Observations & Insight
LSE Working On More Italian Derivatives Growth
“We are also working and in close contact with the clearinghouse, because one of the key elements in developing derivatives markets now and probably in the time to come is post-trade efficiency.”
The LSE bought Borsa Italiana in 2007. Nicolas Bertrand, the LSE’s head of derivatives, says in the past three years the exchange saw double digit volume growth with increasing support from international participants in the FTSE MIB futures complex. In Q3 2017, Borsa Italiana will extend its trading hours with the goal of capturing even more international order flow.
The recent success of Borsa Italiana has translated to its “sister market” in London, the London Stock Exchange Derivatives Market (LSEDM). The LSEDM thus far has witnessed upticks in its FTSE 100 weekly options, increased demand for its International Order Book (IOB) options — the core offering — and some new activity in Turkish index trading.
****SD: In case you missed it, thus far we have released LME Working To Get Exchange Structure Right; ICE’s Hutcheson Talks Benchmarks and Assuming the Helm of ICE Clear Europe; Eurex CEO Sees Plenty of Structural Growth Potential; CME’s Knottenbelt Discusses International Plans and CME Europe Closure and FIA Europe’s Simon Puleston Jones Talks Brexit and MiFID II Readiness.
Hitting the Pinnacle
By JLN Staff
Last night, the CME Group and BarclayHedge hosted the sixth annual Managed Futures Pinnacle Awards. The Pinnacle Achievement Award went to Toby Crabel, chairman and chief investment officer of Crabel Capital Management. Among the several people he thanked for helping him were Jack Sandner, Ray Cahnman and Victor Niederhoffer.
The managed futures industry continues to grow, despite the bull market in stocks, which often run counter to non-correlated strategies. Assets under management are at an all-time high of $348 billion, up $8 billion so far this year, according to BarclayHedge.
Winners last night included: Goldenwise Capital Management, LJM Partners, Warrington Asset Management, UOB-SM Asset Management, AC Investment Management, 361 Capital, Splendor Capital Management, Whitehaven, Two Sigma and PIMCO which took two awards.
Joel McHale was the overpaid talent who performed at the event. That was his description, not mine. Bryan Durkin led the CME Group contingent and even got up on stage with the opening act and banged on the bucket drums with the Chicago Bulls Bucket Boys.
Vela to Expand Trading Technology Capabilities with OptionsCity Acquisition
Press Release via BusinessWire
Vela Trading Technologies LLC (Vela), a global leader in high performance trading and market data technology, has entered into a definitive agreement to acquire OptionsCity Software, a global provider of futures and options trading and analytics solutions.
****SD: Whoa Nelly. Consolidation continues.
Bond Traders Double Down on 2017 Fed Bets Via Options Hedges
Brian Chappatta and Edward Bolingbroke – Bloomberg
Bond traders are ramping up wagers that the Federal Reserve is done raising interest rates until December.
Open-interest data from the eurodollar options market in the wake of the Fed’s rate hike last week show traders are piling into a bet already popular in futures: that the central bank will skip a September rate increase and wait until the final policy meeting of the year to tighten again. That’s reflected in the buying and selling of call spreads on futures contracts.
****SD: Couple of really active areas in the eurodollar complex thus far this week are the SEP 98.375 put and the DEC 98.375 and 98.250 puts. For some other bond news, see Bloomberg’s Draghi’s Taboo on Endgame for QE Keeps Investors Guessing.
Gaming the Yuan – Making Money on a State-Controlled Currency
Analysts say get creative to trade the managed currency; Short yuan volatility, says China Merchants Bank’s Wan
One of the world’s least volatile currencies, the yuan was already a challenging trade before China’s central bank started stepping up control.
****SD: Today Bloomberg has stories on eurodollar options, high yield bond options, shorting yuan options vega and, in our strategy section, the Brazilian real carry trade. Nice.
Why I’m Concerned About The Volatility Index
Andrew Thrasher – Investing.com
I’ve had a great response to my Dow Award paper, Forecasting a Volatility Tsunami, with it being downloaded over 3,000 times since April. I really appreciate the support and the positive feedback I’ve received so far. Last week I had the opportunity to do a webcast with the Market Technicians Association, going into much greater detail about the importance of risk management and shedding some more light on the topic of the paper – low levels of dispersion within the VIX.
