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 firstname.lastname@example.org 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
In this episode of “The Spread” we deal with a number of transitions.
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.
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.
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.
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.
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.
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.
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.
Equity Index Highlights – January 2019 edition
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.
MIAX Options & MIAX PEARL Holiday Schedule – Martin Luther King Jr. Day
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.
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.
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.
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.
Exane Group Now Live on SimCorp Dimension for Derivatives Business and Ellipsis Asset Management
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.
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.
****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.
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.
****SD: Wash. Rinse. Repeat.
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.
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.