U.S. Option Market Makers Cite Exchange Risk Protections As Critical Industry Improvement
Market makers believe the U.S. listed options industry has seen significant structural enhancements in recent years, as exchange efforts to improve risk protection capabilities have helped market makers more efficiently deploy capital across the fragmented exchange network, according to a Burton-Taylor International Consulting (part of TP ICAP’s Data & Analytics division) report published today.
Nasdaq nearing launch of its own volatility index
Declan Harty – S&P Global Market Intelligence
Nasdaq Inc. is plotting its entrance into the volatility trading business with a new index set to go live next week.
On Jan. 24, the New York-based exchange operator plans to launch an index that will measure 30-day implied volatility based on options tied to the Nasdaq 100, according to a Jan. 10 trading bulletin. Known as VOLQ, the Nasdaq 100 Volatility Index will provide traders with a new gauge of equity market swings at a time when trading off of such movements gains more steam across Wall Street.
Traders Wished for Volatility. The Fourth Quarter Wasn’t What They Had in Mind.
Liz Hoffman – WSJ (SUBSCRIPTION)
Wall Street traders for years complained that they couldn’t make money in calm markets. They haven’t fared any better in wild ones.
Bank traders stumbled in the fourth quarter of 2018, when the stock market lurched and strange things happened in the bond market. The five largest Wall Street firms reported this week that combined quarterly trading revenue was down 6% from a year earlier, further draining a once-reliable stream of profits.
Key Cboe Benchmark Indexes Using SPX Options Offer Strong Risk-Adjusted Returns
Matt Moran – Cboe Blog
Following a decline in the S&P 500 Index of 6.9% in October and a drop of 9.2% in December, more investors appear to be exploring income-producing strategies that have the potential for relatively strong risk-adjusted returns amid increased market volatility.
To help investors with that process, Cboe offers 10 benchmark indexes designed to measure the hypothetical returns of strategies that use S&P 500 (SPX(SM)) options, with daily data histories beginning in mid-1986.
How Market Volatility Plays Into The Fear Index (AUDIO)
Stacey Vanek Smith – NPR
It turns out, 2018 was the most volatile year ever for the U.S. stock market. But while the market’s ups and downs may be nerve-wracking, there might be less cause for alarm than one would think.
Big 5 banks had a tough time trading in volatile markets
Tomi Kilgore – MarketWatch
When the going gets tough on Wall Street, brokers can lose money too, just like their customers.
Exchanges and Clearing
Cboe’s CEO lack of exchange traded note keeping out bitcoin growth
Dan DeFrancesco – Business Insider Prime (SUBSCRIPTION)
What will it take to get Wall Street firms to finally dive headfirst into bitcoin?
Talk to anyone involved in the cryptocurrency market for even a brief amount of time and it’s likely the topic come up.
And just like everyone else in the space, Ed Tilly has his own theory on what’s holding back the biggest investors from getting involved in the largest cryptocurrency.
Nasdaq discussing potential deal to buy Oslo Bors
Philip Stafford – Financial Times (SUBSCRIPTION)
Nasdaq is discussing a potential deal to buy Oslo Bors, and rival Euronext’s EUR625m bid for the Norwegian exchange.
Reinventing Trading Venues: How AI Can Help Create a More Efficient Market
Robert Hegarty – Traders News
Why have the equities markets – and equity trading venues in particular – been among the last to employ some of the most exciting, promising new technologies introduced in the last 25 years? With the rapid advancements in technologies like Artificial Intelligence, Machine Learning, cloud computing, etc., why has no one redefined the equity trading markets around any of these technologies?
EEX Group achieves record volumes on power and emissions
EEX Group continued its growth path in 2018, further consolidating its position as a global commodity exchange. On the power and emissions markets in particular, EEX recorded significant volume gains and continued its long-term growth trend.