****SD: It’s a good read (I’m presuming if you get this newsletter you’re into this sort of thing), and “volatility tsunami” is a great phrase to get clicks. Link to paper here
High-Yield Skeptics Push Bearish Options Bets to Records: Chart
Luke Kawa – Bloomberg
A heavy appetite for corporate debt belies signs of fear seeping into the high-yield market, despite subdued levels of realized and implied volatility. Total open interest in put options for the largest junk ETF — the iShares iBoxx High Yield Corporate Bond ETF, symbol HYG — has hit a record of almost two million contracts.
Will China A-Shares Be Added to the MSCI Emerging Markets Index?
Matt Moran – CBOE
For managers of global index portfolios this week, a big issue is whether or not MSCI will add China A-Shares to the MSCI Emerging Markets Index (MXEF). MSCI plans to announce its 2017 Market Classification Review on Tuesday, June 20, shortly after 4:30 p.m. EDT.
****SD: A broader story on the decision from WSJ – MSCI Could Usher China Markets Into the Big Time.
Hedge funds sour on crude oil and fuels: Kemp
John Kemp – Reuters
Hedge fund managers have become very bearish about the outlook for oil prices as production from countries outside OPEC grows and threatens to undermine the effectiveness of OPEC’s output controls.
****SD: Some of today’s action from Reuters – Oil prices hit seven-month lows on global oversupply
Volatility Update: Equities steady while commodities on the run
Georgio Stoev – TradingFloor.com
Equity markets barely blinked at the US Federal Reserve’s largely anticipated quarter-point rate hike last week. Volatility, however, made its presence known in other markets. Let’s have a look at last week’s action.
Exchanges and Clearing
Acquisition of the Year: CBOE
Tine Thoresen – WatersTechnology
When CBOE Holdings acquired Bats Global Markets, a US and pan-European equities and options exchange operator, the potential for new market data offerings had customers eager to hear more. These expectations were probably what prompted readers to vote for the CBOE and Bats deal as Acquisition of the Year.
****SD: I think we know what would’ve won had certain things played out differently… (No, I’m not referring to SGX’s purchase of Baltic Exchange).
CME Group and BarclayHedge Honor Managed Futures Leaders at Sixth Annual Managed Futures Pinnacle Awards
CME Group, the world’s leading and most diverse derivatives marketplace, and BarclayHedge, recognized top managed futures industry leaders at the sixth annual Managed Futures Pinnacle Awards last night.
****SD: Best 2016 options strategy went to LJM Partners, Ltd. and best 5-year options strategy went to Warrington Asset Management. LJM and Warrington were nominated last year in those respective categories but the winners were Tianyou Asset Management and Doherty Advisors, respectively.
Costs of moving euro-clearing ‘are not theoretical’ – Carney; The Governor for the Bank of England warned of higher costs but welcomed the European Commission’s proposal on tighter CCP supervision across the EU.
Hayley McDowell – The Trade
The Governor for the Bank of England has warned the potential for higher costs across Europe should clearing move from London ‘are not theoretical’.
****SD: The only fact people can agree on regarding Brexit? It’ll cost ’em.
Regulation & Enforcement
Wall Street’s Regulatory Rollback Yawn
Stephen Gandel – Bloomberg
Wall Street’s excitement about the Trump administration’s proposed changes to financial regulation is clear everywhere except on Wall Street.
Shares of the nation’s biggest banks have fallen slightly since the Treasury Department released its 150-page report on Monday night detailing the ways it would like to water down Dodd-Frank, the banking law that was passed after the financial crisis. Goldman Sachs Group, the biggest winner among big bank stock since then, is up 0.6 percent. Bank of America is down a percent.
OTC Markets cries foul over SEC funding demands
Alternative trading system (ATS) operator OTC Markets Group has argued that the Securities and Exchange Commission should revise the proposed fee schedule for the Consolidated Audit Trail (CAT) system the SEC is creating to monitor trading in all exchange-listed equities and options following the 2010 “flash crash”.
