UK pensions could plug gaps with derivatives; Millenium closing Prediction Company

Sep 11, 2018

Observations & Insight

Tuesday’s Notes

Damage caused by Hurricane Florence is estimated to be as high as $27 billion. It is approximately 900 miles away from North Carolina.

Apparently, Renaissance Technologies has a 4.64 percent stake in Cboe.

Some more stories about the repercussions of the financial crisis:
NY Times -> From Trump to Trade, the Financial Crisis Still Resonates 10 Years Later
Financial Times -> Backdrop for the next financial crisis is brewing
New Yorker -> The Real Cost of the 2008 Financial Crisis
MarketWatch -> Here’s what J.P. Morgan says could cause the next financial crisis
Bloomberg -> Can We Survive the Next Financial Crisis?
Financial Times -> After the crisis, the banks are safer but debt is a danger
MarketWatch -> The next financial crisis ‘will be more difficult to handle,’ says billionaire investor Dalio
Washington Post -> What happens when the next financial crisis strikes?
Financial Times -> Weathering the financial crisis: how seven lives were changed

Lead Stories

UK DB deficits could halve via new risk transfers, derivatives – report
Rachel Fixsen – IPE
… In a new report the firm suggested schemes consider shrinking their deficits by, for example using new types of risk transfer and capital-efficient investment strategies, where physical securities are replaced with synthetic ones, and allowing members to switch to defined contribution (DC) pensions.

Millennium Is Said to Shut Down Pioneering Quant Hedge Fund
Vincent Bielski and Saijel Kishan – Bloomberg (SUBSCRIPTION)
Prediction Company had only one down year since inception; Physicists Farmer and Packard founded the quant firm in 1991
Millennium Management has shut down a quant hedge fund founded by two acclaimed physicists that suffered only one losing year since it began trading in the early 1990s.

The Volcker Rule Needs Transparency More Than ‘Simplification’; Five different agencies collect data in various forms. Regulators should standardize them.
Sheila C. Bair and Gaurav Vasisht – WSJ (SUBSCRIPTION)
A group of federal regulatory agencies have proposed a nearly 400-page “simplification” to the Volcker rule, the reform passed after the 2008 crash to curb risky financial activities. Part of the Dodd-Frank Act, the Volcker rule prohibits commercial banks, which are ultimately backed by taxpayers, from engaging in certain speculative trading activity. It also restricts their ability to invest in hedge funds or private-equity funds. The rule helps reduce moral hazard, decrease conflicts of interest between banks and their customers, and foster stability in the financial system.

Pound Volatility Spikes as Traders Grapple With Brexit Headlines
Anooja Debnath and Tasos Vossos – Bloomberg (SUBSCRIPTION)
The pound may be in for a rough ride as contrasting headlines surrounding the fate of Brexit test traders’ nerves.
Sterling whipsawed between gains and losses multiple times on Tuesday as investors adjusted their positions to news about the U.K.’s impending exit from the European Union. The currency tumbled from a six-week high after a report the EU sees the U.K. as too optimistic, then pared some losses after Ireland’s Prime Minister Leo Varadkar said a deal could be done in weeks. Gauges of swings in the currency climbed to a six-month high.

****Financial Times has Choppy trade for sterling with traders fixated on Brexit headlines

QuantHouse announces global access of QuantFEED for Cboe US equity and equity options
QuantHouse, the leading independent global provider of end-to-end systematic trading solutions including innovative market data services, algo trading platform and infrastructure solutions, today announced its QuantFEED and QuantLINK will provide optimized direct access to Cboe market data.

How to reduce the high derivatives turnover in India?
Ramabhadran S. Thirumalai – Fortune India
Over the past few years, SEBI has been trying to curtail turnover in the derivatives segment through various regulatory actions. In July 2015, SEBI mandated the increase in the minimum derivatives contract size from Rs 2 lakh to Rs 5 lakh. Derivatives contract lot sizes were revised upwards accordingly. This was a move to make it expensive (in terms of margins) for small retail investors to participate in the derivatives segment. More recently, SEBI has approved the introduction of compulsory delivery for derivatives on stocks. The exchanges have introduced this for some stocks and it will be increased over time to cover more stocks. Compulsory delivery has been introduced to align the cash and derivatives segment and hopefully drive down turnover in the derivatives segment because it is more expensive to settle a contract through delivery rather than cash settlement. But will these steps have the intended consequences? The answer is most likely no.


It’s become a lot more likely that banks will cut front office jobs in the 4th quarter
Sarah Butcher – eFinancialCareers
If you’re hoping to keep your front office banking job throughout 2018, and to avoid losing your seat before bonuses are paid early next year, you might want to avert your eyes from the latest note from Buckingham Research analyst James Mitchell: it suggests banks’ third quarter was miserable indeed.
Buckingham suggests banks’ sales and trading divisions had an almost universally bad third quarter compared to 2017, with equity derivatives the only area of growth. Nor do investment banking divisions (equity capital markets, debt capital markets and M&A) offer any solace: Buckingham thinks IBD revenues were also down in double digit percentage terms in the third quarter.

