VIX Is Low. That May Be Because of All the Volatility ETPs
Joanna Ossinger – Bloomberg
Exchange-traded products are taking up a bigger chunk of Cboe Volatility Index futures trading than they have in about seven years, and that could be depressing the gauge, according to Nomura Securities International Inc. When VIX-linked ETPs roll to the next month, they sell front-month futures on the volatility gauge to buy second-month ones. And when that activity becomes a larger portion of overall futures trading, it could have a bigger influence on the level of the index itself.
Traders’ Expectations for Stock Volatility Near Lowest Since 2018
Akane Otani – WSJ
It has been quiet in markets lately—so quiet that one measure of traders’ expectations for stock volatility recently touched its lowest level in more than a year. The Cboe Volatility Index, or VIX, finished Wednesday at 11.75. That was just a hair above where it ended Tuesday, which was its lowest closing level since Aug. 9, 2018, according to Dow Jones Market Data.
Euro-dollar volatility hits new low, deepening currency market misery
Olga Cotaga – Reuters
As 2019 heads into its final month, currency markets show no sign of waking from their slumber, with key gauges of expected swings in the euro-dollar rate plumbing new record lows this week. Implied volatility gauges embedded in currency options markets have been bumping along at multi-year lows as central bank stimulus policies since 2009 flooded financial markets with liquidity. The listless markets have dismayed traders who make money when there are big exchange rate swings, as that raises demand from clients to hedge currency exposure.
Goldman Prefers High-Yield Bonds as Way to Make Downside Bets
Cormac Mullen – Bloomberg
Investors skeptical about the recent U.S. risk-asset rally should look to the high-yield corporate bond market to protect their portfolios, according to Goldman Sachs Group Inc. The cost of bearish put options on the iShares iBoxx High Yield Corporate Bond exchange traded fund is historically cheap relative to those of the S&P 500 Index, strategists including Christian Mueller-Glissmann wrote in a note Friday.
A Reddit trader claims to have found a new ‘infinite money’ glitch on Robinhood — one that piggybacks on November’s exploits
Ben Winck – Markets Insider
Less than one month after Robinhood closed one “infinite leverage” loophole, a trader on the WallStreetBets sub-reddit claims to have found a new exploit on the trading app.
The strategy involves an iron condor options trade and a higher-than-usual limit price, according to Reddit user Aidangamer28’s Sunday post. The forum member noted the exploit works with any stock that offers “high payouts for short term, low risk iron condors.”
*****MR: Here we go again.
Exchanges and Clearing
MGEX: Suspension of SPIKES Futures Trading
Effective immediately, please be advised that trading in SPIKES Futures will be limited to
closing-only transactions and no new SPIKES Futures positions may be opened. Trading
in SPIKES Futures will be halted on Friday, November 29th, at 12:15 p.m. CST.
The decision to halt trading in SPIKES Futures at the end of the Friday, November 29,
2019 trade date results from conversations the Exchange has had with both the Securities
and Exchange Commission and the Commodity Futures Trading Commission. The
Exchange deems such suspension to be in the best interests of the market and market
participants until the Exchange determines whether it can work with both commissions to
resolve certain issues.
****JB: Didn’t they just launch SPIKES on MGEX only two weeks ago or so?
Cboe Mulls Different Options to Acquire Clearinghouse EuroCCP
Aziz Abdel-Qader – Finance Magnates
Cboe Global Markets Inc. is exploring buying equities clearinghouse EuroCCP as its current owners mull adjusting their stakes, FTadvisor reported on Friday. Current owners of EuroCCP, a leading CCP for pan-European equity markets, include Euronext, ABN Amro Clearing, Bats Europe, DTCC and Nasdaq. If successful, Europe’s largest pan-European stock market will join five shareholders that each own a 20% stake in EuroCCP.
ETF options: Introduction of a new Liquidity Provider scheme and discontinuation of previous schemes
1. Introduction The Management Board of Eurex Deutschland and the Executive Board of Eurex Frankfurt AG took the following decisions with effect from 1 January 2020: Introduction of a new, combined Liquidity Provider (LP) scheme for ETF options Discontinuation of four ETF-related LP schemes Production start: 1 January 2020 This circular contains information on the introduction of the new LP scheme and the respective Product Specific Supplement as attachment, as well as the list of schemes to be discontinued.
Regulation & Enforcement
US regulators divided on use of derivatives in investment products
Chris Flood – Financial Times
Clear divisions have emerged among top US financial regulators over proposed rules covering derivatives which are widely used by portfolio managers to run investment funds more efficiently.
Derivative usage by asset managers has ballooned over several decades but the rules covering the use of these financial contracts in investment funds have developed in an unsatisfactory piecemeal fashion.
FIA submits response to public consultation on FRANDT under EMIR
FIA responded today to the ESMA consultation paper on Draft technical advice on commercial terms for providing clearing services under EMIR (FRANDT). FIA and its members are fully supportive of the policy objective of FRANDT in addressing the clearing access difficulties faced by some counterparties.
FIA and ISDA jointly submit response to ESMA consultation on MAR review
Today, FIA and ISDA submitted a response to ESMA’s consultation on the review of the Market Abuse Regulation. We focused on the ESMA proposals for commodities and explained why the separate definition of inside information for commodities should be retained as it recognises the special characteristics of commodity markets.
Morgan Stanley Places Four Traders on Leave in Wake of FX Probe
Aziz Abdel-Qader – Finance Magnates
Morgan Stanley has reportedly dismissed, or placed on leave, four currency traders after being caught out trying to conceal significant trading losses. The move comes amid investigations by the US bank into alleged charges that they exaggerated the performance of the FX options desk.
Gaining An Edge In Derivatives Market Access In Asia Pacific
Viny Bodhani – Vela blog
As global trading strategies are brought to local APAC markets, firms will need to optimise their market access connectivity and execution technology infrastructure. Trading in Asia Pacific is becoming intensely competitive as larger global brokers try to step into an expanding derivatives environment. The capacity to employ leading-edge automated trading strategies in local exchange ecosystems will be paramount for both local dealers, international dealers building presence in the region, and the clients that use their market access tools.
UBS Hires EM FX Options Trader from Nomura
Aziz Abdel-Qader – Finance Magnates
US investment bank UBS has made a new addition to its EM FX trading team with appointment of former Nomura trader, Scott Rosenthal. Based out of London, Rosenthal takes on the role of Executive Director, EM FX Options Trader, and he brings nearly ten years of experience in forex and emerging markets trading. Most recently, Scott served in a similar position, initially as an emerging markets options trader, at Nomura from 2016 until he left this month.
Balyasny’s Book: Hiding in Plain Sight
With this Feed post, Alphacution adds Balyasny Asset Management, LLC (BAM) to its growing roster of modelled trading firms. BAM is a multi-strategy multi-manager investment firm who is often compared to the likes of Millennium, Point72, and Citadel. We might go a bit further to add Two Sigma and AQR Capital Management to a broader description of other large hedge fund managers that operate in the active management zone of our ecosystem map.