Volatility Could Be GameStop Crowd’s Next Losing Bet; Robinhood, Citadel CEOs Grilled by Lawmakers in Wake of GameStop Saga

Feb 19, 2021

$29,351/$300,000 (9.8%)

Observations & Insight

No, Virginia, There is no Santa Claus; He Was Demutualized
Thom Thompson – John Lothian News

If you are, like me, someone who has never bought even a single datum let alone have multiple subscriptions with multiple vendors, Acuiti’s newest report on market data makes for fascinating reading. The most amazing thing in the whole report was this statement on page 7: “Over two-thirds of bank respondents reported their data fees to be in excess of $250,000 per month.”

I spent 30 of my pre-muckraking years working for global derivatives exchanges. For many of those years we heard complaints from our members and customers that data fees were eating them alive. But I had no idea that fees were rising to such levels.

Of course, part of the rise in the reported level of data charges to the banks results from the concentration of trading banks and brokerages. But more than $250,000? Per month. Wow.

Some data are still free for the public, and a little more data are free on exchange members’ trading screens. But even members will pay up for microsecond depth of book indications.

To read the rest of this commentary, go here.


JJL: The World Federation of Exchanges issued a report, “Full Year 2020 Market Highlights.” The report offers the first opportunity to study the impact of the events of 2020 on markets holistically and looks across market capitalisation, listed companies, IPOs, volumes and value traded in multiple assets classes including equities, derivatives futures, options and ETFs.

SR: The 2021 Options Industry Conference has announced two of their keynote speakers for the conference, which takes place virtually from April 28-29 2021. SEC Acting Chair Allison Lee will be the keynote speaker for day one of the conference. The keynote speaker for day two will be Randal Quarles, Vice Chair for Supervision, Board of Governors of the Federal Reserve System. You can find out more about the conference and register here.

Lead Stories

Volatility Could Be GameStop Crowd’s Next Losing Bet
Spencer Jakab – WSJ
GameStop mania may be over, but the ripples continue weeks later as newly minted retail traders flirt with various objects of affection. There were silver, marijuana stocks and dogecoin. Some observers are now pointing to an exchange-traded product that tracks volatility as a likely beneficiary of crowd behavior.
The ProShares Ultra VIX Short-Term Futures ETF, which carries the ticker symbol UVXY, might be the worst investment of them all because it isn’t really meant to be one.

Robinhood, Citadel CEOs Grilled by Lawmakers in Wake of GameStop Saga; House panel presses executives, investors about recent options-trading drama
Paul Kiernan and Peter Rudegeair – WSJ
Robinhood Markets Inc. Chief Executive Officer Vlad Tenev offered an apology for the company’s decision to temporarily curb trading in some stocks, including GameStop Corp., on Jan. 28 amid extraordinary volatility. “Despite the unprecedented market conditions in January, at the end of the day, what happened is unacceptable to us,” Mr. Tenev said after being questioned at a congressional hearing Thursday.

Global Value Rotation Has Morphed Into Chasing Risk at Any Price
Cormac Mullen – Bloomberg
The great global rotation out of growth into value stocks looks to have stalled this year, and investors have switched to chasing the riskiest stocks from both cohorts.
The MSCI World Value Index has performed in line with its growth counterpart this year — up about 4% — after a late 2020 burst saw it outperform by over 6 percentage points from the period just after the U.S. election. An analysis of return data from Societe Generale SA shows while investors have continued to chase the most volatile value stocks in 2021, they have also been backing the riskiest growth names.

Inflation Puzzle Has $42 Billion Fund Considering Rate Options
Rafaela Lindeberg – Bloomberg
The $42 billion Swedish pension fund AP1 may veer from its usual investment strategies and buy options as diverging outlooks for inflation look set to create a new opportunity for returns, its chief executive officer said. AP1 doesn’t typically invest in interest rate and foreign currency options “very intensively,” but circumstances are different now, Kristin Magnusson Bernard said in a phone interview.

