provides users with the ability to submit single and bulk order messages to enter, modify, or cancel orders designated as Post Only Orders with a Time-in-Force of DAY or GTD with an expiration time on that trading day. Post Only Orders with a Time-in-Force of Day or GTD are orders that will be posted to and displayed by the Exchange, rather than removing liquidity or routing to another options exchange.
CFTC Orders Company That Provided Swaps And Commodity Options Trading Advice To Eligible Contract Participants To Cease And Desist From Acting As An Unregistered Commodity Trading Advisor
The Commodity Futures Trading Commission (CFTC) today announced that it entered an Order requiring Mobius Risk Group LLC (Mobius), a Texas limited liability company with its principal place of business in Houston, Texas, to pay a $75,000 civil monetary penalty for acting as an unregistered Commodity Trading Advisor (CTA).
The CFTC Order finds that, from in or about October 2012 to August 15, 2018, Mobius, for compensation or profit, engaged in a business that included providing over-the-counter (OTC) swaps and commodity options trading advice.
If you trade in derivatives, get ready for higher costs
Lisa Pallavi Barbora – Livemint
In the last seven months, the NSE and NSE Clearing Ltd, in consultation with the Securities and Exchange Board of India (Sebi) and other exchanges, have issued at least seven circulars on the subject of Additional Surveillance Margin (ASM) applicable on equity derivative trades. These are part of the costs you pay in order to trade in derivatives.
Whistleblower Advocacy Group Requests SEC Extend Public Comment Period On Controversial Changes To Whistleblower Program
Today the National Whistleblower Center (NWC), the nation’s leading whistleblower advocacy group, formally requested the U.S. Securities Exchange Commission (SEC) to extend the public comment period for proposed changes to the SEC Whistleblower Program. – Press Release
The request is based on the failure of the SEC to produce 15,877 emails and other documents it identified in response to a Freedom of Information Act request filed by the NWC. The NWC FOIA request sought documents related to lobbying efforts by Wall Street firms and the Chamber of Commerce that gave rise to the SEC’s proposed rules.
****SD: Lack of regulatory transparency is not to be overlooked.
Presentation on Volatility Regime Change and the VIX Singularity Hedge Strategy at Cboe RMC
Matt Moran – Cboe
Abhinandan Deb, Managing Director and Head of Global Cross Asset Quant Investment Strategy at BofA Merrill Lynch, delivered a presentation on “Volatility Regime Change – Signs, Symptoms and Solutions” on September 13 at the 7th Annual Cboe European Risk Management Conference (RMC).
****SD: Other blogs from the Cboe RMC: Unprecedented Overhaul of Sector Indexes Discussed at Cboe RMC and Cboe RMC Panel Outlines Variance Utility Cases and Uses
Pound Optimism Returning as Analysts See Gains Against the Euro
Charlotte Ryan – BloombergQuint
Pound bulls have taken heart from the currency’s recent price action and are lining up to recommend investors should bet on sterling against the euro.
Expiring SPY Options Could Dampen Volatility This Week
Todd Salamone – Schaeffer’s Investment Research
After a steady decline throughout the first week of September, the S&P 500 Index (SPX – 2,904.98) reversed gear last week. The equity benchmark advanced throughout most of the week, and finished Friday just above its month-end August close at 2,901.52.
This hidden factor could soon make stocks much more volatile
Ryan Vlastelica – MarketWatch
Trading in the U.S. stock market has been quiet of late, but the calm may not last for long.
Major U.S. companies are about to enter their “blackout” period, which will remove a steady—and perhaps underappreciated—factor that has been buttressing equity values.
Templeton Says Emerging Markets Approaching Turning Point
Andreea Papuc and Ruth Liew – BloombergQuint
Franklin Templeton Investments says the rout in emerging markets may be nearing a bottom though reckons there are still countries like the Philippines that will suffer.
BP, Vitol go head to head in West African crude trading
Dmitry Zhdannikov, Julia Payne and Amanda Cooper – Reuters
Oil major BP has clashed with rival Vitol in the once-languid West African crude market, buying up cargoes and taking a big derivative position that may have raised costs for European refiners.
Nearly half of America has missed out on ‘one of the most unloved bull markets in history’
Thomas Heath – Washington Post (SUBSCRIPTION)
Gauging the winners and losers from the financial crisis isn’t rocket science: If you were in the more than one-half of American households that owned stocks in public companies over the past decade, all you had to do was close your eyes and hold on.
Lehman brokerage wind-down could end in 2019: trustee
The liquidation of Lehman Brothers Holdings Inc’s brokerage unit could end in 2019, 11 years after its parent’s bankruptcy became a primary cause of the global financial crisis.