Tail risk of systematic investment strategies and risk-premia alpha; Spoofing trial coverage

Apr 9, 2019

Observations & Insight

The Spread – A Bumpy Ride
Some fines and a speed delay make for a bumpy ride in this episode of The Spread.
Watch the video and see the stories referenced here »


A “Computer Guy From Naperville”: Closing Arguments in US v Thakkar
Thom Thompson – John Lothian News
Closing arguments in the trial US v Thakkar took place Monday in a long morning for the jury, lasting about three hours. After the charge of conspiracy to spoof was dismissed by Judge Gettleman last week, Jitesh Thakkar still faces two charges of aiding and abetting the commission of a crime, for two separate occasions, February 25 and March 8, 2013.


The U.S. v. Jitesh Thakkar: Closing Arguments
Chuck Mackie – Medium
…and as I watched him on the stage, my hands were clenched in fists of rage… – Don McLean
I’ll admit it: I’m biased. I think the case against Jitesh Thakkar is a crock and, what’s worse, it is an uninformed, arrogant and dangerous abuse of government power. So, if you’re looking for a dispassionate recounting of today’s closing arguments from the government and the defense in this case, then what I have to say won’t be of much use to you. If, on the other hand, you’re interested in an informed and full-throated defense of Thakkar and castigation of the U.S. Justice Department, then you’ve come to the right place.


The LME’s Ambitious Revamp – Matt Chamberlain, LME

London Metal Exchange CEO Matt Chamberlain knows that the more than 150-year-old exchange has not been at the front of the pack when it comes to technology, but he also knows that gives it an opportunity to survey what other market participants have done in their markets. The exchange spent 2018 making some structural and technological tweaks, but the big lift comes as LME rips out its interconnected “spaghetti” of technology and develops its next market data system using HKEX’s Orion platform as a base. (HKEX owns LME.) In this video from JLN’s Industry Leader Series, Chamberlain talks about straddling the line between being a monthly futures market and a daily forwards market all while building out this next iteration of exchange technology.

Watch the video »

Lead Stories

Tail risk of systematic investment strategies and risk-premia alpha
Artur Sepp Research Blog: Quantitative Investment Strategies
Everyone knows that the risk profile of systematic strategies can change considerably when equity markets turn down and volatilities spike. For an example, a smooth profile of a short volatility delta-hedged strategy in normal regimes becomes highly volatile and correlated to equity markets in stressed regimes.

****SD: Kind of a thin day out there so we’re leading with a heavy hitter.

When Betting Against Erdogan Is a Winning Trade
Selcuk Gokoluk – Bloomberg (SUBSCRIPTION)
Fund bought lira put options as volatility dropped in March; Data shows fund outperformed 96% of peers over past month
By betting against the lira in the run-up to Turkish elections last month, Vanguard Asset Management netted one of the top returns among emerging-market bond funds. Money-manager Nick Eisinger sees no reason to switch from his bearish view.

College Grads Sell Stakes in Themselves to Wall Street
Claire Boston – Bloomberg (SUBSCRIPTION)
To pay for college, Amy Wroblewski sold a piece of her future. Every month, for eight-and-a-half years, she must turn over a set percentage of her salary to investors. Today, about a year after graduation, Wroblewski makes $50,000 a year as a higher education recruiter in Winchester, Va. So the cut comes to $279 a month, less than her car payment.

****SD: There are some highly undervalued options to be scooped up here. And the structure is so much more appealing than adding to the student debt load in the U.S., which is already staggering – 44 million individuals collectively owe $1.5 trillion.

Five Stories that Outline the Future of Risk Management
FactSet Insight
In recent years, calculating and accounting for risk have become an increasingly critical piece of the investment decision making process. At FactSet Insight, our experts have dedicated considerable resources to helping readers understand the risk ecosystem and the various approaches to managing it.

Barclays Announces Upcoming Ticker Changes for VXXB and VXZB ETNs
Barclays Bank PLC (“Barclays”) announced today that it plans to amend the ticker for its VXXB ETNs and VXZB ETNs (collectively, the “ETNs”) which are currently listed on the CBOE BZX exchange.

