World Looks Bleak Through the Lens of a Rates Options Trader

Oct 31, 2019

Lead Stories

World Looks Bleak Through the Lens of a Rates Options Trader
Tanvir Sandhu – Bloomberg
The volatility market shows investors see a sour global economic outlook, with hedges against a prolonged U.S. downturn and options bets on negative Federal Reserve rates.
Options on dollar-swap rates are highlighting market fears of bond yields remaining lower for longer, even after the Fed signaled a pause in cutting interest rates. That is adding to concerns policy makers are not doing enough to combat slowing growth, supporting long-end bonds.

The Real Market Fright Might Come After Halloween
Michael Msika – Bloomberg
If European equities can keep their current gain of 18%, then 2019 will be the best year in a decade for the benchmark. The sector rotation that started in late August has extended into October and the shift in market leadership may bode well for Europe. But November is usually a shaky month for stocks and the U.K. general election, trade talks and doubt about Fed policy direction could bring back some volatility.

CME Reveals Details of Upcoming Bitcoin Options Contracts
Nikhilesh De – Coindesk
CME Group has just published the specifications for its upcoming bitcoin options contracts.
The Chicago exchange revealed Wednesday that each contract would be based on one of CME’s bitcoin futures contracts (which in turn consists of five bitcoin); the contracts would be quoted in U.S. dollars per bitcoin with a tick size of $25 (or $5 for reduced tick sizes); and would trade from 5:00 P.M. Central Time Sunday to 4:00 P.M. Central Time Friday.

Facing the challenge of fostering diversity in derivatives
Jeff Reeves – FIA
As with so many other areas of society, the financial industry has recognized the importance of fostering diversity in its workforce. That commitment to diversity was on display again at FIA Expo 2019, with a panel discussion on the efforts underway across the derivatives industry to improve representation of women and minorities at all levels.

FCMs, CCPs debate ‘skin in the game’ and consolidation concerns
Jeff Reeves – FIA
By most quantitative measures, the cleared derivatives industry is bigger and better than ever before. But based on comments at FIA Expo conference in Chicago on Oct. 30, future growth may not be as easy to achieve, and success may be measured by more qualitative measures such as compromise and communication.
At an Expo panel discussion titled simply “The Health of the Industry,” a diverse group of market participants discussed a myriad of factors shaping the cleared derivatives industry now as well as their expectations for the future.


How OCC Helps Clearing Firms Improve Operational and Collateral Efficiency
Matt Wolfe – OCC
As the world’s largest equity derivatives clearinghouse, OCC has an innovative methodology for measuring risk and valuing collateral. It allows our clearing member firms the opportunity to post, collectively, billions of dollars less in collateral every day.
How it Works
We typically hold approximately $120 billion in collateral. Crucially, at least 70 percent of this is in equities. Since equities and equity derivatives are correlated, we’re able to analyze this correlation and provide a more accurate risk assessment than if we used a standard collateral schedule.

Cboe to Maintain ‘Disciplined’ Approach to M&A, CEO Tilly Says
Joanna Ossinger – Bloomberg
Cboe Global Markets Inc. is sticking to its focus on organic growth in the wake of Hong Kong Exchanges & Clearing Ltd.’s failed bid for London Stock Exchange Group Plc.
“Our disciplined approach to M&A hasn’t changed,” Cboe CEO Ed Tilly said in emailed remarks. “We’re always assessing the industry landscape but are more focused right now on organic growth, where we think we’re well-positioned.”

CME CEO says he told regulators of clearinghouse capital concerns
John McCrank – Reuters
CME Group Inc (CME.O) has expressed concerns to regulators over a recent paper by several financial institutions calling for clearinghouses to put up more of their own capital to protect against losses that could disrupt the financial system, the head of the company said on Wednesday.
“We believe that people who introduce risk to the system should be putting in the money for the system,” CME Chief Executive Officer Terry Duffy said on a call with analysts following the exchange operator’s quarterly earnings. “We are here to manage the risk. We don’t introduce the risk. “So those that are bringing the most risk, you know, should be putting in money for the default fund.”

