Observations & Insight
Joe Sullivan’s Influence and Success
By John Lothian – John Lothian News
Joseph Sullivan’s life impacted so many others, including many or even most reading this newsletter, because of the successful launch he led of the first new securities exchange since the enactment of the 1934 act that created the U.S. Securities & Exchange Commission.
His work paved the way for the U.S. options industry by doing the heavy lifting of creating a new exchange, working with the SEC, which was unsure of the process for how to approve an exchange and somewhat skeptical of the guys from Chicago who were doing it.
One of the lives former Wall Street Journal reporter Sullivan influenced was that of William Brodsky, who would later become the chairman and CEO of the Chicago Board Options Exchange. Sullivan’s marketing of CBOE memberships for $10,000 a piece led the New York brokerage firm where Brodsky worked to buy one and Brodsky to become their approved compliance person.
During a slowdown in trading that was going to negatively impact his bonus at the time, Brodsky was encouraged to “do something” by his wife, he said. What he did helped determine his future career course, and it started with Joe Sullivan.
To read the rest of this commentary, go here.
David Johnson – Open Outcry Traders History Project
David Johnson was trading OTC stocks and options for Pershing in 1970. He was in the right place at the right time when the CBOT decided to launch an options exchange. He came to Chicago in 1974 from New York and never left. He saw the immense growth of the CBOE and the options business, but dealt with the tough times, including the stock markets crash of 1987. He experienced the growth that ultimately demanded technology to manage the risk. He was always a proponent of technology. He joined Morgan Stanley in 1982. He served on the original Globex Committee at the CME with Leo Melamed and John Geldermann.
Volatility and the 2020 U.S. Election
The 2020 U.S. presidential election is projected to be unlike any other in recent history, and the market is responding accordingly. Historically, expected volatility has climbed higher in the months leading up to Election Day, but in 2020, that expected volatility has been driven significantly higher than in election years past. Check back here for the latest insights on market reaction to the November 3 election from Cboe experts.
Here’s why it’s time to start shorting overextended markets, says one research firm
Steve Goldstein – MarketWatch
There was, to be fair, bad news on the coronavirus vaccine front hanging over markets on Tuesday. But results on the first day of earnings season weren’t terrible, and the data on small-business sentiment were encouraging. The International Monetary Fund, while sounding a cautious note, did upgrade its economic outlook.
To analysts at Longview Economics, a London-based research firm, it is looking like the rally from September lows was overextended, and the upside trend is “tired.” They say markets are overbought at an index, sector and single-stock level as traders have become “greedy.”
Joseph Sullivan, CBOE founder who ‘changed the face of American finance,’ dies at 82
Robert Channick – Chicago Tribune
When Joseph Sullivan joined the Chicago Board of Trade in the late 1960s, he was a finance industry novice put in charge of a moonshot project to create the first marketplace for trading listed stock options.
Exchanges and Clearing
EU watchdog works on ‘Plan B’ to move euro clearing from London
Huw Jones – Reuters
The European Union will have a “Plan B” that relocates clearing of euro-denominated derivatives from London to the bloc if it decides against long-term access for Britain, a top EU regulator said on Wednesday.
The London Stock Exchange’s LSE.L LCH unit has been given EU permission, known as equivalence, to continue clearing derivatives for customers in the bloc for 18 months after Dec. 31, when Britain’s Brexit transition arrangements expire. ICE ICE.N and the London Metal Exchange has similar permission.
SGX and NZX to explore global dairy derivatives partnership
Singapore Exchange (SGX) and New Zealand’s Exchange (NZX) have today signed a Heads of Agreement in relation to a global partnership to grow NZX’s dairy derivatives market together. The non-binding agreement signed between both exchanges will explore the listing of NZX’s suite of dairy derivatives contracts on SGX’s trading and clearing platforms. This would see NZX bring its dairy product development expertise and client relationships, while leveraging SGX’s global market connectivity, strong Asian presence and international distribution, to scale growth and liquidity in the trading of dairy derivatives. Market participants could expect augmented access via current and new trading and clearing channels.
Regulation & Enforcement
Federal Court Orders Affiliate Marketer to Pay More Than $13.8 Million for Binary Options Fraud
The Commodity Futures Trading Commission announced today that the U.S. District Court for the District of Hawaii entered an order of default judgment on September 14, 2020 finding that Peter Szatmari, formerly of Hawaii, fraudulently solicited U.S. residents to open binary options trading accounts. Szatmari is required to pay more than $13.8 million in connection with the fraud.
CFTC releases no-action letters offering further relief for clearing organisations during Libor transition; The two no-action letters will offer swap transaction and pricing data reporting relief to clearing organisations transitioning to SOFR.
Annabel Smith – The Trade
The Commodity Futures Trading Commission (CFTC) has published two additional no-action letters offering relief to derivatives clearing organisations (DCOs) transitioning to the secured overnight financing rate (SOFR). The no-action letters will offer swap transaction and pricing data reporting relief to DCOs that will help transition certain cleared swaps from discounting using the effective federal funds rate (EFFR) to the SOFR.
FCA fines hedge fund GBP900,000 for not disclosing short selling
Nathalie Thomas and Matthew Vincent – Financial Times
A Hong Kong hedge fund that built up a large short position in the North Sea energy group Premier Oil has been fined more than GBP870,000 by the UK regulator for hundreds of disclosure failures over more than two years.
Between February 2017 and July 2019, Asia Research and Capital Management — a $3.7bn hedge fund founded in 2011 by Alp Ercil — built a short position equivalent to 16.85 per cent of the issued share capital in Premier Oil. It amounted to the biggest short in UK history, according to Edison, the investment research group.
Mercury Digital Assets Partners With Bit.com to Enable Bitcoin Options and Perpetual Swaps Trading
BusinessWire (press release)
Mercury Digital Assets (“Mercury”), a technology provider for digital asset markets, announced today its partnership with Bit.com, a secure, high-performance crypto derivatives exchange launched by Matrixport. This partnership enhances trading capabilities for both parties’ customers at a time of growing interest in crypto derivatives.
A global strategy chief shares 3 ways investors can navigate increased stock-market volatility in the coming months
Emily Graffeo – Markets Insider
The upcoming US election and an uptick in cases of COVID-19 are leading to increased volatility and causing some investors to step back. Willem Sels, HSBC Private Banking global chief market strategist, expects volatility to pick up in the next few months, but said investors should remain in the market. In a Tuesday email he shared three strategies for investors to manage what’s ahead.
A Go-Anywhere Fund That Can Handle Any Market
Lewis Braham – Barron’s
For many investors, not losing money is just as important as making more. The BNY Mellon Global Real Return fund excels at both. The fund (ticker: DRRIX), managed by London-based Suzanne Hutchins, 53, aims to generate positive long-term, or “absolute,” returns, regardless of how the market has performed. “The objective…is to generate an absolute return of Libor or cash plus 4% over the longer term, and to help preserve capital on the downside,” she explains. Libor, the London interbank offered rate, has been near zero since the 2008 crash, except for a small spike in 2018 and 2019—which means the $3 billion fund’s 4.2% annualized return in the past decade is close to its goal.
(Podcast) Options Insider Radio Interviews: Talking Volatility with Dr. VIX
Options Insider Radio Interviews