****SD: It’s almost like the maturation event never happened.

Exchanges and Clearing

March Agricultural Options Update
CME Group
-Lean Hog options hit an all-time open interest record of 364,316 and daily volume record of 51,322 contracts
-Driven off the March 29 Planting Intention report, corn options hit the 2nd highest volume day with 352,714 contracts
-July Grain and Oilseed implied volatility levels at historical lows at the end of March
-Record R-Cross volume in percent and absolute terms in the month of March

****SD: I missed this at the end of last week.

3.5 million derivatives trades per hour
RCM Alternatives Blog
We like to highlight the Futures Industry Association (FIA) annual volume study every year, and were excited to see that global derivatives trading volume hit an all-time record in 2018. There were 30.3 Billion (with a B) global futures and options traded in 2018.
That’s about 83 million trades per day, 3.5 million per hour, and 57,000 per minute. Wow!

Eurex introduces speed bump on FX suite
Louisa Chender – Global Investor Group
Deutsche Boerse-owned exchange is introducing passive liquidity protection on FX products

Nasdaq March 2019 Volumes, 1Q19 Estimated Revenue Capture and Listings Statistics
Nasdaq (Nasdaq:NDAQ) today reported monthly volumes for March 2019, as well as quarterly volumes, number of listings and estimated revenue capture for the quarter ending March 31, 2019 on its investor relations website.

London Stock Exchange prepares for no-deal Brexit
The London Stock Exchange said its pan-European platform Turquoise would shift trading in euro-denominated shares to its new Dutch hub if Britain leaves the European Union at the end of the week without a deal.

Regulation & Enforcement

Bank Executives to Tell Congress: Financial System Is Much Safer
Andrew Ackerman and Lalita Clozel – WSJ (SUBSCRIPTION)
The chief executives of the largest U.S. banks plan to tell Congress this week that the financial system is less risky and more tightly supervised than it was a decade ago thanks to a series of regulatory reforms implemented in the wake of the 2008 financial crisis.

City of London alarmed at EU’s no-deal Brexit equity trading plan; Watchdogs list 6,200 securities that EU banks and investors must trade in the bloc
Philip Stafford – FT (SUBSCRIPTION)
Fund managers holding European equities are praying that a no-deal Brexit is avoided this week. Europe operates the world’s most integrated cross-border share trading marketplace but the UK’s possible sudden departure from the EU would cleave this network into two: EU and non-EU markets.


BigTechs Contribute to Efficiency – and Risk – in Financial Services
Manesh Samtani – Regulation Asia
A BIS working paper says BigTechs enhance competition, financial inclusion and efficiency in financial services, but they also concentrate market power and give rise to systemic risk.

Torstone Technology Torstone Acquires Percentile to Bolster Risk and Compliance Offering
Torstone Technology
Torstone Technology, a leading provider of post-trade securities and derivatives processing technology, has announced that it has signed a definitive agreement to acquire Percentile, a provider of real-time, cloud-based risk and compliance technology to global financial markets.


This Investor Is Getting Out of Stocks Before Computers Ruin the Rally
Ksenia Galouchko – Bloomberg (SUBSCRIPTION)
Heron CEO, ex-Kairos partner sees CTA buying as contrarian; Thin liquidity amid oncoming cash deluge could spur volatility
Alberto Tocchio is getting out of stocks before systematic traders swoop in and spoil the party.
A $140 billion wave of computer-driven buying may hit U.S. and European equities as soon as this month, says the chief of Heron Asset Management, a Switzerland-based family office with 2.5 billion Swiss francs ($2.5 billion) under management.

Clarifying ‘Efficiency’ Metrics
Sage Anderson – tastytrade blog
The goal when trading is of course to deploy positions that are consistently profitable.
The method by which many volatility traders attain this goal is through systematic, methodical decision-making. Such an approach can be utilized on the front-end, during trade filtering and analysis, as well as on the back-end, when positions are closed/exited.


CME Bitcoin Futures Volume Hits Record High as Prices Rebound
Eric Lam – Bloomberg (SUBSCRIPTION)
The sudden resurgence in Bitcoin prices this month is also providing a boost for the futures market, with CME Group Inc. contract trading volumes for the largest cryptocurrency hitting a record high.

Hedging Brexit – Speculating on UK Stocks: TABB Survey
Russell Rhoads – TABB Forum
The ongoing Brexit saga has had a significant impact on UK stocks. TABB Group is looking to gain insights from market participants to explore which financial products have been used to hedge Brexit-related risks or to speculate on a particular outlook.

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Past Newsletters

Seeing red: tricky times in the markets

Seeing red: tricky times in the markets

$34,126/$300,000 (11.4%) ++++ Lead Stories Seeing red: tricky times in the markets Stefan Wagstyl - Financial Times As investors we like to think we're acting rationally, even though there are mountains of evidence to show that, all too often, we're not. A successful...

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