Wall Street Struggles With the Bad Kind of Volatility

Jan 14, 2019

Wall Street Struggles With the Bad Kind of Volatility

Jan 14, 2019

Observations & Insight

Nasdaq’s VOLQ and Other Monday Miscellany
Spencer Doar – JLN

According to Dow Jones, Nasdaq will begin disseminating its new volatility index – ticker VOLQ – on January 24. It will use options prices to calculate the expected 30-day volatility of the Nasdaq-100.

The WSJ first reported in December 2017 that Nasdaq was working on an index to rival Cboe’s volatility offerings – Watch Out VIX: Nasdaq Amps Up Volatility Game.

STAC’s Midwinter Meeting is on Wednesday and Thursday at the Hilton in Chicago. We will be there – send a message to spencerdoar@johnlothian.com if you want to meet up. We will be filming some video interviews, checking out the panels and wondering how much the Hilton makes annually off of market conferences…

Cboe hosts its annual press luncheon this week. There ought to be plenty to cover. (See the second lead story today.)

Tabb’s Russell Rhoads will be curating TabbFORUM’s new ETPs & Derivatives Weekly Newsletter. I signed up.

++++++

The Spread – Transitions – 1/11

JohnLothianNews.com

In this episode of “The Spread” we deal with a number of transitions.

Watch the video and see the stories referenced here »

Lead Stories

Wall Street Struggles With the Bad Kind of Volatility; Investors’ retreat from risk has hurt liquidity in financial markets, leaving automated programs free to fuel wild market swings
Telis Demos and Gunjan Banerji – WSJ (SUBSCRIPTION)
Financial markets’ wild and woolly fourth quarter likely won’t translate into strong trading results at the nation’s largest banks—the latest sign of the changes sweeping the business of buying and selling securities since the financial crisis. Fourth-quarter trading revenue is expected to be roughly flat, collectively, with a year ago at Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., and Morgan Stanley, according to data from market-data firm Autonomous Research. Those banks are scheduled to report earnings the week of Jan 13.
/goo.gl/QRaZqK

Equities veteran makes big bet on bond-trading automation; Chris Concannon, former president of Bats Global Markets, makes switch to MarketAxess
Philip Stafford – Financial Times (SUBSCRIPTION)
Automated trading in debt markets is set to “explode” in coming years amid an influx of new entrants and a rotation away from stocks, according to a high-profile equities executive lured to corporate bond trading venue, MarketAxess.
/on.ft.com/2VRHFaB

Volatility Crushed Like It’s 2009 as ‘Pale Green Lights’ Flash
Luke Kawa – Bloomberg (SUBSCRIPTION)
On Christmas, U.S. markets were given a gift as calm showed the first signs of overcoming panic. During December’s market mayhem, the daylight hours were traders’ worst nightmares. On average, the S&P 500 Index would slump marginally overnight, but tumble 1.1 percent from the U.S. open to the close of regular trading hours. That changed after Dec. 25.
/goo.gl/jwBfJE

One Key Indicator for Stock Volatility
Evie Liu – Barron’s
Stocks can be volatile for many reasons, and one of them is the question of future corporate earnings growth.
“While earnings uncertainty is not a sufficient condition for market volatility, it does provide useful clues from time to time,” writes Jitesh Kumar, a Société Générale derivatives strategist, in a report on Friday.
bit.ly/2FwxiTP

Exchanges and Clearing

Euronext launches $729 million bid for Oslo bourse
Inti Landauro, Terje Solsvik – Reuters
Pan-European stock market operator Euronext (ENX.PA) launched its $729 million cash bid for Oslo Bors OSLO.NFF on Monday, just hours after the Norwegian stock market operator said it had found potential alternative bidders.
/reut.rs/2VOuEi9

Global metals trading volumes slide on macro uncertainty
Andy Home – Reuters
Investors have fled the industrial metals markets as previous trading strategies have been overwhelmed by macro uncertainty. That’s the clear take-away from an analysis of last year’s trading volumes on the world’s three major exchanges.
/goo.gl/cdShkT

LedgerX Launches ‘Bitcoin Fear Index’ to Track Price Volatility
Nikhilesh De – Coin Desk
LedgerX thinks cryptocurrency traders should be able to assess bitcoin’s volatility. And, taking a leaf out of the stock market’s book, the derivatives trading platform has built an index to track this benchmark. The company announced Monday that it was launching the LedgerX Volatility Index (LXVX), which will track the expected volatility for bitcoin. The firm will draw data for the index from its regulated bitcoin options, which various institutions have been trading over the past year.
/goo.gl/V91XmB