Inflation Is Looming. A Pair of New ETFs May Offer Protection.
Randall W. Forsyth – Barron’s
Along with the usual weekly batch of brickbats, my email also contained a query from a reader: If inflation is coming, how do I protect my portfolio? Good question.
As one who came of age as inflation began its liftoff in the late 1960s and the early 1970s, I remember those times well. President Richard Nixon imposed wage and price controls in 1971 with inflation in the 5% range and ended the dollar’s convertibility into gold. Oil prices soared along with food costs. By the end of that decade, inflation was running more than twice as high.

Hedge funds on the lookout: ‘they don’t want to get burned’, says analyst as GameStop-style short interest falls
Mark DeCambre – MarketWatch
The GameStop-style volatility around short-selling that reached a crescendo in the U.S. stock market in late January has declined markedly, according to recent data from S&P Global Market Intelligence.
The research firm’s data show that the share of outstanding stocks of S&P 500 constituent companies held by short sellers, or those betting that the company’s stock will fall in value over time, averaged 3.08%, down from 4.07% a year earlier.

Mexico Revamps Oil Hedge Strategy to Mirror Shale’s Approach
Nacha Cattan and Javier Blas – Bloomberg
Mexico is revamping its massive sovereign oil hedge, copying some of the tactics that U.S. shale producers use in an effort to keep its presence in the market under the radar and secure better prices. The changes are among the most important since Mexico introduced the modern version of the country’s strategy to lock in prices for its crude, a closely watched deal that costs its government about $1 billion in fees to big banks and commodity traders. It’s considered the largest annual deal of its kind on Wall Street. The Latin American nation traditionally sought to protect government revenues that are heavily dependent on oil by purchasing insurance from big banks and commodity traders one year ahead, usually during a relatively short period between May and September. Now, Mexico is taking a new approach, aiming to spread its purchases over time, even being open to buying insurance during the same year the protecting is for.

Exchanges and Clearing

Full Year 2020 Market Highlights
The World Federation of Exchanges
The World Federation of Exchanges (“WFE”), the global industry group for exchanges and CCPs, has today published its Full Year 2020 Market Highlights Report. The report offers the first opportunity to study the impact of the events of 2020 on markets holistically and looks across market capitalisation, listed companies, IPOs, volumes and value traded in multiple assets classes including equities, derivatives futures, options and ETFs.

Derivatives Exchanges In Emerging Markets: Key Success Factors
Press Release
Derivatives markets are a key segment of the capital markets around the world. They are central to the efficiency and stability of capital markets and thus to economic growth.
Derivatives exchanges are active nowadays in all developed economies. Among emerging economies, there are vibrant derivatives exchanges in large and/or sophisticated markets e.g. Brazil, China, India, South Africa. However, many smaller emerging economies do not yet have this important capital markets institution. These countries are very interested in launching derivatives and learning “best practices”.

FIA highlights CCP margin procyclicality concerns to European Regulators
Washington, DC–FIA today presented to the European Securities and Markets Authority (ESMA) on the issues experienced in the spring of 2020 when high volatility and procyclicality of margin requirements were experienced in the global clearing system. During this period, the high number and the large size of margin calls drove demand for liquid assets, just as those assets were scarce due to market stresses. Such a drive for liquid assets can contribute to the stress in the financial system. FIA’s presentation consisted of an analysis of data on margin requirements at several major derivatives clearinghouses, and it contained a set of recommendations aimed at mitigating the procyclicality of margin requirements. FIA first issued these recommendations in a white paper published in October 2020.

*****JJL: The word of the day is “procyclicality.”

Robinhood chief apologises over GameStop affair
James Politi, Miles Kruppa and Eric Platt – Financial Times
Vlad Tenev, the chief executive of Robinhood, apologised for his company’s role in the furore over trading in GameStop shares, as the online trading platform bore the brunt of a political grilling in Washington.
“I’m sorry for what happened. I apologise,” Tenev said during an afternoon of questioning from Democratic and Republican lawmakers on the House Financial Services Committee.