Hedge fund Citadel replaces head of crude trading: sources
Devika Krishna Kumar, Ron Bousso – Reuters
Citadel, one of the world’s largest hedge fund managers, is replacing its head of crude oil trading, according to two sources familiar with the matter, after what one of the sources said were disappointing returns under his leadership.

Regulation & Enforcement

FIA, Institute of International Finance and Global Financial Markets Association urge fair treatment of global capital rules for clearing
FIA, the Institute of International Finance (IIF), and the Global Financial Markets Association (GFMA) filed a response to the consultative report of the Derivatives Assessment Team (DAT) on “Incentives to centrally clear over-the-counter (OTC) derivatives” (DAT Report). The Associations agree with the DAT’s findings that there are impediments to accessing central clearing and urge global regulators to take action. Regulatory capital treatment of banks’ clearing activity is the key constraint on client clearing capacity by service providers, according to the response.

Pierce Bainbridge Investigating a Potential Class Action Against Tesla
PRNewswire via MarketWatch
Pierce Bainbridge Beck Price & Hecht LLP is investigating whether Tesla TSLA, -3.05% violated federal securities laws. If you or your company recently purchased or sold Tesla shares, bonds, or options and have lost over $100,000, you are encouraged to contact Pierce Bainbridge attorney David Hecht at (213) 262-9333 x 105 or for additional information about your legal rights and options.

Phoney options trader faces 4.5 year jail term over GBP500k fraud
David Campbell – Citywire
The founder of a phoney binary options trading business who defrauded 42 victims out of almost GBP 500,000 has been jailed for four and a half years by Southwark Crown Court.


Nasdaq Financial Framework Technology Extended To Banks And Brokers Worldwide
Nasdaq Inc.(Nasdaq:NDAQ) announced its Market Technology division has now launched its Nasdaq Financial Framework technology into the banks and brokers segment for complete outsourcing of trading infrastructure and operations, including regulatory reporting. This new market infrastructure solution complements Nasdaq’s risk and surveillance technology offering, which, as the industry benchmark for trade surveillance, is leveraged by over 140 sell-side clients worldwide.


Gold: Waiting for the Next Bull Market
Erik Norland – CME Group
After gold’s spectacular rally from $280 per ounce in 2002 to $1,900 in 2011, the past seven years have been a lackluster period for its investors. Gold’s nine-year rally closely tracked the 2002-2011 bear market in the U.S. dollar (USD). Moreover, expectations of gold investors that the Fed’s post-crisis quantitative easing (QE) programs would trigger high rates of inflation went unrealized. So far as we can tell, QE didn’t spark much of anything, least of all consumer price inflation.

How To Read The Commitment Of Traders Report?
Ivan Delgado Egea – Seeking Alpha
The general mantra in the forex industry has usually taken with a pinch of salt the usefulness of the CoT (Commitment of Traders) report on the basis that by the time the information is published, it’s not really that practical, and at best, it only offers minimal forward-looking and insightful information.
In this guide, I will provide enough supporting evidence to make a compelling case as to why the CoT report, against conventional belief, does not represent a lagging indicator and why the right interpretation of the data provided every week offers comprehensive insights on how the smart money is positioned.

FX Options Update: September 11, 2018
Dan Juhl-Larsen – TradingFloor
Saxo Bank head of FX trading Dan Juhl-Larsen’s latest report on the FX Options space is now live, with a look at the Brexit negotiations and their impact on GBP, as well as the latest from the Turkish and European central banks.


Cboe Global Markets to Present at Barclays Global Financial Services Conference September 12
boe Global Markets, Inc. (Cboe: CBOE | Nasdaq: CBOE), one of the world’s largest exchange holding companies, today announced that Edward Tilly, Cboe Global Markets Chairman and Chief Executive Officer, and Brian Schell, Cboe Global Markets Executive Vice President, Chief Financial Officer and Treasurer, will present at the Barclays Global Financial Services Conference in New York on Wednesday, September 12, at 8:15 a.m.


Today’s Launch of Futures on U.S. High Yield Corporate Bond Index – Analysis with Seven Charts
Matt Moran – LinkedIn
September 10, 2018 – Today Cboe Futures Exchange (CFE) launched trading in Cboe iBoxx iShares High Yield Corporate Bond Index (IBHY) futures. The new futures are designed to allow users to hedge and mitigate high yield corporate bond credit risk, and more generally allow them to efficiently allocate to the corporate bond market and implement fixed-income trading strategies.

S&P Stocks Keep Getting More Expensive; As companies skip stock splits, individual equity prices are climbing
Bernie Schaeffer – Schaeffer’s Research
The percentage of SPX stocks priced in triple digits is climbing at an accelerated pace The stock market of 2018 has been defined, in many ways, by its extremes. The “swing for the fences” tone was set early on by the late-January record high for the S&P 500 Index (SPX)… which was followed, almost immediately, by the volatility “melt-up” that forced a complete reshuffling of the Cboe Volatility Index (VIX) derivatives complex. Then there was the ouster of General Electric (GE) from the Dow after more than a century of index membership, with its removal prompted by a historically unprecedented stretch of underperformance by the stock.

Could Oil Demand Peak in Just Five Years?
The Era of Oil is coming to a close but experts and corporate analysts disagree about just when that will happen.

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