Equity Index Highlights – January 2019 edition
Eurex
The story of 2018 was the long-awaited mean reversion of equity market volatility, driven by geopolitical tensions. Volatility showed an early blip in Q1 which quickly petered-out as markets rallied to mid-year highs. In Q4, a repeat bout in volatility occurred as the major index benchmarks retreated into red territory. Overall, almost every major asset class stumbled in 2018. This was not the consensus at the beginning of the year. Hopefully, clients were able to enhance and protect their portfolio returns by the well-timed use of derivatives.
bit.ly/2VTOybf

MIAX Options & MIAX PEARL Holiday Schedule – Martin Luther King Jr. Day
MIAX
Please be advised the MIAX Exchanges will be closed on Monday, January 21, 2019 in observance of Martin Luther King Jr. Day.
If you have any questions please contact Trading Operations at TradingOperations@MIAXOptions.com or (609) 897-7302.
bit.ly/2Fyrn0H

Moves

Citadel Securities Names Culek COO
John D’Antona – MarketsMedia
Citadel Securities has appointed Matt Culek to chief operating officer after over six years at the market maker. Based in Chicago, Culek will serve as a managing director alongside his responsibilities as COO as of December 2018. He assumes a title left vacant after former COO Scott Johnston became the firms’ chief administrative officer in June last year. Culek joined Citadel Securities in 2012 and served as COO of Citadel Execution Services for four years before taking on the same role for the equities and options business for five months until May 2017.
/goo.gl/tdLoAS

Regulation & Enforcement

Hedge fund leverage risk comes under scrutiny; Regulators look at whether businesses could imperil stability of financial markets
Chris Flood – Financial Times (SUBSCRIPTION)
Two decades after the near-collapse of Long-Term Capital Management threatened to demolish Wall Street, regulators are still struggling to understand whether hedge funds could endanger the stability of financial markets. Global regulators want to analyse hedge funds’ use of leverage as part of the debate over whether more investment managers should be deemed “systemically important”, and so subject to increased supervision. Asset managers have resisted efforts to classify their businesses as systemically important financial institutions, or Sifis. In contrast, the world’s largest banks and insurers have had onerous constraints since the 2007-08 financial crisis.
/goo.gl/GvbX7t

Technology

Benefitting from convergence in FX and equities
Jens Persson – Itiviti Blog
As discussed in an earlier blog post, convergence of equities and FX markets is spurring some institutions to merge their respective trading operations so as to enjoy economies and leverage successful activities across both asset classes.
/goo.gl/mi1r2d

Exane Group Now Live on SimCorp Dimension for Derivatives Business and Ellipsis Asset Management
Globe Newswire
SimCorp, a leading provider of investment management solutions and services to the global financial services industry, today announced that Exane Group and Ellipsis Asset Management (an entity within the group’s asset management arm), have successfully implemented and are now live with SimCorp Dimension. Forming a core system in both entities, SimCorp Dimension will be used for the middle and back office management of listed derivatives and OTC at Exane Derivatives, and in the front and middle office operations at Ellipsis Asset Management. Ellipsis Asset Management is the latest to join over 140 clients worldwide using SimCorp’s front office solutions, from asset managers to pension funds, insurance and banking, as the trend for operational consolidation continues.
/goo.gl/7V2ozm

Strategy

Here’s how Goldman Sachs is playing earnings season: Buy Netflix, Sell Tesla
Yun Li – CNBC
This earnings season is bound to be a wild one, according to analysis by Goldman Sachs, but they have a game plan for clients to navigate it. Based on options prices, stocks in the S&P 500 have an average implied intraday move of more than 7 percent in either direction.
/goo.gl/Rw1cxY

****SD: Also from CNBC – This chart shows we are likely in for a wild earnings season with big stock swings

How Hedge Funds Could Drive S&P Gains
Todd Salamone – Schaeffer’s Investment Research
Bulls were treated to another round of buying last week, as Fed Chairman Jerome Powell and other Fed governors reiterated that they can be patient with respect to evaluating data and raising rates. In fact, based on my comments from last week, the fact that the S&P 500 Index (SPX – 2,596.26) took out its 2018 lows gives more credence to a V-rally.
bit.ly/2FwZrtS

Goldman Sachs gave its wealthy clients the same advice for the 10th straight year
Julia La Roche – Yahoo Finance
Goldman Sachs (GS) private wealth advisors just gave its wealthy clients the same advice it has for the last 10 years — stay invested in U.S. stocks.
/goo.gl/zz3413

****SD: Wash. Rinse. Repeat.

Miscellaneous

The market is flashing a scary new parallel to the financial crisis that should have everyone worried
Joe Ciolli – Business Insider Prime (SUBSCRIPTION)
The US Treasury Department is seeing the lowest level of auction demand since 2008. This can be construed as a financial-crisis signal, adding to a growing list of headwinds facing the US market.
/goo.gl/JFFHcH

What to look for in US bank earnings; Are the big six Wall Street groups performing as badly as their shares?
Laura Noonan and Robert Armstrong – Financial Times (SUBSCRIPTION)
Are US banks doing as badly as their shares? The value of Wall Street’s big six banks fell by more than $200bn in the final three months of 2018, as investors fretted about choppy markets, a possible recession and interest rates. This week, we will find out how their businesses did during that same quarter.
/goo.gl/byasqb

John Lothian Newsletter

So you want to know what’s happening in the financial markets?

