Observations & Insight
“Regulatory Creep” – Legal Issues in U.S. v. Thakkar
Thom Thompson for John Lothian News
Thursday afternoon as part of the FIA Law & Compliance Conference, Marc Nagel, attorney advisor to the derivatives training firm Exchange Analytics, moderated a panel composed of attorneys Gary DeWaal and Renato Mariotti discussing the recent federal criminal charges against computer programmer Jitesh Thakkar.
The panel was sponsored by Thompson Coburn. Mariotti, a partner at Thompson Coburn, and DeWaal, special counsel at Katten Muchin Rosenman, had a history of disagreeing about many aspects of the government’s case – the first federal spoofing case – which Mariotti, as a federal prosecutor in the Northern District of Illinois, successfully brought against Michael Coscia in 2015.
To read the rest of the story, go here.
Algos and Execution: How Do You Roll? – Thomas Ascher, Quantitative Brokers
Quantitative Brokers spent 2018 building out its global footprint. With offices globally now, the firm offers 24/7 high touch support for its low touch offering – algorithms for best execution. In this video, Quantitative Brokers Executive Chairman Thomas Ascher talks about why traders need liquidity seeking algorithms.
Watch the video »
****SD: See this Finance Magnates story – Algo Trading Market to Surpass $18.8 Billion in Five Years.
Not FiTT For Purpose
There has been renewed talk recently among the Democratic Presidential candidates about the long proposed Financial Transaction Tax (conveniently we will refer to as FiTT, though more commonly referred to as FTT). Although it is highly unlikely to pass anytime soon with the current President and Republican Senate majority, we thought we would provide our take on why this proposal is not a good idea. It is not like a sales tax, where you don’t like paying it but it is not going to prevent you from making the purchase anyway.
****There have been plenty of high level theory/policy pieces on a potential financial transaction tax, but this post from QB actually gets down to real-world examples: If you’re a trading firm that buys and holds a December crude oil contract for a day, what would the tax be? Answer: $3.12, based on some approximations. (More examples in the post.)~SD
As Stock Market Marched Higher and Volatility Trended Lower, US Options Volumes Slipped in Q1
Russell Rhoads – TABB Forum
Market volatility trended lower in Q1 2019 as the stock market marched higher, and first quarter options volume experienced a drop off relative to the first three months of 2018. But TABB Group head of derivatives research Russell Rhoads believes 2019 still will be a strong year for the industry, with volumes surpassing every year other than 2018.
Options Traders Target Emerging Markets as U.S.-China Talks Sour
Luke Kawa – Bloomberg (SUBSCRIPTION)
Casting aside the relative calm seen earlier this the week, options traders are all of a sudden catching on to the risk that emerging markets will be in the crosshairs if a trade war escalates — and other asset classes would be collateral damage.
A Short Seller Bets It All on a Spectacular Market Crash
Nishant Kumar – Bloomberg (SUBSCRIPTION)
Russell Clark’s entry into the high-stakes world of investing could hardly have been less promising. As a graduate trainee at UBS Group AG in Sydney, he was wowed by friends getting rich by day-trading tech stocks in 2000. So he spent his first few paychecks on five dot-com shares. Four crashed to zero, and the fifth lost half its value as the tech bubble burst.
Stock market, Treasury volatility about to spike, Wall Street warns
Akin Oyedele – Business Insider
Beneath the surface, a sense of calm has enveloped the markets for US stocks and Treasuries in recent months.
Consider the one-month Merrill Lynch MOVE index, a measure of expected volatility in bonds, which plunged to its second-lowest level ever in February. Also, the Cboe’s Volatility Index for stocks, better known as the VIX, fell to a six-month low before trade tensions flared up earlier this week.
Why stock-market investors fear another ‘VIX-driven air pocket’ as volatility spikes
William Watts – MarketWatch
A spike in Wall Street’s most popular volatility gauge is inspiring some unpleasant déjà vu for stock-market traders, though there is no guarantee the move presages a sharper equity selloff.
The Cboe Volatility Index known by its ticker, VIX, jumped 6.45 points over the first two days of this week — the largest two-day rise since the period ending on Dec. 24, according to Dow Jones Data Group, when it climbed by more than seven points as a stock-market selloff accelerated, taking the S&P 500 to the brink of bear-market territory and marking the lowest point of the fourth-quarter downturn.
Corporate currency hedging slows as FX volatility slumps
Saqib Iqbal Ahmed – Reuters
The striking calm in foreign exchange markets in recent months has led some U.S. multinational companies to scale back on guarding against currency gyrations, potentially leaving them vulnerable if volatility rebounds from near five-year lows.
‘Uh-Oh, Here We Go Again’: This Week’s Trade Standoff Wipes $2 Trillion Off Global Stocks
Steven Russolillo and Saumya Vaishampayan – WSJ (SUBSCRIPTION)
It didn’t take much to upend the markets’ calm start to the year.
