Observations & Insight
Miscellany of the Day
Spencer Doar – JLN
Cboe turned 45 years young and Russell Rhoads has a blog out with 45 facts about Cboe – I forgot seats were originally offered for $10,000. Using a U.S. Inflation Calculator site, the cost of a seat in 1973 is about $55,000 in today’s world.
Bill Luby said in a tweet a ways back that he is working on more content for his VIX and More blog and will be dusting off the cobwebs soon. His most recent post is from May 2017.
One in five financial institutions are pondering crypto trading, according to Reuters.
If you find yourself in Chicago on this balmy day (sarcasm) the fourth annual Fintech Exchange is today and tomorrow. This is the first time it’s a two-day affair.
‘Vol-mageddon’ or bust?
Charles Younes – FT Adviser
Since the global financial crisis, fundamental active fund managers have been complaining about the lack of volatility in financial markets, with the most popular measure of risk trading at historically low levels. This was likely to have been driven by the decision of the four main central banks to maintain their quantitative easing programmes.
Hagens Berman Alerts Investors in VIX Futures and VIX Options to the Firm’s Investigation into Possible Violations
Hagens Berman Sobol Shapiro LLP alerts investors in VIX Futures (VX and VX01 through VX53) and VIX Options (VIX) traded on the Cboe Options Exchange of the Firm’s investigation into possible violations of federal law. If you purchased or otherwise acquired VIX Futures (VX and VX01 through VX53) and VIX Options (VIX) and suffered losses contact Hagens Berman Sobol Shapiro LLP.
****SD: Not only is the press release wire full of announcements from firms about lawsuits, now law firms are putting solicitations out on the wire…
Why Wall Street’s Stock Traders Are Having Their Best Year Since the Crisis
Telis Demos – WSJ
A surge on Wall Street stock-trading desks is being driven by manic investor moves in derivatives, as fund managers scramble to protect their gains from future volatility.
Following a leap in stock market gyrations so far this year, the biggest U.S. banks generated more revenue from stock trading than in any first quarter since the financial crisis, according to a Wall Street Journal analysis of bank regulatory filings.
No Tricks With the VIX
Crystal Kim – Barron’s
Investors cried foul on April 18 after the Cboe Volatility Index, or VIX, rose 10% in the course of a single hour during the morning options auction, just as VIX derivatives were expiring. They suspected that someone was trying to manipulate the VIX, which had spiked suddenly just a few weeks before, roiling financial markets. Cboe Global Markets (ticker: CBOE) CEO Ed Tilly and Chief Operating Officer Chris Concannon said in a letter filed Monday with the Securities and Exchange Commission that there had been no foul play. “We reiterate that we believe these claims are without merit,” their letter stated.
****SD: The complete Cboe letter was in yesterday’s newsletter and can be found here.
Want To Replace Your Hedge Fund Allocation?
Julie Segal – Institutional Investor
In search of great returns and limited risk, individual investors have long used listed options — a contract to buy or sell a security at a particular price — as a way to reduce risk in their portfolios. Now institutional investors, particularly public pension funds, are increasingly buying into the value of using exchange-traded options as an alternative to more expensive and often less transparent and less liquid hedge funds and private equity.
****SD: Missed this earlier.
Exchanges and Clearing
Cboe Global Markets 45th Anniversary
Russell Rhoads – Cboe Blog
Cboe Global Markets turns 45 and we thought we would provide 45 ‘fun facts’ to mark the occasion.
OCC Named Best Clearing House by Markets Media
OCC, the world’s largest equity derivatives clearing organization, today said it was named Best Clearing House by Markets Media. The award was presented to OCC on April 24 in New York as part of the publication’s 6th Annual Markets Choice Awards.
Nasdaq is open to becoming cryptocurrency exchange, CEO says
Kate Rooney – CNBC
Once the space matures, Nasdaq is open to becoming a platform for trading cryptocurrencies like bitcoin, according to the company’s CEO.
Winklevoss Twins Hire Nasdaq to Watch for Crypto Cheaters
Matthew Leising and Nick Baker – Bloomberg
Their Gemini market to use Nasdaq market surveillance service, Investors have wondered who’s watching out for crypto fraud
The Winklevoss twins brought in the pros to keep cheaters off their cryptocurrency exchange.