Regulation & Enforcement
EU to ensure banks’ access to UK clearing houses in no-deal Brexit: ECB
The European Commission will take temporary measures to maintain banks’ access to UK-based clearing houses in case of a no-deal Brexit, European Central Bank board member Sabine Lautenschlaeger said on Thursday.
Higher margin norms likely to affect derivatives segment volumes
Ashley Coutinho – Business Standard News
In what may impact volumes and reduce leverage in the market, brokers will collect much higher margins from clients trading in the derivatives segment from Monday.
Torstone sets sights on futures and options market
Global Investor Group (SUBSCRIPTION)
The UK fintech plans to connect its platform to derivatives exchanges worldwide
CME’s TriOptima launches initial margin calculation tool
Hayley McDowell – The Trade
Post-trade derivatives services provider TriOptima has launched a tool to provide insights into options for initial margin (IM) calculation and to help firms identify in-scope counterparties.
****SD: A smidge more background on yesterday’s news
Benzinga and Tidal Markets team up on sec lending product
Maddie Saghir – Securities Lending Times
Benzinga and Tidal Markets have formed a partnership to deliver the Securities Lending Volatility Indicator (SLVX).
This new product forecasts market volatility for the broader indices and individual securities in a unique way, according to Benzinga.
The product will be labelled as ‘Benzinga SLVX’ and the raw data feed will be available to clients through Benzinga’s licensing team.
Hedging Your Portfolio on the Cheap
Steven M. Sears – Barron’s
It is unlikely that the algorithms and powerful computers that dominate financial markets will ever cede their dominance to mortal investors. But earnings season tends to be a time when stockpickers have the biggest advantage over the machinery of finance.
It is well known in the quantitative-trading community that stocks exhibit a “positive bias” around their own earnings days. This occurred from January 2008 to March 2009, some of the market’s darkest days, when stocks rose an average of 0.2% on earnings days, even as the S&P 500’s average quarterly return was minus 10%, says John Marshall, a Goldman Sachs strategist.
Volatility Can Be Your Friend
Alvina Lo – CNBC
There is no question that the financial market landscape has been challenging, particularly at the end of 2018.
Volatility has moved up from 2017’s exceptionally low levels, investor sentiment is fragile, and some are questioning whether the U.S. is heading into recession.
However, volatility may not be the enemy, but a very tax-efficient friend, from a long-term estate planning perspective.
Everything Not Zen: Finding Return Opportunities Amidst Renewed Market Volatility
Jeff Henriksen – Forbes
A proper balance between bulls and bears, between risk aversion and risk seeking behavior, leads to something like market Zen. When all views are incorporated in such a way, market prices are pretty good estimates of fundamental value. In part I of this series (which you can find here), I wrote about Benjamin Graham’s personification of market behavior, Mr. Market, and how his volatile behavior creates opportunities for active investors.
The Curious Case Of Nifty June Option Trade
Sajeet Manghat and Kannan Singaravelu – Bloomberg (SUBSCRIPTION)
An unusual trade is happening in the futures and options market.
There’s a build-up in open interest—or the number of outstanding contracts—of June 2019 Nifty 50 call options for 5,000 strike.
US active funds suffer record $143bn ‘exodus’ in December
Kate Beioley yesterday – Financial Times (SUBSCRIPTION)
Actively managed investment funds in the US experienced a record $143bn “exodus” in December, according to data, with many nervous investors flooding into cheaper passive funds.
Crypto exchange CEO says traders shouldn’t hold their breath for ether futures
Frank Chaparro – The Block
A slew of crypto firms have their hearts set on launching markets for ethereum derivatives, but the chance regulators get comfortable with giving the green light for those products this year seem slim, some market experts say.
Government Shutdown Hurts Stock Outlook, Evercore Says
Reade Pickert – Bloomberg (SUBSCRIPTION)
A growing group of analysts and investors is warning that the U.S. government shutdown could soon hurt stocks.
Already confronting an increase in volatility, an uncertain outlook for interest rates and a trade war that threatens to damp global growth, traders now have to factor in the economic effects of the partial closure, in its record 27th day.