Observations & Insight
Larry Abrams – Open Outcry Traders History Project – Part 1
Larry Abrams’ career started with a chance encounter on a ski lift which was prompted by a good deed. He and some friends helped to push a stranded car that was stuck during a blizzard in Park City, Utah. The next day on the lift line he was paired with the man whose car he had helped push out the night before, who happened to be an options market maker at the Cboe. By the time he got off the lift line, he knew that was what he wanted to do. He visited the man in Chicago (Abrams was living in Philadelphia) but realized that options also traded on the Philadelphia Stock Exchange. He did some networking and ended up as an options market maker on the PHLX.
The Spread – July 23, 2021
Volatility makes a return appearance as the Delta variant jangles nerves; Treasury bond yields perk up; July options expire; John Lothian chats with Cboe’s Ed Tilly about a World of Opportunity; UBS and SEC reach a settlement; FIA Tech expands; and the Options Institute’s Kevin Davitt explains why contract size matters in the “Term of the Week.”
VIX Plaintiffs Lose Bid to Unmask Traders Tied to 2018 Spike
Breanna Bradham and Nick Baker – Bloomberg
Funds sought disclosure in suits over losses from record surge; Five market makers accused of rigging index with flash quotes
A federal judge refused to identify five market makers accused in lawsuits of manipulating the VIX index, one of Wall Street’s most closely watched benchmarks. The index saw a record spike on Feb. 5, 2018, causing widespread losses among investors who hadn’t anticipated such a sudden increase in market volatility. More than two dozen investors and fund managers sued over the next year, claiming unidentified firms that rigged the index “repeatedly posted and immediately canceled” tens of thousands of quotes for S&P 500 options, whose prices are used to calculate the VIX.
Cboe to launch new European derivatives market on Sept. 6
Cboe Global Markets said on Monday it would launch Europe’s newest derivatives market on Sept. 6 in Amsterdam, taking on entrenched rivals like Deutsche Boerse and Euronext.
Chicago-based Cboe said it had received regulatory approval from Dutch regulators to launch Cboe Europe Derivatives that would trade equity futures and options, with transactions cleared by its own clearing house EuroCCP.
Why Delta Threatens to Undermine the Economic Recovery
Noah Smith – Bloomberg
The U.S. economic recovery is being threatened by the Covid-19 delta variant. Increasing vaccination rates is the most important thing the U.S. can do to sustain the economy over the next few months. Beyond that, however, full recovery might require creating new vaccines against delta and other emerging variants.
U.S. stock markets and Treasury yields took big dips in recent days before rebounding. Despite the bounce-back, the volatility is evidence that investors are worried about the health of the recovery. It’s not just markets, either — there are some concrete signs of economic weakness, such as a week with an unexpectedly high number of initial jobless claims. The lights aren’t flashing red yet, but these are clear warning signs.
Oil prices retrench on massive hedge fund sales
John Kemp – Reuters
Portfolio managers sold petroleum last week at one of the fastest rates for a decade, after an upsurge in coronavirus cases and an OPEC+ agreement to boost output caused them to reassess the likelihood of further price increases.
Cboe Europe and EuroCCP Receive Dutch Regulatory Approvals For New European Derivatives Market
Cboe Europe, the pan-European exchange operator and subsidiary of Cboe Global Markets, Inc. (Cboe: CBOE), today announced that it has received the necessary regulatory approvals to launch Cboe Europe Derivatives, a new Amsterdam-based futures and options market, on 6 September, 2021.
Cboe Europe B.V. (Cboe NL), Cboe Europe’s subsidiary in Amsterdam, is now authorized to operate a Regulated Market for equity index futures and options, which will be regulated by the Dutch Authority for the Financial Markets (AFM). EuroCCP, Cboe’s pan-European CCP, is also granted permission by the Central Bank of the Netherlands (DNB) to clear equity derivatives.
Further trading opportunities: first FX futures on the Eurex/KRX Link
The new product listing of the U.S. Dollar/Korean Won Futures tradable via the Eurex/KRX Link is a fortuitous opportunity to discuss both the new products and the Korean market. We found the perfect interview partner in Jennifer Ahn, Head of Global Derivatives Team at Shinhan Investment Corp.
What are the current trends and development in the Korean derivatives market?
Despite lower volatility, I have always found the Korean derivative market to be highly efficient and transparent. With the rapid growth of the Korean stock market, foreign investors have also increased their participation. With the Eurex/KRX Link, market participants can react instantly to news that impact stock prices after regular Korean trading hours.
International institutional investors use KOSPI futures and options to build their portfolios in frontier and emerging markets.
Regulation & Enforcement
Libor’s Final Days Begin With Push to Shake Up Swaps Market
Alex Harris – Bloomberg
U.S. regulators are wagering a major shakeup of the multitrillion-dollar interest-rate swaps market is just what’s needed to wean Wall Street off the London interbank offered rate for good.
In a key development in the shift from the discredited benchmark, beginning Monday, swaps desks will switch from Libor to the Secured Overnight Financing Rate when entering into most interdealer trades, effectively changing how they hedge their interest-rate risk.
The ‘New Normal’ for the U.S. Volatility Trading Landscape
Colby Jenkins, Burton-Taylor International Consulting – Tabbforum
The aftermath of the pandemic has created what could be a ‘new normal’ for volatility. But how will that impact the vol trading market? Several developments in the space over the past year suggest a possible shake up to the long-held status-quo, with the introduction of new products from Nasdaq and MIAX. In this article, Colby Jenkins, a Senior Analyst at Burton-Taylor International Consulting, takes a look at the current landscape and offers his analysis as upstarts look to take a helping of market share from the VIX.
Stablecoins come with bank-like risks
The Editorial Board – Financial Times
When the Austrian economist and political philosopher Friedrich Hayek proposed taking money out of the hands of governments in 1976 he foresaw self-interested banks as the new guardians of currency. Each bank would be able to create and sell their own version of private money and would compete for customers by keeping the value of their currency as stable as possible. The incentives of the market and the discipline of competition would do a lot better than governments at preserving the value of money and preventing inflation, he thought.