VIX lawsuit update; Treasury options; CCP margin

Jul 12, 2018

VIX lawsuit update; Treasury options; CCP margin

Jul 12, 2018

Spencer Doar

Spencer Doar

Associate Editor

Lead Stories

VIX MDL Lead Should Have Young, Diverse Attys, Judge Says
Lauraann Wood – Law360 (SUBSCRIPTION)
The Illinois federal judge overseeing multidistrict litigation over alleged manipulation of the Chicago Board Options Exchange’s volatility index told investors’ attorneys he’ll be looking for details on team diversity and the potential for “substantive work for junior attorneys” in any lead counsel applications they submit.

****SD: Am I missing something? This feels like code for “please represent yourself with less experienced counsel”? That sounds good for the defense…

Treasury Short Bets May Be on Borrowed Time
Liz McCormick and Edward Bolingbroke – Bloomberg (SUBSCRIPTION)
Trade war escalation raises risk of epic short squeeze; Options traders setting up to profit from flight to quality
President Donald Trump’s newest threat of ramping up tariffs against China is adding to a pressure cooker potentially building from an outsized amount of speculative bearish wagers on long-term Treasuries.

****SD: This is a bit of a companion piece to yesterday’s Financial Times lead story – Treasury future and options trades favour lower yields

A real-life stress test for CCP margin; Thanks to standardised reporting, we can track how clearing houses’ risk profiles have changed over time
Louie Wooddall – (SUBSCRIPTION)
…The venues’ latest public disclosures cover the first quarter of this year, when US rates rose, equity markets whipsawed, and supposedly rock-solid correlations between stocks and bonds temporarily broke.
Naturally enough, margin shortfalls jumped in number and size. At the Options Clearing Corporation, there were 38 breaches in Q1, with an average size of $61.4 million – the highest since standardised disclosures were introduced in Q3, 2015. At CME Group, there were just two breaches, but the larger of those – at $47 million – was the biggest the clearer has reported since the start of the disclosure regime.

****SD:. Today’s “Did you know?”: “Under Europe’s clearing house regime, CCPs are required to collect margin to cover over-the-counter derivatives exposure at a 99.5 percent confidence level; for other instruments it is 99 percent.”

Flash Boys on the Farm? Arms Race Gets Unleashed Over Crop Data
Alan Bjerga, Nick Baker, Megan Durisin, and Brian Louis – Bloomberg (SUBSCRIPTION)
USDA ends decades-long policy of giving journalists data first; Website distribution may benefit traders with fastest access
It’s the sort of edge any trader would covet — and one the authorities were actually hoping to prevent.
Yet the U.S. Department of Agriculture may well be clearing the way for some Wall Street speed demons to trade on market-moving data before others. Abandoning decades of precedent, the agency has decided to only post its reports directly on the web, rather than also release them via accredited media. While that may seem like a democratic move, it actually could set the stage for a winner-takes-all arms race to grab the info first.

****SD: I was unaware “WASDE” stood for “well accepted standards deemed extraneous.”

OCC Appoints General Counsel of NYSE Group to Board of Directors
OCC, the world’s largest equity derivatives clearing organization, announced today that Elizabeth King, General Counsel of NYSE Group, has joined the Board of Directors as an Exchange Director. She fills a vacancy created by the departure of former NYSE Group President Thomas Farley in May.

***SR: Elizabeth King is also our MarketsWiki Page of the Day today.

Exchanges and Clearing

CME Technical Issue Keeps Some Customers From Connecting
Nick Baker and Sheela Tobben – Bloomberg (SUBSCRIPTION)
CME Group Inc., the world’s biggest exchange operator, experienced a technical malfunction Wednesday that prevented some traders from accessing the market.
“We’re experiencing a technical issue that is impacting connectivity for some customers,” the company said in a statement. “Our markets remain open while we work directly with customers to resolve the issue.”

TMX to extend trading hours on October 9
Global Investor Group (SUBSCRIPTION)
TMX has said it will extend on October 9 its trading hours to capitalise on growing international participation in its derivatives market.

****SD: This is just a reminder, as TMX has said this before – see our video with Montreal Exchange’s Luc Fortin from IDX.

Cboe FX has been voted Best FX ECN at the 2018 FX Week e-FX Awards
Eva Szalay – FX-Week
Hotspot was one of the first institutional ECN dedicated to currency trading and it has become an established brand over the years. Following a series of ownership changes, the platform was rebranded Cboe FX in October 2017.

****SD: This is a peek at one of Cboe’s growing non-options franchises.

Trading on MCX halts twice due to technical glitch; MCX said that the technical glitch was not caused due to any cyber security breach.
Press Trust of India
Leading commodity bourse MCX on Wednesday said the trading was halted at its platform twice during the day because of a technical glitch.


Citi poached a quant trading and derivatives exec from Credit Suisse
Alex Morrell – Business Insider (SUBSCRIPTION)
Citigroup has hired a quant trading and derivatives exec from Credit Suisse, the latest in the rash of equity derivatives moves across Wall Street.
Jeff Berton, formerly the head of Quantitative Investment Solutions (QIS) in the Americas at Credit Suisse, is joining Citi to run a similarly focused unit on a global scale, according to people familiar with the matter.

****SD: The derivatives trader revolving door continues.


Hedge funds embrace China yuan short trade, but no doomsday in sight
Simon Jessop, Saikat Chatterjee – Reuters
A record slide in the Chinese currency in June has paid rich dividends for some of the world’s top macro hedge funds, though they say those trades do not reflect growing bets on an economic crash.

Big Banks JPMorgan, Wells Fargo And Citigroup Kick Off Earnings Season Friday Morning
JJ Kinahan – The Ticker Tape
JPMorgan Chase, Citigroup and Wells Fargo report second-quarter earnings before market open on Friday, July 13.
The financial sector has been lagging the S&P 500’s 2.9% return so far in 2018. JPMorgan’s stock has fared better out of the three and is down 1.45% year to date, while Wells Fargo is down 8.22% and Citigroup is down 8.67%.
All three of the banks passed the Federal Reserve’s stress tests in June and had their capital return plans approved.

Yen Dethroned From Safe-Haven Perch in Brewing Trade War
Adam Haigh – Bloomberg (SUBSCRIPTION)
Japanese currency has been worst performing in G-10 in July; Weakness could continue on technicals, TD Securities says

Trade war looms over European company earnings
Helen Reid, Julien Ponthus – Reuters
Investors will be watching Europe’s exporters like hawks this earnings season, picking over results for signs that escalating protectionism worldwide has started to dent companies’ investment plans and outlook.


This Is The Unluckiest Stock on Friday the 13th
Andrea Kramer – Schaeffer’s Research
Tomorrow is Friday the 13th — a day considered to be so ominous there’s an entire slasher-movie franchise built around it, and it even has a dedicated phobia. What’s more, recent history shows that the S&P 500 Index (SPX) actually tends to be rather unlucky on Friday the 13th, and retail stock Kohl’s Corporation (NYSE:KSS) has been the most unfortunate of all.

***SD: Random.

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