Observations & Insight
U.S. Government Nears Shutdown With GOP Stopgap Bill at the Brink
Temporary government funding runs out at midnight Friday and the House and Senate are seeking an agreement on a temporary extension. Democrats are demanding that spending legislation include a provision permanently shielding about 690,000 undocumented immigrants brought to the U.S. as children from deportation, while Republicans want to keep that issue separate from funding and budget negotiations.
****SD: Constant updates on the situation provided on the page. For the big picture, TD’s JJ Kinahan in Forbes – Will the Government Shut Down or Won’t It? That’s The Big Question
Lightspeed Trading Forges Deal with Lime Brokerage to Merge Businesses
Aziz Abdel-Qader – Finance Magnates
Lightspeed Trading, LLC, Professional Trading Solutions, Inc., and Lime Brokerage, LLC, ?have combined their household brokerage businesses in a potentially ?big shake-up of the U.S market.
****SD: Another big consolidation to add to the week.
Why Is Volatility So Low? We checked in with seven experts, including a Nobel laureate. They cited ‘Minsky moments,’ chaos and crowded trades.
Brandon Kochkodin – Bloomberg
Volatility was one of the never-ending talking points of 2017. Hardly a day went by without stories citing the almost eerie calm in U.S. stock markets. The Chicago Board Options Exchange Volatility Index, or VIX, finished the year with the lowest average daily level on record. During the course of the year, we saw the market’s fear gauge set a new record low when it closed at 9.14 on Nov. 3. Want more perspective? Try this: Arrange all the trading days this millennium from lowest to highest by the value of the VIX that day. The first 41 entries on that list would all be from 2017!
Lessons Learned in the Pursuit of Low-Latency Options Quoting
Pedro Pinto – Blue Trading Systems
Latency remains a key concern in options trading. In today’s increasingly competitive markets the penalty for slowness is steep and traders whose systems are not designed from the ground up with low latency in mind soon find themselves being picked off by faster competitors. At BTS we understand better than most the importance of speed. As former traders ourselves we have experienced first hand the impact of latency on the bottom line and for this reason we have designed our electronic trading systems from the ground up with speed as a primary concern. In this article we present the results of this effort by benchmarking our Options Quoter, available as part of the BTS Edge System.
****SD: I missed this when it came out (seven months ago!), but better late than never, right? It can get a bit high level, but if even a dope like myself can glean insight from it, I have full faith in our venerable readership.
The Implosion Of Public Markets
Kurt Dew – Seeking Alpha
…What is out-of-date in the markets that cater to traders? Now is the time to ask. Financial markets and financial instruments are increasingly crossing old boundaries. Once, futures exchanges traded only futures; options exchanges, only options; and securities exchanges, only securities. Now all exchange management firms trade everything. And the distinction between futures securities and options is becoming less apparent. This article begins the process of identifying the anachronisms that this market meld has revealed.
What Does This Rare Positive Correlation Between VIX and S&P 500 Mean?
John Kicklighter – DailyFX
Historically, the benchmark US equity index the S&P 500 and the VIX volatility index move in opposing directions. In fact, they not only offer mirror performance to each other, they typically do so with the a matching intensity. In other words, if the stock market rises slowly, the VIX often deflates slowly. If the equities plummet, the volatility measure surges. That is what we refer to as a strong, negative correlation. It is very unusual when we see this relationship flip to a positive reading and rare that they move in robust concert. It seems we are facing one of those rare instances now.
Exchanges and Clearing
SGX reports 2Q FY2018 net profit of S$88 million
…Derivatives revenue rose 11% to S$83.3 million (S$75.0 million), contributing to 41% (38%) of total revenue.
UBS cuts global head of derivatives e-trading Bevan
Luke Jeffs – Global Investor Group (SUBSCRIPTION)
UBS cut late last year about 30 managing and executive directors largely from equities brokerage
Regulation & Enforcement
Fed Working on Proposal to Ease Up on Bank Leverage Limits
Jesse Hamilton – Bloomberg
U.S. regulators ready to relax parts of tough capital demand; Obama-era holdout atop FDIC said to drag feet on rule change
The Federal Reserve is working to relax a key part of post-crisis demands for drastically increased capital levels at the biggest banks, according to people familiar with the work, a move that could free up billions of dollars for some Wall Street giants.
CFTC Files Suits Against Crypto Investment Schemes for Alleged Fraud
Wolfie Zhao – CoinDesk
The U.S. Commodity Futures Trading Commission (CFTC) brought two lawsuits against allegedly fraudulent cryptocurrency investment schemes yesterday. The cases, both filed in the U.S. federal court in the New York Eastern District, are the latest move from the country’s derivatives regulator in bringing closer scrutiny over activities involving cryptocurrencies, which the agency regulates as commodities.
ESMA Seeks Public Input on Cryptocurrency Derivatives Policy
Nikhilesh De – CoinDesk
The European Securities and Markets Authority (ESMA) is seeking feedback on possible regulatory changes around a type of cryptocurrency derivative contract.
In a call for public input on contracts for differences (CFDs), ESMA says it is looking into how CFDs for cryptocurrencies would comply with their Markets in Financial Instruments Directive (MFID) regulatory framework, according to a release. Under a CFD, one party agrees to pay the other party if the value of the asset the contract is based on changes.
Data center company sues Aurora over telecom tower
Lynne Marek – Crain’s Chicago Business
Data center company CyrusOne planned to build a 350-foot telecommunications tower in Aurora on its data center property there after reaching what it thought was an exclusive arrangement with the suburb last March. But this month, Aurora’s City Council approved a proposal by another company, Scientel, proposing to build a competing tower, so CyrusOne sued Aurora’s mayor and council members in federal court last week.
BAML: Here Is How To Capture Global Equity Upside With “Minimal Risk”
Rupert Hargreaves – ValueWalk
How should investors chase global equity upside without exposing themselves to the risk of an aggressive market selloff? That’s the topic of the latest research report from Bank of America’s Global Equity Derivatives team.
****SD: TL;DR – buy calls on businesses/sectors that benefit from 1) higher rates, 2) higher energy prices or 3) tax reform.
Strength Against the Dollar Isn’t Enough for the Pound
Charlotte Ryan – Bloomberg
Sterling reaches its highest level since June 24, 2016; Dollar recovery risks weighing on cable, Santander says
****SD: “Still, investors are upbeat on the U.K. currency. Traders are positioning for further gains with demand for calls betting on a rise in sterling overtaking that for puts for the first time since 2009, options markets show.”
FX Option Market Update: January 19, 2018
Dan Larsen – TradingFloor
Wall Street traders brace for meager paychecks as bonus season approaches
Catherine Ngai – Reuters
Some traders at the largest Wall Street banks are about to get big, fat zeroes for bonuses while they watch markets thrive.
****SD: Meanwhile, JPMorgan execs bag record pay packages
Macron rebuffs post-Brexit City deal unless UK pays into EU budget
Heather Stewart – The Guardian
French president Emmanuel Macron has rejected the idea of a tailored Brexit deal for the City, insisting Britain will not be allowed full access to European Union markets, including financial services, unless it pays into the EU budget and accepts all its rules.
As Einhorn and other big names struggle, these rising hedge fund stars were up 40% last year
Tae Kim – CNBC
A new generation of under-the-radar hedge fund stars are soundly outperforming better-known managers such as David Einhorn and Bill Ackman.
The common thread among some the best hedge fund performers is in-depth sector expertise.
****SD: I’m imagining a kid sticking out his tongue at his dad.