Volatility Spurs Regulators to Give Banks Leeway on Asset Values

Apr 25, 2020

Observations & Insight

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Christian Hauff, CEO of Quantitative Brokers, sat for an interview with John Lothian News about the first futures execution algorithm for options. The new offering has become even more essential since the option pits on the trading floors were silenced by the coronavirus outbreak. Here are John Lothian and Christian Hauff discussing Striker from Quantitative Brokers.

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Lead Stories

Volatility Spurs Regulators to Give Banks Leeway on Asset Values
Silla Brush – Bloomberg
European regulators plan to ease rules for valuing complex bonds, derivatives and other assets in the second big move this month to help the financial industry weather the coronavirus.
The European Banking Authority said the surge in market volatility this year has made it much harder for banks to gauge the value of their assets. In a proposal this week, the regulator, which sets banking standards across the Europ ean Union, said it intends to soften the blow of the valuation rule through the end of the year to avoid hitting bank balance sheets.

Investors baffled by soaring stocks in ‘monster’ depression
Robin Wigglesworth – Financial Times
The divergence between the flying stock market and the dying economy is so extreme it is leaving many analysts scrambling for explanations.
The recent string of economic data releases reflecting life under global coronavirus lockdowns has been even grimmer than expected, spurring the IMF this week to forecast the biggest global recession since the 1930s’ Great Depression.

Stock Traders Thought This Quarter Would Be Worse Than the First
Vildana Hajric and Sarah Ponczek – Bloomberg
How can traders in the equity market be so sanguine when economic tumult on the order of a depression is blaring all around them? Possibly because they expected even worse.
That’s one takeaway from data compiled by Charles Schwab Corp. on the brokerage’s most active clients, which shows almost 60% were bracing for volatility to rise in the second quarter. Dread is a natural emotion when things are falling apart, but that’s an awfully pessimistic take considering the first three months of the year saw equity turbulence surpass levels seen in the 2008 financial crisis.

Hedge Funds Are on Defense and Testing the Stamina of a $5 Trillion Stock Rally
Sarah Ponczek – Bloomberg
It’s a fundamental characteristic of the rally that has restored $5 trillion of equity value in a month. As encouraging as the gains have been, they’re occurring in a market where people give every indication of being convinced the economy doesn’t warrant them.
Take hedge-fund positioning, for example. While professional speculators have tiptoed back into equities in the past two weeks, they’ve done so while playing it safe. Managers are snapping up shares of health-care and consumer staples companies, and shunning industries that are more dependent on growth.

Extreme volatility raises questions over WTI
John Kemp – Reuters
Price volatility is the lifeblood of commodity futures exchanges. But the amount of volatility has to be just right. Too little and there is no incentive to trade. Too much and trading becomes dangerous, prompting traders to give future contracts a wide berth.

As oil slumps, investors reinforce short commodity currency bets
Gertrude Chavez-Dreyfuss – Reuters
Investors are looking to ramp up wagers against already-battered commodity currencies, a sign that many believe a rebound in oil prices is nowhere in sight after this week’s historic plunge in crude.
Though crude prices have bounced back in recent days after turning negative for the first time ever earlier this week, many investors believe a coronavirus-led slowdown in global demand is likely to persist for months, weighing on oil and depressing the currencies of commodity producing countries.

Blast Off: First Look at Q1 First Responders
Alphacution blog
Amidst the doom and uncertainty of any unfolding saga, there are always bright spots, if you know where to look. After all, every problem can be an opportunity in disguise. And so, besides the uptick in all things online relative to most things not online during a pandemic lockdown, the expectation has been that there would be some bright spots for listed market first responders – the market makers and high-turnover arbitrageurs – given the unprecedented volatility that erupted in global markets in late February.

Oil Prices Climb as Traders Prepare for Wild Ride to Continue
Joe Wallace, David Hodari and Amrith Ramkumar – WSJ
Crude-oil prices jumped Thursday, extending a string of wild moves that are ricocheting across financial markets and roiling the global energy industry. While prices have clawed back ground over the past two sessions, oil now trades at a fraction of where it started the year and is well below levels that make it profitable for companies to produce. The longer most of the world practices social distancing due to the coronavirus, the bigger the global glut of crude grows.

Exchanges and Clearing

Cboe Global Markets to Host 2020 Virtual Annual Meeting of Stockholders
Cboe (press release)
As previously announced, Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, will host the company’s 2020 Annual Meeting of Stockholders (Annual Meeting) as a completely virtual meeting. Amidst the coronavirus (COVID-19) outbreak, we are mindful of our responsibility to do all that we reasonably can to safeguard against the virus.


Stock market investing: How to trade as coronavirus volatility falls
Akin Oyedele – Business Insider
Investors are by now accustomed to massive daily swings in markets that became the norm as the coronavirus outbreak escalated.
But before you get too familiar with extreme fluctuations, Morgan Stanley strategists are out with a reminder that this environment is not normal. They even take it a step further to argue that a return to some form of normal is coming over the next quarter.

Don’t Try to Prepare for the Next Black Swan. You Can’t.
Jon Sindreu – WSJ
Covid-19 has posed a mind-bending question for companies, investors and policy makers: How to protect against the next extreme “black swan” event? The temptation to find a concrete answer is best resisted. This is the financial teaser at the heart of political questions such as whether airlines are victims of the pandemic or undeserving recipients of taxpayer money. Last week, U.S. carriers reached an agreement to receive $25 billion in grants from the federal government despite the fact that, over the past decade, they have returned to shareholders essentially all of the free cash flow they earned—rather than investing or saving it.


What Introverts and Extroverts Need During the Lockdown
Aili McConnon – WSJ
Lockdown poses some obvious problems for extroverts, who thrive on socializing in large group settings. But it can be surprisingly hard for introverts, too. “We have to be careful when generalizing, but in many ways uncertainty is harder on introverts,” says Susan Cain, author of “Quiet: The Power of Introverts in a World That Can’t Stop Talking.” “Introverts are used to retreating to a home space where they have independence to control schedules and routines.” Now, for many people living closely with others, home is no longer a predictable sanctuary.

FLASH FRIDAY: Phased Opening for NYSE Floor Talked
John D’Antona Jr. – Trader’s Magazine
It all started under a Buttonwood tree back in 2008. Or was that 228 years ago? It wasn’t simply a landscaping flourish or a nod to history that prompted NYSE Euronext executives to plant a group of buttonwood trees outside their massive new data center in Mahwah, N.J. in the spring of 2010. According to Wall Street lore, it was under a buttonwood tree – better known as the Sycamore – that 24 brokers formed the New York Stock Exchange in 1792. By planting six of the trees in Mahwah, the exchange operator was, of course, paying its respects to its heritage. But also, and more significantly, it was signaling that a new type of market center was being born.

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