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Newsletters

Observations & Insight

Nasdaq’s VOLQ and Other Monday Miscellany
Spencer Doar – JLN

According to Dow Jones, Nasdaq will begin disseminating its new volatility index – ticker VOLQ – on January 24. It will use options prices to calculate the expected 30-day volatility of the Nasdaq-100.

The WSJ first reported in December 2017 that Nasdaq was working on an index to rival Cboe’s volatility offerings – Watch Out VIX: Nasdaq Amps Up Volatility Game.

STAC’s Midwinter Meeting is on Wednesday and Thursday at the Hilton in Chicago. We will be there – send a message to spencerdoar@johnlothian.com if you want to meet up. We will be filming some video interviews, checking out the panels and wondering how much the Hilton makes annually off of market conferences…

Cboe hosts its annual press luncheon this week. There ought to be plenty to cover. (See the second lead story today.)

Tabb’s Russell Rhoads will be curating TabbFORUM’s new ETPs & Derivatives Weekly Newsletter. I signed up.

++++++

The Spread – Transitions – 1/11

JohnLothianNews.com

In this episode of “The Spread” we deal with a number of transitions.

Watch the video and see the stories referenced here »

Lead Stories

Wall Street Struggles With the Bad Kind of Volatility; Investors’ retreat from risk has hurt liquidity in financial markets, leaving automated programs free to fuel wild market swings
Telis Demos and Gunjan Banerji – WSJ (SUBSCRIPTION)
Financial markets’ wild and woolly fourth quarter likely won’t translate into strong trading results at the nation’s largest banks—the latest sign of the changes sweeping the business of buying and selling securities since the financial crisis. Fourth-quarter trading revenue is expected to be roughly flat, collectively, with a year ago at Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., and Morgan Stanley, according to data from market-data firm Autonomous Research. Those banks are scheduled to report earnings the week of Jan 13.
/goo.gl/QRaZqK

Equities veteran makes big bet on bond-trading automation; Chris Concannon, former president of Bats Global Markets, makes switch to MarketAxess
Philip Stafford – Financial Times (SUBSCRIPTION)
Automated trading in debt markets is set to “explode” in coming years amid an influx of new entrants and a rotation away from stocks, according to a high-profile equities executive lured to corporate bond trading venue, MarketAxess.
/on.ft.com/2VRHFaB

Volatility Crushed Like It’s 2009 as ‘Pale Green Lights’ Flash
Luke Kawa – Bloomberg (SUBSCRIPTION)
On Christmas, U.S. markets were given a gift as calm showed the first signs of overcoming panic. During December’s market mayhem, the daylight hours were traders’ worst nightmares. On average, the S&P 500 Index would slump marginally overnight, but tumble 1.1 percent from the U.S. open to the close of regular trading hours. That changed after Dec. 25.
/goo.gl/jwBfJE

One Key Indicator for Stock Volatility
Evie Liu – Barron’s
Stocks can be volatile for many reasons, and one of them is the question of future corporate earnings growth.
“While earnings uncertainty is not a sufficient condition for market volatility, it does provide useful clues from time to time,” writes Jitesh Kumar, a Société Générale derivatives strategist, in a report on Friday.
bit.ly/2FwxiTP

Exchanges and Clearing

Euronext launches $729 million bid for Oslo bourse
Inti Landauro, Terje Solsvik – Reuters
Pan-European stock market operator Euronext (ENX.PA) launched its $729 million cash bid for Oslo Bors OSLO.NFF on Monday, just hours after the Norwegian stock market operator said it had found potential alternative bidders.
/reut.rs/2VOuEi9

Global metals trading volumes slide on macro uncertainty
Andy Home – Reuters
Investors have fled the industrial metals markets as previous trading strategies have been overwhelmed by macro uncertainty. That’s the clear take-away from an analysis of last year’s trading volumes on the world’s three major exchanges.
/goo.gl/cdShkT

LedgerX Launches ‘Bitcoin Fear Index’ to Track Price Volatility
Nikhilesh De – Coin Desk
LedgerX thinks cryptocurrency traders should be able to assess bitcoin’s volatility. And, taking a leaf out of the stock market’s book, the derivatives trading platform has built an index to track this benchmark. The company announced Monday that it was launching the LedgerX Volatility Index (LXVX), which will track the expected volatility for bitcoin. The firm will draw data for the index from its regulated bitcoin options, which various institutions have been trading over the past year.
/goo.gl/V91XmB