****SD: I wrote about potential issues with CAT costs in a blog a little bit back – The CAT Scratches: Fees for Options Exchanges
Hanweck Receives “Building the Future Belfast Award”
Hanweck, a leading provider of real-time risk analytics on global derivatives markets, today announced that it has been recognized with the “Building the Future Belfast Award,” awarded by the Irish Echo as part of the annual New York-New Belfast conference. In addition, Hanweck was named to the tenth annual US-Ireland Top 50 Companies List, commending firms with operations in the US and Ireland that have made significant contributions to furthering transatlantic business cooperation and opportunity.
Robots Are Eating Money Managers’ Lunch
Saijel Kishan – Bloomberg
Rishi Ganti used to help manage the personal fortunes of hedge fund founders David Siegel and John Overdeck, whose quantitatively driven strategies turned them into billionaires. Ganti, 45, says he’s glimpsed the future of his industry. A wave of coders writing self-teaching algorithms has descended on the financial world, and it doesn’t look good for most of the money managers who’ve long been envied for their multimillion-dollar bonuses.
****SD: Well, there is a burgeoning two meals a day movement, otherwise known as “intermittent fasting,” so depending on your dietary trendiness, this could be a good thing.
A close look shows why the tech rally could be back on
Rebecca Ungarino – CNBC
Some strategists are forecasting further upside for technology stocks based upon technical indicators and options market activity after the group posted its best day of the year.
Brazil Carry Trade Beckons Investors Ignoring Political Risk
Srinivasan Sivabalan and Ben Bartenstein – Bloomberg
Volatility declines as traders cut real depreciation bets; Real offers Latin America’s second-best carry-trade potential
Investors scared off by Brazil’s political turmoil are returning to its currency, lured by the potential for Latin America’s second-highest carry return.
The Best Performing ETF of 2017 Is…
When looking at the overall exchange traded fund universe, investors may be surprised that an inverse CBOE Volatility Index-related product has more than doubled the return of its closest competitor this year.
The bearish or inverse VIX ETF, the REX VolMAXX Inverse VIX Weekly Futures Strategy ETF (BATS: VMIN), has achieved a total return of 186.74% so far this year, compared to the second runner-up, the Direxion Daily South Korea Bull 3x Shares (NYSEArca: KORU), with a 89.19% gain.
Laszlo Birinyi Bets on S&P 500 Hitting 2,500
Lu Wang and Cecile Vannucci – Bloomberg
Laszlo Birinyi, a steadfast bull during the eight-year equity rally, just raised his forecast, calling for the S&P 500 Index to rise to 2,500 by September.
The 73-year-old president of Birinyi Associates Inc. said his firm will buy call options to benefit from the upside, according to a note to clients dated Monday. At the start of the year, he predicted the benchmark index would climb to 2,450 by June. The S&P 500 broke that level yesterday, closing at 2,453.46.
****SD: FOMO bet?
What’s Trading Today? FB Bull Put Spread…
Russell Rhoads – CBOE
With FB trading at 151.95 someone sold 200 FB Jun 30th 152.50 Puts for 2.44 and bought the FB Jun 30th 146.00 Puts for 0.60 and a net credit of 1.84. A quick summary appears in the video below.
Options Traders Brace for Emerging Markets Headwinds
Karee Venema – Schaeffer’s Investment Research
The iShares MSCI Emerging Markets ETF (EEM) has added nearly 19% in 2017, with this impressive technical performance underscored by the exchange-traded fund’s (ETF) rising 80-day moving average.
Noble Group’s $2 Billion Loan Deal Prompts Default-Swap Question
Emma Orr, Javier Blas and Jack Farchy – Bloomberg
ISDA asked to consider whether deal constitutes a credit event; The commodity trader has almost $5 billion of outstanding debt
Just days after Noble Group Ltd. secured a $2 billion loan extension, some investors in the credit protection market are looking to get paid.
****SD: This comes on the heels of us releasing our video interview with Finbarr Hutcheson who runs ICE Benchmark Administration, the same org that will very shortly be running the ISDA Credit Derivatives Determinations Committees.