ICE feels regulatory freeze on NYSE, overall profits rise
John McCrank and Abhishek Manikandan – Reuters
Intercontinental Exchange Inc (ICE.N) does not expect market data sales from the New York Stock Exchange to contribute to near-term revenue growth due to regulatory and legal gridlock, the company said on Thursday after posting better-than-expected quarterly profits.

Cboe Global Markets Increases Share Repurchase Authorization; Declares Third-Quarter 2019 Dividend
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, today announced that its Board of Directors has increased its share repurchase authorization by $250 million, and also declared a quarterly cash dividend of $0.36 per share of common stock for the third quarter of 2019.

Regulation & Enforcement

When Good Intentions Go Awry: The Unintended Consequences of CFTC Record-Retention Rules
Juan Diego Martin – TABB Forum
The CFTC’s different record-retention requirements for electronic and voice communications are creating a conundrum for firms subject to the rules.


RJ O’Brien implements ION electronic trading platform for cleared derivatives
Hayley McDowell – The Trade
Futures broker RJ O’Brien is set to use an electronic trading platform from ION to manage and grow its cleared derivatives business for institutional clients.
RJ O’Brien said it is looking to expand its electronic trading capabilities for clients with the latest functionality and broad market access, with the ION Global Trading Platform (GTP) allowing seamless integration for institutional brokers.

Hivemind Named FIA Innovator of the Year
FIA announced today that Hivemind, a data science startup based in the U.K. has been named the FIA Innovator of the Year. Hivemind was selected by a panel of independent judges after a live pitch competition at FIA Expo 2019. The company will receive marketing support, cash and other resources worth more than $20,000.
Hivemind was one of 20 companies participating in the annual FIA Innovators Pavilion, an award-winning showcase for fintech startups that takes place during the FIA Expo, the largest trade show of the year for professionals in the listed and cleared derivatives markets.


Inside Volatility Trading: October 30, 2019
Kevin Davitt – Cboe
Shortly after the U.S. Constitution was ratified (June 1788) and months before Benjamin Franklin passed away (April 1790), he wrote a letter saying, “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” Others have attributed the idiom to Christopher Bullock and/or Daniel Defoe, but in this context, it’s important that none of them mentioned volatility risk premium (VRP) in their list of inevitabilities.

Finally, the last bullish stock-market signal falls into place
Lawrence G. McMillan – MarketWatch
The S&P 500 index broke out to new all-time highs on Monday and confirmed the breakout by continuing to close above the previous all-time highs (3028) for the next two days. The upside breakout created a small gap on the chart, which was bullishly filled on Wednesday, just before the market surged even higher.


Everything You Ever Wanted to Know About Volatility: Welcome to the World of VIX ETPs
Bloomberg (PODCAST)
Despite -99% returns, burning through billions, and the occasional controversy, exchange-traded products (ETPs) that track a volatility index called the VIX are flirting with record flows and volume this year thanks to a loyal audience of traders who love their jackpot potential. On this episode of Trillions, Greg King, who was behind some of the most popular products before founding Rex Shares, and Luke Kawa of Bloomberg News, who often writes about volatility, join Joel and Eric for the ultimate power-tool discussion. The group gives an overview of what investors need to know about the products, how they gained some infamy with the 2018 termination of XIV, and some developments to look out for.


Bitcoin, Cryptocurrencies Benefit from Futures Markets
Aaron Brown – Bloomberg
People have a love-hate relationship with the futures markets. Futures are either financial drivers of rapid economic growth, turbocharging small amounts of capital to outflank entrenched barriers to innovation, or — to a populist — they are demonic pits where speculators manipulate prices and corrupt honest real economic activity. Since people also love or hate cryptocurrency, the rise of Bitcoin futures trading in 2019 is controversy-squared.

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