Equity Index Highlights – January 2019 edition
Eurex
The story of 2018 was the long-awaited mean reversion of equity market volatility, driven by geopolitical tensions. Volatility showed an early blip in Q1 which quickly petered-out as markets rallied to mid-year highs. In Q4, a repeat bout in volatility occurred as the major index benchmarks retreated into red territory. Overall, almost every major asset class stumbled in 2018. This was not the consensus at the beginning of the year. Hopefully, clients were able to enhance and protect their portfolio returns by the well-timed use of derivatives.
bit.ly/2VTOybf

MIAX Options & MIAX PEARL Holiday Schedule – Martin Luther King Jr. Day
MIAX
Please be advised the MIAX Exchanges will be closed on Monday, January 21, 2019 in observance of Martin Luther King Jr. Day.
If you have any questions please contact Trading Operations at TradingOperations@MIAXOptions.com or (609) 897-7302.
bit.ly/2Fyrn0H

Moves

Citadel Securities Names Culek COO
John D’Antona – MarketsMedia
Citadel Securities has appointed Matt Culek to chief operating officer after over six years at the market maker. Based in Chicago, Culek will serve as a managing director alongside his responsibilities as COO as of December 2018. He assumes a title left vacant after former COO Scott Johnston became the firms’ chief administrative officer in June last year. Culek joined Citadel Securities in 2012 and served as COO of Citadel Execution Services for four years before taking on the same role for the equities and options business for five months until May 2017.
/goo.gl/tdLoAS

Regulation & Enforcement

Hedge fund leverage risk comes under scrutiny; Regulators look at whether businesses could imperil stability of financial markets
Chris Flood – Financial Times (SUBSCRIPTION)
Two decades after the near-collapse of Long-Term Capital Management threatened to demolish Wall Street, regulators are still struggling to understand whether hedge funds could endanger the stability of financial markets. Global regulators want to analyse hedge funds’ use of leverage as part of the debate over whether more investment managers should be deemed “systemically important”, and so subject to increased supervision. Asset managers have resisted efforts to classify their businesses as systemically important financial institutions, or Sifis. In contrast, the world’s largest banks and insurers have had onerous constraints since the 2007-08 financial crisis.
/goo.gl/GvbX7t

Technology

Benefitting from convergence in FX and equities
Jens Persson – Itiviti Blog
As discussed in an earlier blog post, convergence of equities and FX markets is spurring some institutions to merge their respective trading operations so as to enjoy economies and leverage successful activities across both asset classes.
/goo.gl/mi1r2d

Exane Group Now Live on SimCorp Dimension for Derivatives Business and Ellipsis Asset Management
Globe Newswire
SimCorp, a leading provider of investment management solutions and services to the global financial services industry, today announced that Exane Group and Ellipsis Asset Management (an entity within the group’s asset management arm), have successfully implemented and are now live with SimCorp Dimension. Forming a core system in both entities, SimCorp Dimension will be used for the middle and back office management of listed derivatives and OTC at Exane Derivatives, and in the front and middle office operations at Ellipsis Asset Management. Ellipsis Asset Management is the latest to join over 140 clients worldwide using SimCorp’s front office solutions, from asset managers to pension funds, insurance and banking, as the trend for operational consolidation continues.
/goo.gl/7V2ozm

Strategy

Here’s how Goldman Sachs is playing earnings season: Buy Netflix, Sell Tesla
Yun Li – CNBC
This earnings season is bound to be a wild one, according to analysis by Goldman Sachs, but they have a game plan for clients to navigate it. Based on options prices, stocks in the S&P 500 have an average implied intraday move of more than 7 percent in either direction.
/goo.gl/Rw1cxY

****SD: Also from CNBC – This chart shows we are likely in for a wild earnings season with big stock swings

How Hedge Funds Could Drive S&P Gains
Todd Salamone – Schaeffer’s Investment Research
Bulls were treated to another round of buying last week, as Fed Chairman Jerome Powell and other Fed governors reiterated that they can be patient with respect to evaluating data and raising rates. In fact, based on my comments from last week, the fact that the S&P 500 Index (SPX – 2,596.26) took out its 2018 lows gives more credence to a V-rally.
bit.ly/2FwZrtS

Goldman Sachs gave its wealthy clients the same advice for the 10th straight year
Julia La Roche – Yahoo Finance
Goldman Sachs (GS) private wealth advisors just gave its wealthy clients the same advice it has for the last 10 years — stay invested in U.S. stocks.
/goo.gl/zz3413

****SD: Wash. Rinse. Repeat.

Miscellaneous

The market is flashing a scary new parallel to the financial crisis that should have everyone worried
Joe Ciolli – Business Insider Prime (SUBSCRIPTION)
The US Treasury Department is seeing the lowest level of auction demand since 2008. This can be construed as a financial-crisis signal, adding to a growing list of headwinds facing the US market.
/goo.gl/JFFHcH

