Observations & Insight
Spencer Doar – JLN
Front month VIX futures are (still) trading higher than November VIX futures, albeit not my much (as of this writing).
There was no episode of “The Spread” this past week. We are working on some special Spooktacular editions about the fear gauge. Stay tuned.
John was in D.C. this past week. He attended Friday’s CFTC Technology Advisory Committee (“TAC”) meeting and shared his opinion on crypto. (His comments start at ~103:30, just after Gary DeWaal.)
There is yet another hurricane threatening the U.S. – Michael strengthened to a Category 1 and is expected to hit the Gulf Coast on Wednesday.
A new Commitment of Traders Report is available from the CFTC as is new FCM financial data.
There are plenty of international updates in today’s newsletter – 1) The implications of Brazil’s election for markets 2) An update on India’s financial woes 3) South Africa’s currency problems and 4) More talk of $100 oil.
POV: Are Publicly Traded Exchanges Sticking It To You?
Jim Kharouf – JLN
There is a recurring criticism of publicly traded exchanges – that they are not serving the needs of their customers, all to satisfy shareholders.
Such was the essence of the argument by James Andrus, an investment manager from CalPERS, the California pension and investment giant. On a panel at the World Federation of Exchanges annual meeting last week in Athens, he said stock exchanges are bending to the desires of listed companies on their exchanges on proxy voting rule changes and other policy changes at the expense of investor firms like his. And the motivation, he said, was that exchanges are “for profit” companies reaching for revenue.
Sandy Frucher, vice chairman of Nasdaq, was having none of it.
Virtu/ITG Acquisition – Two Great Tastes that Go Great Together
John D’Antona Jr. – Traders News
Virtu Financial and ITG – two great firms that could go great together.
Much like Reese’s Peanut Butter Cups that tout the chocolate and peanut butter concoction is “two great tastes that go great together,” the potential acquisition of ITG by Virtu could be the same as the complementary nature of the two makes for good business.
Richard Repetto, Principal at Sandler O’Neill + Partners, L.P. said that this deal smacks of a previous one completed by Virtu – the acquisition of KCG.
****SD: Reese’s, eh? As Elliott said to E.T. in the 1982 Spielberg classic, “You could be happy here, I could take care of you. I wouldn’t let anybody hurt you. We could grow up together, E.T.” ITG released its September volumes today, too.
Tradeweb chief stokes speculation of M&A with trading rival
Samuel Agini – Financial News (SUBSCRIPTION)
The founder and chief executive of Tradeweb, one of the largest electronic bond-trading platforms, has stoked speculation about consolidation and mergers in the sector by refusing to rule out a tie-up with a leading rival.
In answer to a question about whether a merger with MarketAxess could happen, Lee Olesky, Tradeweb’s CEO, said: “Who knows.”
He added: “I can’t answer that right now. It’s hard to predict what’s going to happen in the future but I think we’ve each built pretty successful businesses.”
New Era of Rising Rates Finally Dawns On U.S. Treasury Investors
Emily Barrett – BloombergQuint
Robust economic data forces recalibration of Fed expectations; Yields poised to test fresh multiyear highs in weeks ahead
Treasury investors appear to be coming to grips with just how strong America’s economy is.
****SD: From the piece – “Treasury-options traders are increasingly seeking protection against a run-up in yields through year-end. A buyer of put options ponied up $2.5 million for a hedge against a rise in 10-year yields to 3.6 percent Thursday, with the wager expiring two days after December’s Fed meeting.”
Traders Bet on Return of $100 Oil; Narrowing supplies from Iran and robust global growth drive market’s bullish sentiment
Gunjan Banerji – WSJ (SUBSCRIPTION)
A hot streak in the oil market is setting off a wave of bets on how high prices can go. With crude prices rallying for four straight weeks, trading of oil options—contracts that give the right but not the obligation to buy or sell—has surged. The number of bullish contracts that pay out if Brent futures surpass $100 a barrel by January—up 19% from the current level—has more than doubled since the beginning of September, data from Intercontinental Exchange analyzed by QuikStrike show.
Brazil Stocks, Currency Surge as Bolsonaro Takes Commanding Lead
Rita Nazareth, Aline Oyamada and Vinicius Andrade – Bloomberg (SUBSCRIPTION)
Ibovespa equity gauge is climbing the most in two years; Bolsonaro allies also did surprisingly well in congress vote
Brazilian assets jumped after investor favorite Jair Bolsonaro took a commanding lead in the first round of the presidential election, garnering support that surpassed all polls.
****SD: The Financial Times on Brazil here and Reuters here.
The Evolution of the Multi-Asset Class Trading Desk
FactSet commissioned John Greenan, CEO of Alignment Systems, to document the transformation of the buy-side trading desk with an eye on understanding where the industry is heading.
****SD: Register to download the whitepaper for free at the above link.
Worst Week in 2 Years Has India Stock Investors Taking Cover
Nupur Acharya and Abhishek Vishnoi – BloombergQuint
The best-performing stock market in Asia for much of this year has lost that title in less than a month. As the S&P BSE Sensex Index sank into a correction Friday, posting its biggest weekly plunge in more than two years, investors began paying up to hedge against more declines. The cost of bearish NSE Nifty 50 Index options jumped to its highest level since August of last year relative to the price of bullish contracts, data compiled by Bloomberg show.
