Observations & Insight
Automation is the future of futures market
Gregory Meyer – FT (SUBSCRIPTION)
It is easy to ascribe human logic to market moves but in the US futures arena the majority of orders are not placed by a sentient being. New studies by the main US derivatives regulator have established just how much robots account for the day-to-day action inside futures bourses operated by CME Group, the world’s biggest exchange company.
****SD: This article is making the rounds today but it is based off of a CFTC study we covered when it was released in March. Also, the subhed made me chuckle – “CME orders executed in one-tenth of a second are on the rise as robots power trades.” Is a decisecond supposed to sound fast? That wasn’t even fast by the standards of 10 years ago. We live in a micro/nano trading world now. (And then there are those ever present pico rumors…)
Getting To Market Fast Is The Difference Between Success Or Failure
Jim Kharouf – JLN
Developing new markets, especially when there is strong competition, is all about speed: not microseconds, but days, weeks or months.
It’s been proven time and again with failed exchanges that it simply took too long to get to the starting gate. Eurex US, the Eurex effort to compete with Chicago’s exchanges, which endured some foot-dragging and untimely Congressional hearings about a foreign company owning a US market, comes to mind. That delay among others bought some critical time for Chicago exchanges to recover and readjust, and Eurex US was dead almost on arrival. If there was a poll of how many new markets made a splash with an “Opening Soon” sign but then trailed off shortly thereafter, the list would likely be long indeed.
Beating incumbents and newcomers is one thing. Conquering bureaucracy and regulation is another. Gaining and maintaining momentum is yet another level that is critical to a marketplace’s success. Bcause, the crypto mining, spot and futures trading market, is the latest to hit the brakes, having recently filed for Chapter 11 bankruptcy reorganization.
To read the rest of this commentary, go here.
Victory Capital reverses move into options trading, cancels Harvest acquisition
Jeff Reeves – MarketVoice
Waning volatility in 2019 has taken its toll on a number of market participants that seek to generate returns from trading options. In the latest proof of these challenges, investment firm Victory Capital has cancelled its plans to acquire Harvest Volatility Management, a fund manager specializing in options-based investment strategies for high net-worth individuals.
Victory Capital, which was spun out of regional bank KeyCorp in 2013 and has more than $58 billion in assets under management, reached an agreement in September to acquire Harvest for roughly $300 million. At the time, the two companies said the deal would add Harvest’s expertise in derivatives to Victory Capital’s platform and allow the combined firm to offer a more diverse range of investment strategies to their clients.
****SD: I guess it’s been hard out there for the iron condor sellers when SPX has surged ~18% YTD. From the story: “Ken Worthington, an analyst at J.P. Morgan, wrote in a note to clients that Harvest’s assets under management had decreased by an estimated 17% in the last 12 months and added that the purchase agreement had a termination clause if Harvest’s revenue declined by more than 20%.”
Exchanges made nearly $30 billion in 2018, but a new report suggests their business could be at risk if they don’t innovate in 3 ways
Dan DeFrancesco – Business Insider Prime (SUBSCRIPTION)
Exchanges generated nearly $30 billion in revenue globally in 2018 and have enjoyed a 12% increase in revenue annually since 2012.
However, a recent Opimas report suggests exchanges need to explore new business lines in order to maintain double-digit growth in revenue.
Alternative data, digital assets and improvements in the IPO process are all areas the report suggested exchanges are well-positioned to profit from.
****SD: From the story: “Exchange groups have benefited from a series of mergers or acquisitions that have allowed them to obtain larger market shares and reduce their cost of doing business. But those benefits will soon face diminishing returns, the report suggests. ‘It would be charitable to say that exchanges have lacked a certain degree of creativity and innovation in their business models,’ the report said. ‘Greater operational efficiency can only be pushed so far … exchanges will have to embrace a higher level of innovation in coming years in order to maintain their growth rates.'”
‘Flash Crash’ trader fails to help feds bring conviction in spoofing case
Jon Seidel – Sun Times
The British futures trader once blamed for the 2010 U.S. stock market drop known as the “Flash Crash” came to Chicago earlier this month, where federal prosecutors hoped he’d help them convict a software executive from Naperville.
Meta Trading Selects Rival Systems for Enterprise Risk Management Solution
Rival Systems (Rival) today announced that Meta Trading is leveraging its
enterprise risk management solution, Rival Risk. Meta Trading, a prop trading firm that trades a diverse set of assets with multiple trading groups, was looking for one platform that would allow them to monitor the activity of their traders who use a variety of different trading systems. Rival’s enterprise risk management solution offers Meta Trading this visibility along with advanced features including automated reporting and real-time email alerts.
TD Ameritrade Says Market Fears Slowed Trading in Latest Quarter
Micah Maidenberg – WSJ (SUBSCRIPTION)
TD Ameritrade Holding Corp. said investors pulled back on trading in the company’s latest quarter, worried about the market decline in December and the strength of the global economy.