What to look for in US bank earnings; Are the big six Wall Street groups performing as badly as their shares?
Laura Noonan and Robert Armstrong – Financial Times (SUBSCRIPTION)
Are US banks doing as badly as their shares? The value of Wall Street’s big six banks fell by more than $200bn in the final three months of 2018, as investors fretted about choppy markets, a possible recession and interest rates. This week, we will find out how their businesses did during that same quarter.
/goo.gl/byasqb

Wall Street Struggles With the Bad Kind of Volatility

Jan 14, 2019

Observations & Insight

Nasdaq’s VOLQ and Other Monday Miscellany

Spencer Doar – JLN

According to Dow Jones, Nasdaq will begin disseminating its new volatility index – ticker VOLQ – on January 24. It will use options prices to calculate the expected 30-day volatility of the Nasdaq-100.

The WSJ first reported in December 2017 that Nasdaq was working on an index to rival Cboe’s volatility offerings – Watch Out VIX: Nasdaq Amps Up Volatility Game.

STAC’s Midwinter Meeting is on Wednesday and Thursday at the Hilton in Chicago. We will be there – send a message to spencerdoar@johnlothian.com if you want to meet up. We will be filming some video interviews, checking out the panels and wondering how much the Hilton makes annually off of market conferences…

Cboe hosts its annual press luncheon this week. There ought to be plenty to cover. (See the second lead story today.)

Tabb’s Russell Rhoads will be curating TabbFORUM’s new ETPs & Derivatives Weekly Newsletter. I signed up.

++++++

The Spread – Transitions – 1/11

JohnLothianNews.com

In this episode of “The Spread” we deal with a number of transitions.

Watch the video and see the stories referenced here »

Lead Stories

Wall Street Struggles With the Bad Kind of Volatility; Investors’ retreat from risk has hurt liquidity in financial markets, leaving automated programs free to fuel wild market swings

Telis Demos and Gunjan Banerji – WSJ (SUBSCRIPTION)

Financial markets’ wild and woolly fourth quarter likely won’t translate into strong trading results at the nation’s largest banks—the latest sign of the changes sweeping the business of buying and selling securities since the financial crisis. Fourth-quarter trading revenue is expected to be roughly flat, collectively, with a year ago at Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., and Morgan Stanley, according to data from market-data firm Autonomous Research. Those banks are scheduled to report earnings the week of Jan 13.

/goo.gl/QRaZqK

Equities veteran makes big bet on bond-trading automation; Chris Concannon, former president of Bats Global Markets, makes switch to MarketAxess

Philip Stafford – Financial Times (SUBSCRIPTION)

Automated trading in debt markets is set to “explode” in coming years amid an influx of new entrants and a rotation away from stocks, according to a high-profile equities executive lured to corporate bond trading venue, MarketAxess.

/on.ft.com/2VRHFaB

Volatility Crushed Like It’s 2009 as ‘Pale Green Lights’ Flash

Luke Kawa – Bloomberg (SUBSCRIPTION)

On Christmas, U.S. markets were given a gift as calm showed the first signs of overcoming panic. During December’s market mayhem, the daylight hours were traders’ worst nightmares. On average, the S&P 500 Index would slump marginally overnight, but tumble 1.1 percent from the U.S. open to the close of regular trading hours. That changed after Dec. 25.

/goo.gl/jwBfJE

One Key Indicator for Stock Volatility

Evie Liu – Barron’s

Stocks can be volatile for many reasons, and one of them is the question of future corporate earnings growth.

“While earnings uncertainty is not a sufficient condition for market volatility, it does provide useful clues from time to time,” writes Jitesh Kumar, a Société Générale derivatives strategist, in a report on Friday.

bit.ly/2FwxiTP

Exchanges and Clearing

Euronext launches $729 million bid for Oslo bourse

Inti Landauro, Terje Solsvik – Reuters

Pan-European stock market operator Euronext (ENX.PA) launched its $729 million cash bid for Oslo Bors OSLO.NFF on Monday, just hours after the Norwegian stock market operator said it had found potential alternative bidders.

/reut.rs/2VOuEi9

Global metals trading volumes slide on macro uncertainty

Andy Home – Reuters

Investors have fled the industrial metals markets as previous trading strategies have been overwhelmed by macro uncertainty. That’s the clear take-away from an analysis of last year’s trading volumes on the world’s three major exchanges.

/goo.gl/cdShkT

LedgerX Launches ‘Bitcoin Fear Index’ to Track Price Volatility

Nikhilesh De – Coin Desk

LedgerX thinks cryptocurrency traders should be able to assess bitcoin’s volatility. And, taking a leaf out of the stock market’s book, the derivatives trading platform has built an index to track this benchmark. The company announced Monday that it was launching the LedgerX Volatility Index (LXVX), which will track the expected volatility for bitcoin. The firm will draw data for the index from its regulated bitcoin options, which various institutions have been trading over the past year.