As expectations for a U.S.-China trade accord faded this week, stocks in trade-sensitive sectors and emerging-market currencies tumbled. Meanwhile, investors braced for more choppiness ahead and piled into ultrasafe government bonds.
Exchanges and Clearing
CME Looks to Brazil as Trade War Shifts Global Soybean Flows
Isis Almeida, Bloomberg News (SUBSCRIPTION)
The world’s largest derivatives exchange is looking to Brazil as President Donald Trump’s trade war shifts global soybean flows.
Equity Index Highlights – May 2019 edition
April saw the continued rebound of broad equity markets and has now developed into a classic melt-up, crushing realized volatility with narrow daily trading ranges. That’s not to say the market has been completely devoid of stories; the on-off Deutsche Bank / Commerzbank merger resulted in strong volumes for our EURO STOXX Banks Futures with the respective Banks Options volumes more than doubling compared to the same period last year. Members have also been quick to build open interest in the new STOXX Europe 600 ESG-X Futures. Here almost 40,000 contracts were recorded in April.
London Metal Exchange profits fall after investment in tech and talent Profit at the commodities market was down almost 9% last year
Samuel Agini – Financial News
Profits at the London Metal Exchange fell almost 9% last year, as the cost of recruitment and new technology ate into revenues.
****SD: The LME also named Gay Huey Evans as its first female chairman.
SGX updates rules on securities trading and market practices
Singapore Exchange (SGX) is amending on 3 June 2019 a raft of SGX rules including those on securities trading and market practices after generally supportive feedback received during an earlier public consultation.
The amended rules are more principles-based, and are aimed at supporting Members, dealers and remisiers, including new joiners, in their activities.
Along with the amended rules is an overall re-organisation of the SGX Securities Trading Rulebook for more clarity.
Hedge Funds Raid BNP’s Shuttered Prop Desk Amid Talent Race
Donal Griffin and Nishant Kumar – Bloomberg (SUBSCRIPTION)
BNP Paribas SA’s closure of its proprietary-trading desk has triggered a hiring frenzy for the world’s biggest hedge funds.
Citadel has recruited Mathieu Gaveau, who was head of rates at BNP’s Opera Trading Capital division until it was shut down in January. Paolo Nicolosi, a senior foreign-exchange trader at the unit, has joined Brevan Howard Asset Management, while some of their colleagues have started roles at Capstone Investment Advisors, Capula Investment Management, Eisler Capital and H2O Asset Management.
How to Prepare Your Portfolio for More Tariffs
Nicholas Jasinski – Barron’s
Trade negotiations between the U.S. and China quickly went from smooth to rocky over the past week. Markets followed suit: After a slow but steady rise over the last four months, stocks and other risky assets have stumbled on tariff threats and counter-threats from the world’s largest two economies. The S&P 500 index is down more than 3% this week, while Chinese stocks are off even more. Meanwhile, safe haven assets like gold or the Japanese Yen are up, and volatility has spiked.
The True Cost Of Hedging S&P Downside
Hedging sounds like a smart thing to do. But has it actually worked? This post examines the historical costs and benefits of hedging stock exposure with SPY puts.
Interest in hedging strategies tends to increase as market volatility rises. There are many ways to hedge, and a common method is to overlay SPY puts to protect existing stock exposure. Being long a put option offers limited downside and unlimited upside, but this attractive payoff profile comes at a cost, since traders are (mostly) smart and price options accordingly.
Here’s What an All-Out Trade War Looks Like in Global Markets
Cecile Gutscher, Justina Lee and Gregor Stuart Hunter – Bloomberg (SUBSCRIPTION)
Trade misery acquaints the markets with strange bedfellows.
What else would unify Indonesian bonds, semiconductor ETFs and Italian debt but this U.S-China showdown on tariffs.
The Markets ‘Trade’ Calm for Volatility (Podcast)
On What’d You Miss This Week, Stefan Selif, the former Under Secretary of Commerce for International Trade under President Obama, joined to discuss President Trump’s latest tariff threats against China and the prospects for a deal. Mexico’s Deputy Finance Minister Arturo Herrera came on to talk about the other trade deal that needs ratifying, the USMCA. Martha Gimbel, the Research Director for the Indeed Hiring Lab, went through Friday’s jobs report and the state of the labor market. Then Karyn Parsons of Fresh Prince of Bel-Air fame sat down to discuss her company, Sweet Blackberry, that seeks to bring stories of African American heroes to life.
Goldman Sachs new London floor has equity traders like ‘battery hens’
Trista Kelley – Business Insider
Goldman Sachs has told its staff to “get ‘move ready’ now” for the transfer to the bank’s new 1.1-million-square-foot London headquarters, around the corner from St. Paul’s Cathedral and within the ancient Roman walls enclosing the Square Mile.