To avoid a ‘flash crash’, FX traders drop yen shorts and run bare
Swati Pandey – Reuters
As Japan heads for an unprecedented market holiday, investors around the globe are fretting over the risk of a ‘flash crash’ or violent spasm in currencies that can occur when traders are away and turnover is super thin.
Exchanges and Clearing
LCH plans major forex clearing expansion
Costas Mourselas – Risk.net (SUBSCRIPTION)
LCH’s ForexClear is set to start clearing cash-settled foreign exchange options within the next year, with a separate service for deliverable forex swaps and forwards also rumoured to be in the works. Sources say the central counterparty (CCP) may also be laying the groundwork for a potential cross-currency swap clearing service in the future.
Nasdaq Reports First Quarter 2019 Results; Strategic Repositioning and Non-Trading Revenue Growth Continue
Nasdaq, Inc. (Nasdaq:NDAQ) today reported financial results for the first quarter of 2019.
Complex Customer Cross Orders
Effective May 6 , 2019 , BOX Exchange LLC (“BOX” or the “Exchange” ) will begin accepting Complex Customer Cross Orders.
Board of Trade Building going up for sale
Danny Ecker – Crain’s Chicago Business
The owners of the Chicago Board of Trade Building are putting the landmark tower up for sale, looking to cash out with a big profit as investors continue to bet on the downtown office market.
Nasdaq PHLX Directed Market Makers
Nasdaq Options Trader Alert #2019
Nasdaq PHLX (“Phlx”) is clarifying its existing procedures for Directed Streaming Quote Traders (“Directed SQTs”) and Directed Remote Streaming Quote Traders (“Directed RSQTs”) (together, “Directed Market Makers”).
CME Group Announces 2019 Annual Meeting Location Change
NSE’s pruning of F&O stocks a move for greater good
Chiranjivi Chakraborty – Cogencis
MUMBAI – It was a bitter pill to swallow, but the National Stock Exchange swallowed it nonetheless, purging 34 securities from the derivatives segment in one sweep.
In the largest such exclusion drive in recent memory, the country’s leading stock exchange, late on Monday, said derivatives trading will not be allowed in 34 stocks after their existing monthly contracts expire on June 28.
HPR Launches ‘CRM-X’ for Global Enterprise Trading Risk Management
HPR (Hyannis Port Research), provider of advanced capital markets infrastructure (CMI) technologies, today announced the launch of CRM-X, the newest version of its Central Risk Manager (CRM). CRM-X provides a real-time, pan-regional view of risk that encompasses all equities markets globally, solving one of the most significant operational challenges faced by global banks and trading firms, who typically manage operations via regional silos.
Stock Market Volatility Is Quiet, for Now
Crystal Kim – Barron’s
U.S. stocks were on the brink of a bear market, but that was so last year.
The S&P 500 hurdled its record close on Tuesday, meanwhile, the Cboe Volatility Index, or the VIX, which measures options activity of the S&P 500, is near historic lows again. That kind of calm is apparent across asset classes, but there are exceptions, notes Nicholas Colas, co-founder of DataTrek Research.
****SD: “…Options on the iShares MSCI EAFE are priced more attractively than options on the SPDR S&P 500 ETF (SPY), Pravit Chintawongvanich, an equity derivatives strategist at Wells Fargo, told Barron’s. ‘For whatever reason let’s say you’re only interested in buying puts—in that case protection for the EAFE is cheaper than the SPY,’ he says.”
New Stock Market Highs Could Be Bad News for the Bulls
Randall Forsyth – Barron’s
…Federal-funds futures traders continue to place slightly better than even-money odds on a Fed rate cut either in December or next January, according to the CME FedWatch site. Traders in options on interest-rate futures also are positioning themselves for the chance of a Fed rate cut later in the next year, according to a client note from Chicago futures and options brokers R.J. O’Brien & Associates.
King Dollar Defies Doubters as U.S. Provides Investors `Oasis’
Charlotte Ryan and Anooja Debnath – Bloomberg (SUBSCRIPTION)
The dollar is defying predictions it would lose its currency crown in 2019.
A gauge of the greenback is headed toward the highest level this year, with most major currencies having lost ground against it. The euro, which was expected to strengthen in 2019, is struggling as the region’s economy fails to sustain signs of a recovery, while Australia’s dollar is falling on expectations the country’s central bank will cut rates.
****SD: “Trader bets on the euro gaining are falling out of fashion in the options market, while demand for protection from a further slide in the Australian dollar has risen. Still, currency analysts remain skeptical on the dollar rally’s prospects.”
`Extreme’ Stock-Valuation Gap Looms Over Gravity-Defying Rally
Justina Lee – Bloomberg (SUBSCRIPTION)
As the S&P 500 approaches all-time highs, defensive investing styles are trading at their most overbought levels in decades — a sign of investor incredulity at this gravity-defying rally.
Something may have to give.