/goo.gl/V91XmB

Equity Index Highlights – January 2019 edition

Eurex

The story of 2018 was the long-awaited mean reversion of equity market volatility, driven by geopolitical tensions. Volatility showed an early blip in Q1 which quickly petered-out as markets rallied to mid-year highs. In Q4, a repeat bout in volatility occurred as the major index benchmarks retreated into red territory. Overall, almost every major asset class stumbled in 2018. This was not the consensus at the beginning of the year. Hopefully, clients were able to enhance and protect their portfolio returns by the well-timed use of derivatives.

bit.ly/2VTOybf

MIAX Options & MIAX PEARL Holiday Schedule – Martin Luther King Jr. Day

MIAX

Please be advised the MIAX Exchanges will be closed on Monday, January 21, 2019 in observance of Martin Luther King Jr. Day.

If you have any questions please contact Trading Operations at TradingOperations@MIAXOptions.com or (609) 897-7302.

bit.ly/2Fyrn0H

Moves

Citadel Securities Names Culek COO

John D’Antona – MarketsMedia

Citadel Securities has appointed Matt Culek to chief operating officer after over six years at the market maker. Based in Chicago, Culek will serve as a managing director alongside his responsibilities as COO as of December 2018. He assumes a title left vacant after former COO Scott Johnston became the firms’ chief administrative officer in June last year. Culek joined Citadel Securities in 2012 and served as COO of Citadel Execution Services for four years before taking on the same role for the equities and options business for five months until May 2017.

/goo.gl/tdLoAS

Regulation & Enforcement

Hedge fund leverage risk comes under scrutiny; Regulators look at whether businesses could imperil stability of financial markets

Chris Flood – Financial Times (SUBSCRIPTION)

Two decades after the near-collapse of Long-Term Capital Management threatened to demolish Wall Street, regulators are still struggling to understand whether hedge funds could endanger the stability of financial markets. Global regulators want to analyse hedge funds’ use of leverage as part of the debate over whether more investment managers should be deemed “systemically important”, and so subject to increased supervision. Asset managers have resisted efforts to classify their businesses as systemically important financial institutions, or Sifis. In contrast, the world’s largest banks and insurers have had onerous constraints since the 2007-08 financial crisis.

/goo.gl/GvbX7t

Technology

Benefitting from convergence in FX and equities

Jens Persson – Itiviti Blog

As discussed in an earlier blog post, convergence of equities and FX markets is spurring some institutions to merge their respective trading operations so as to enjoy economies and leverage successful activities across both asset classes.

/goo.gl/mi1r2d

Exane Group Now Live on SimCorp Dimension for Derivatives Business and Ellipsis Asset Management

Globe Newswire

SimCorp, a leading provider of investment management solutions and services to the global financial services industry, today announced that Exane Group and Ellipsis Asset Management (an entity within the group’s asset management arm), have successfully implemented and are now live with SimCorp Dimension. Forming a core system in both entities, SimCorp Dimension will be used for the middle and back office management of listed derivatives and OTC at Exane Derivatives, and in the front and middle office operations at Ellipsis Asset Management. Ellipsis Asset Management is the latest to join over 140 clients worldwide using SimCorp’s front office solutions, from asset managers to pension funds, insurance and banking, as the trend for operational consolidation continues.

/goo.gl/7V2ozm

Strategy

Here’s how Goldman Sachs is playing earnings season: Buy Netflix, Sell Tesla

Yun Li – CNBC

This earnings season is bound to be a wild one, according to analysis by Goldman Sachs, but they have a game plan for clients to navigate it. Based on options prices, stocks in the S&P 500 have an average implied intraday move of more than 7 percent in either direction.

/goo.gl/Rw1cxY

****SD: Also from CNBC – This chart shows we are likely in for a wild earnings season with big stock swings

How Hedge Funds Could Drive S&P Gains

Todd Salamone – Schaeffer’s Investment Research

Bulls were treated to another round of buying last week, as Fed Chairman Jerome Powell and other Fed governors reiterated that they can be patient with respect to evaluating data and raising rates. In fact, based on my comments from last week, the fact that the S&P 500 Index (SPX – 2,596.26) took out its 2018 lows gives more credence to a V-rally.

bit.ly/2FwZrtS

Goldman Sachs gave its wealthy clients the same advice for the 10th straight year

Julia La Roche – Yahoo Finance

Goldman Sachs (GS) private wealth advisors just gave its wealthy clients the same advice it has for the last 10 years — stay invested in U.S. stocks.