Itiviti and Diginex team up to launch front-to-back crypto trading solution; The pair said the launch was in response to a wholesale shift from institutional investors to digital assets, driven by dwindling returns in traditional assets.
Annabel Smith – The Trade
Trading technology provider Itiviti has partnered with blockchain and cryptocurrency infrastructure specialist Diginex to launch a front-to-back crypto trading solution. Named Access, the front-to-back solution is powered by Itiviti’s Tbricks automation technology and offers portfolio and risk management for the trading of cryptocurrencies and crypto derivatives across platforms.


Five Things To Know About Options Before You Start Trading Them
Rance Masheck – Forbes
I’ve been trading options for decades, but for many people, they seem scary and high-risk. Like anything in life, something can seem scary until you understand it. Learning how options actually work and how to apply them correctly based on your goals takes away that fear. If you want to get started with options, here are five things that can get you on track.

Why Your Wild Trading Ideas Feel So Right; For investors, that ‘gut feeling’ can be more powerful than they realize. Here’s how to listen to your gut without being ruled by it
Jason Zweig – WSJ
If only financial markets came with traffic signals: indisputable indicators of when it is safe to keep going, when you need to slow down, when you must stop. Imagine how much easier investing would be if you could rely on such green, yellow or red lights. Unfortunately, these unambiguous signals don’t exist. Investors fill much of the absence with anecdotes and gut feelings, which can be more powerful than you realize. Such soft indicators can help you make hard decisions, but only if you rely on them in the right ways. Consider the anecdotal feel of today’s markets.


Registration is open! – FIA Boca 2021

The SEC’s new derivatives rule: practical implications for funds
25 February 2021 • 10:00 AM – 11:00 AM EST
The SEC recently adopted Rule 18f-4 under the 1940 Act, which will establish a comprehensive framework for the use of derivatives transactions by registered funds. The rule will replace SEC guidance and staff no-action letters that together have governed the use of derivatives by registered funds for over 40 years with an expansive regulatory framework. Funds will not need to come into compliance with the rule until the summer of 2022, but most fund families will need to devote significant time and resources to prepare for the new regulatory framework in advance of the compliance date.

A New Virtual Experience
The Options Industry Conference is Going Virtual in 2021. Join OCC and the options exchanges for the 39th annual Options Industry Conference, April 28-29, 2021. While the conference will be held virtually for the first time in history, the focus will continue to be the key topics facing the options industry today, from the regulatory shifts in the U.S. and Europe to the technological developments that are driving monumental change in markets around the globe.


GameStop frenzy brought the market ‘dangerously close’ to collapse, says Interactive Brokers founder Thomas Petterffy
Isabelle Lee – Markets Insider
Interactive Brokers Group Chairman and founder Thomas Peterffy said the country’s financial markets came “dangerously close” to collapsing during the Reddit-fueled GameStop frenzy last month, more than the public realized.
“We have come dangerously close to the collapse of the entire system and the public seems to be completely unaware of that, including Congress and the regulators,” Peterffy told CNBC in an interview on Wednesday.

The S&P 500 was at its peak one year ago today. This chart shows the remarkable recovery from the drawdown that ensued
Steve Goldstein – MarketWatch
There has never been a stock-market recovery like this one.
Analysts at Standard & Poor’s charted the previous 10 times since 1957 that the S&P 500 dropped 25% or more from an all-time high. The chart shows this is the best reaction to a drawdown since World War II.

(Podcast) TWIFO 237: CVOL, Nat Gas Deep Freeze And More
This Week In Futures Options – Options Insider Network
Host: Mark Longo, the options insider media group co-host: Sean Smith, FTSE Russell, CME Hot Seat: Derek Sammann, CME group

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