****SD: Here’s a general emerging market (EM) piece from Reuters for context – Emerging market stocks’ descent to 17 month lows entices U.S. investors. Bloomberg has the EM bond yield take – China Sets Tone for Emerging Markets Suffering From Yield Fever
Rand Dealt a Fresh Blow With Finance Minister in Firing Line
Colleen Goko – BloombergQuint
Bond yields climb to highest this year as currency slumps; Nene said to have offered resignation ahead of Moody’s review
South African bond yields climbed to the highest this year and the rand weakened to a one-month low as traders digested news that Finance Minister Nhlanhla Nene has offered to resign, adding to risks in a week that also sees a review of the country’s credit ratings.
Exchanges and Clearing
Exchanges go on offensive in dispute over cost of market data; NYSE and Nasdaq call for recusal of SEC official from lawsuit over fee increases
Nicole Bullock – Financial Times (SUBSCRIPTION)
Rival exchanges New York Stock Exchange and Nasdaq this week went on the offensive in a bitter industry dispute over the cost of market data.
New Records for Volume and Open Interest for Cboe’s Large-Sized Options on MSCI Emerging Markets Index (MXEF)
Matt Moran – Cboe Blog
New records recently were set for volume and open interest for Cboe’s large-sized options on MSCI Emerging Markets Index (MXEF)
1) One-day volume on September 28 – 9,007 (including 3,203 puts and 5,804 calls)
2) Average daily volume per month in September – 848
3) Open interest on September 28 – 18,774
NCDEX to launch four new options contracts from tomorrow; SEBI gives nod
Hindu Business Line
The National Commodity and Derivatives Exchange has received SEBI’s approval to launch options trading in guar gum, soyabean, refined soya oil and chana.
LME gets boost from US-China trade war; Cutting of fees at exchange helped drive volumes, says chief executive
Henry Sanderson and Neil Hume – FT
The US-China trade war and swingeing sanctions on Russian oligarchs have proved a boon for business at the London Metal Exchange.
HKEX Monthly Market Highlights
…The average daily turnover of futures and options for the first nine months of 2018 was 1,197,645 contracts, an increase of 45 per cent when compared with the 823,469 contracts for the same period last year.
HKEX Implements Nasdaq’s Real-Time Risk Management Technology
Deployed via the Nasdaq Financial Framework, the risk management solution will be applied across all HKEX equity and derivative markets
Nasdaq Inc. (Nasdaq:NDAQ) has announced that Hong Kong Exchanges and Clearing Limited (HKEX) will roll out the Nasdaq Real-Time Risk solution across all of HKEX’s cash and derivatives markets via the Nasdaq Financial Framework.
SGX reports market statistics for September 2018
Market turnover of ETFs rise 12% y-o-y amid regional equities sell-off; Nikkei 225 Index Futures volume increases 16% m-o-m to six-month high
Targeting talent: The industry’s new battleground
Hayley McDowell – The Trade
The new battleground for investment banks has swiftly become that of attracting and retaining the best talent the industry has to offer and it’s something of an open secret that poaching the best people direct from competitors is often the best tactic.
Regulation & Enforcement
IFRS 9 versus IAS 39: Opportunities in changes to hedge accounting
With financial reporting in a state of flux amid the introduction of several new accounting standards, many corporates may feel overburdened by the need to ensure accounting compliance to take full advantage of IFRS 9 from the point of adoption. Robert van Wijk from the market risk advisory group at Societe Generale, explains the opportunities presented by changes to hedge accounting under the new standards
****SD: This SocGen piece is not paywalled.
FIA Comments on UK’s Financial Operational Resilience Discussion Paper
FIA submitted comments on 5 October to the Bank of England, Prudential Regulation Authority and Financial Conduct Authority on their discussion paper about building the UK financial systems operational resilience.
JPMorgan’s requirement for new staff: coding lessons; Hundreds of new investment bankers and asset managers undergo mandatory training
Laura Noonan – FT
JPMorgan Chase is putting hundreds of new investment bankers and asset managers through mandatory coding lessons, in a sign of Wall Street’s heightened need for technology skills.
Selling Puts: The Good, The Bad And The Ugly
Reel Ken – Seeking Alpha
Hardly a day goes by that I don’t read an article or hear some pundit extol the merits of selling puts (put-write). Selling puts seems to be of such interest that there are even ETFs, such as WisdomTree CBOE S&P 500 PutWrite Strategy ETF (PUTW), that offer an easy path for the inexperienced investor to complement their portfolio with put-write exposure.
What clients – and investors – want in a tail hedge
Rachel Alembakis – Investment Magazine
Asset owners seek diversification in distressed markets, but when considering tail hedging and offsetting portfolio positions, clients must consider cost, reliability, reactivity and upside potential, an expert panel has said.
Bitcoin Turns Boring as Speculative Frenzy Fades Into Apathy
Eric Lam – Bloomberg (SUBSCRIPTION)
The words Bitcoin and boring have rarely been uttered in the same breath.
But after a dizzying rally, a gut-wrenching crash and near-constant ups and downs over the past two years, the cryptocurrency did something strange in recent weeks: it stayed relatively still.
Big Banks Aim to Show Higher Profit Ahead as Rates Increase
Bloomberg via Yahoo Finance
As concerns from bank investors go, “peak profitability” seems an unusual one.
But as the biggest U.S. banks report results that analysts estimate will set a new high for profitability this decade, shareholders are wondering: Is this as good as gets, or is Jamie Dimon right that banks are entering a golden age.