/goo.gl/zz3413

****SD: Wash. Rinse. Repeat.

Miscellaneous

The market is flashing a scary new parallel to the financial crisis that should have everyone worried

Joe Ciolli – Business Insider Prime (SUBSCRIPTION)

The US Treasury Department is seeing the lowest level of auction demand since 2008. This can be construed as a financial-crisis signal, adding to a growing list of headwinds facing the US market.

/goo.gl/JFFHcH

What to look for in US bank earnings; Are the big six Wall Street groups performing as badly as their shares?

Laura Noonan and Robert Armstrong – Financial Times (SUBSCRIPTION)

Are US banks doing as badly as their shares? The value of Wall Street’s big six banks fell by more than $200bn in the final three months of 2018, as investors fretted about choppy markets, a possible recession and interest rates. This week, we will find out how their businesses did during that same quarter.

/goo.gl/byasqb

John Lothian Newsletter

So you want to know what’s happening in the financial markets?

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Newsletters

Wall Street Struggles With the Bad Kind of Volatility

Jan 14, 2019

Observations & Insight

Wednesday’s Miscellany

JLN Staff

MLex has a (paywalled) story titled CFTC’s Giancarlo cites threat from China futures markets in bid for more money. Obviously it is a futures story, but I see it as indicative of the overall “threat” posed by the ongoing development of Chinese derivatives markets.

Check out this Bloomberg/Saxo Bank chart of yuan denominated oil futures trading and you’ll see why Giancarlo said what he did. (Besides, the usual rhetoric about needing money to protect investors hasn’t worked for the CFTC’s budget so maybe some fear-mongering will.) Also see this Reuters story from May – China’s crude oil futures boom amid looming Iran sanctions. ~SD

The newest CFTC Talks podcast is out. It’s a shorter, “FlashCast” episode focused on a single subject and features John Coughlan of the CFTC’s Market Intelligence Branch.

FIA updated its FCM tracker tool. Check it out here.

According to CLS data, currency trading volumes rose 2.6 percent in July on last year, although July volumes were 13.7 percent lower than the previous month of June. CLS said the average daily traded volume of currencies submitted to it reached $1.638 trillion in July, up from $1.596 trillion in the same month in 2017, Reuters reported.~SR

 

Lead Stories

Traders Pile Into Bets That Stock Rally Will Continue; Tax cuts and a robust U.S. economy boosted corporate profits in the three months through June

Gunjan Banerji – WSJ (SUBSCRIPTION)

With U.S. stock benchmarks mere points away from fresh records, some traders are piling into bets that share prices will rally higher and volatility will remain muted. The S&P 500 and the technology-heavy Nasdaq Composite hit their second-highest close in history on Tuesday. Options investors and traders are wagering the gains will continue. They have been scooping up bullish call options on the S&P 500, contracts that would pay out if the stock index took another leg higher, according to Credit Suisse . Call options give the right to buy shares at a later time if they hit a designated price.

/goo.gl/J3N5BG

****SD: Initially heralded as a year that would be “different,” 2018 seems more and more like 2017, with long equity, short vol being the strategy du jour (tous les jours).

Tesla options bulls reap windfall on Musk’s going private tweet

Saqib Iqbal Ahmed – Reuters

Tesla Inc’s options activity surged on Tuesday after Chief Executive Elon Musk tweeted he was considering taking the company private and some quickly executed trades netted massive paper profits as shares in the electric car maker rallied as much as 9 percent.

/jlne.ws/2vpWB4d

****SD: The role Elon Musk’s twitter feed plays continues to strike me as remarkable. I don’t believe Donald Trump’s tweets – price action-related as they occasionally are – have ever caused a trading halt in a listed name/ETP. At the time of the breaking news, IHS Markit analyst Sam Pierson commented: “[Tesla’s] short interest equates to 20.7% of outstanding shares, down from a YTD peak of 23% observed in June. The short value is higher than any S&P 500 stock, only Under Armor has a higher percentage of outstanding shares short with 24%.”

Volatility slump stokes flames for post-summer blow up

Jamie McGeever – Reuters

Financial market volatility is slumping across the board to historically – or, dangerously – low levels, potentially fanning the flames for a repeat of February’s “volmageddon” explosion that sparked a 10-per-cent correction in U.S. and world stocks.

/goo.gl/Ev6WdG

New Chinese forex crackdown to hit corporate hedging; Despite new reserve requirement, dealers say ‘maturity’ in risk management is here to stay

Blake Evans-Pritchard – Risk.net (SUBSCRIPTION)

Dealers fear a move by the Chinese authorities to reinstate a deposit requirement on foreign currency derivatives could slow a recent pick-up in hedging from local corporates, despite warnings from regulators that firms need to do more to brace for future market volatility.