Nasdaq profit up 5%, lowers guidance for costs
Adam Clark – MarketWatch
Nasdaq, Inc. reported a 5% rise in quarterly profit and lowered its full-year operating expenses guidance.
The New York, N.Y.,-based stock-exchange operator reported a profit of $177 million, or $1.05 cents a share, compared with $168 million, or 99 cents a share, the same period last year.
Regulation & Enforcement
Basel tells big banks that simple might be better
Huw Jones – Reuters
Big investment banks should accept that simple may be better when it comes to new rules for capital requirements to protect them from trading risks, a top regulator said on Wednesday.
****SD: Unfortunately, “simple” to Basel really means “an inaccurate and more onerous reflection of risk” to the people that these rules actually apply to. Does Basel have an aversion to the math pertaining to offsetting positions? From the story “But banks with big trading books have long complained that the proposals are too blunt and will force them to hold far more capital than warranted by their actual risks.”
ISDA Publishes Guide To Navigating Derivatives Trading On US/EU Trading Venues
ISDA has published a new paper that analyzes the implications of trading venue recognition between the US and European Union (EU), and flags areas where further alignment of rules is necessary.
Long-awaited Proposed Canadian Derivatives Registration Arrives
With the publication of Proposed National Instrument 93-102 Derivatives: Registration and its Companion Policy 93-102 (collectively, the “Derivatives Registration Rule”) by the Canadian Securities Administrators (“CSA”) on April 19, 2018, the days are finally over for those wondering what the “second half” of Canada’s over-the-counter (“OTC”) derivatives registration regime will look like.
Options Continues Managed Colocation Expansion At Equinix Zurich & Milan
Options, the leading provider of global market data and colocation services for trading firms, today announced its high performance managed colocation solution has been extended to Equinix Zurich (ZH4) and Milan (ML2) data centers. Options’ clients colocated at the facilities will benefit from low latency connectivity to SIX exchange feeds at source and a proximity option to the Borsa Italiana exchange feeds.
SS&C set May 4 deadline to gatecrash 1.5 billion-pound Fidessa deal
U.S. financial software company SS&C Technologies (SSNC.O) has been given until May 4 to gategrash a 1.5 billion-pound takeover of Fidessa (FDSA.L) or walk away from the British firm, the UK’s Takeover Panel said on Monday.
Closing Highs and Lows: Pattern Analysis
Sage Anderson – tastytrade blog
Equity markets started moving in February of this year and with calendars now flipped to April they remain choppy.
While the market has swung both ways, the trend of late has definitely been lower. The high of the year was put in on January 2nd, with SPY trading around 286. Just before Easter weekend, SPY closed trading at approximately 263.
Options Mispricing Snapshot
Denis Atamanov – SeekingAlpha
Equity markets are staying within the range formed in the last several months. Implied Volatility is slightly elevated, no short-term oversold/overbought condition observed. Call options are priced almost fairly my the market except for QQQ. Put options are mostly overpriced with maximum overpricing in QQQ.
Optionality: Why We Use Derivatives To Manage Risk
It’s no secret that we believe equity valuations in the U.S. are expensive. While we don’t predict an immediate, recession-sized market correction, we believe the risk of downside is significantly greater than any remaining upside.
That said, upside potential is still there with the recent fiscal stimulus and new tax bill supporting a late-cycle blowout rally. So, investors end up with two conflicting risks they need to manage:
Cboe Periodic Auctions Hits First EUR1 Billion Day on 24 April
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, today reported that Cboe Europe’s Periodic Auctions book set a new one-day record of EUR 1.08 billion notional value traded yesterday, surpassing the EUR 1 billion threshold in one day for the first time. The previous one-day record was EUR 969.2 million set on 27 March 2018.
Indonesia urges firms to bolster hedging as rupiah risks grow
Indonesia’s central bank on Wednesday urged businesses to hedge their foreign exchange needs beyond minimum requirements, as policymakers seek to mitigate risks of further capital outflows following the rupiah’s slump.
Two-Year U.S. Yields at 2008 Highs Are Scarier Than a 3% 10-Year
Liz McCormick and Alex Harris – Bloomberg
With all the focus on the 10-year Treasury yield breaching 3 percent, investors may be missing the most important movement afoot in the world’s biggest debt market.
****SD: More on the 10-year from Reuters here.