/goo.gl/a5jAoP

Sterling/dollar risk reversals at 17-month low, signal more weakness

Reuters

Nine-month and one-year sterling/dollar risk-reversals fell on Wednesday to the lowest since early-March 2017, as investors rushed to protect themselves from further weakness in the British currency.

/jlne.ws/2OTyRxi

Exchanges and Clearing

NSE says working on a structure to address SGX issue

Livemint

New Delhi: Locked in arbitration proceedings with SGX, the National Stock Exchange on Wednesday said it is working on a “structure” to address the issues and more clarity is likely to emerge in the next two-three weeks.

/jlne.ws/2vtvqVV

SGX reports market statistics for July 2018

SGX

…Total Derivatives volume was 16.9 million, down 5% month-on-month (m-o-m) and up 19% year-on-year (y-o-y).

/jlne.ws/2vtyeT1

Presentation By HKEX Chief Executive Charles Li And Group Chief Financial Officer John Killian On 2018 Interim Results Announcement

Mondovisione

…Strong growth in trading volumes: Cash Market headline ADT +67% YoY, Futures and Options ADV +58% YoY, LME chargeable ADV +11% YoY

/jlne.ws/2OQUvm5

Dalian Commodity Exchange Holds Training For Corn Options Instructors

Mondovisione

To strengthen the corn options training on member units, promote teaching staff construction and guarantee the steady listing and operation of corn options, Dalian Commodity Exchange (DCE) held the training on corn options instructions lately. A total of 100 trainees from 100 units attended the training, including futures companies, risk management subsidiaries of futures companies, spot companies and other financial institutions.

/jlne.ws/2ORJsZN

Technology

Tradeweb On Track For Record Year Of Trading Activity

Mondovisione

…Credit and Equities Derivatives Volumes Climb: Global equity derivatives ADV is up 351.55% and global credit derivatives volume is also up 80.16% year-over-year on the Tradeweb platform.

/jlne.ws/2vvSYtj

Redline Trading Solutions Breaks 180 Nanosecond Tick-to-Trade Barrier

Redline Trading Solutions

Redline Trading Solutions, the premier provider of high-performance market data and order execution solutions, today announced the production deployment of its hybrid software and FPGA-based market data and order execution gateway solution.

/jlne.ws/2OUwtGQ

The art of designing markets. Part III

Eurex Exchange

This is the third article in a series of topics related to the market design of electronic marketplaces. The first article discussed the most common execution models in electronic derivatives markets, while the second covered the various components of an order-generating process that define its arrival time. It thus gave an overview of the three steps market participants need to generate and submit an order to an exchange whereby connectivity drives the third step. We explained that for all participants timing matters but that ‘timing’ means different things to different market participants. Today, we are looking at the electronic connectivity of market participants who are not members of an exchange (i.e. indirect participants), typically institutional investors, but also retail investors.

/jlne.ws/2B142UO

Strategy

Morgan Stanley sees two ‘broken legs’ for stocks, heralding ‘significant market correction’

Ryan Vlastelica – MarketWatch

For years, one of the primary factors lifting the U.S. stock market has been the fact that some of the economy’s biggest, fastest-growing names just kept rising.

The strength of growth stocks, in particular some large technology and internet plays, has been a boon for momentum investors, who bet that recent outperformers will continue to do better than the overall market over the medium term. This trade has been one of the easiest ways for investors to make money, but analysts are increasingly concerned that its era may be drawing to a close.

/jlne.ws/2MuW4Et

A big shift to the S&P 500 may change the way you invest in tech

Stephanie Landsman – CNBC

The S&P 500 is about to undergo a major structural change that may alter which technology stocks you own.

Facebook and Google’s parent Alphabet will move out of the index’s technology sector and to a newly formed communication services sector in about six weeks. The goal is to make tech appear less dominant in the S&P 500.

/jlne.ws/2vwpTxU

Miscellaneous

Crypto pukes, again; Somebody pass the mop.

Jamie Powell – FT Alphaville

Ah, the crypto.

After the gyrations of early June, it all went pretty quiet recently as bitcoin, and its fellow tokens, began to recover from their lows.

/goo.gl/oCmMCt

****SD: First, great title. Second, with all these gyrations you’d think there would have been more activity on LedgerX. After all, the exchange did have a “record” July. While open interest seems to be building (4,000+ contracts) and Monday had 400+ trades, yesterday saw only 21 swaps trade. Oh, and the reason attributed to the puking? See Bloomberg’s SEC Postpones Decision on Bitcoin ETF Listing to September

Private Banks Are the New Hedge Funds

Yakob Peterseil – Bloomberg

Who needs hedge funds when a $2.4 trillion private bank is offering global macro trades to navigate late-cycle markets — mimicking fast-money strategies with leverage to boot.

UBS Group AG’s wealth management arm, the world’s largest, is pitching just that to billionaire clients.

/jlne.ws/2MtWeMx

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We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Options Newsletters

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