Observations & Insight
Bits & Pieces
By John J. Lothian
CFTC Commissioner Sharon Bowen has had enough. Or more accurately, she can do the math and her best move is to step aside and let the Washington political process proceed.
Congress likes to send up paired nominees for confirmation to the CFTC, but we need two Republicans and one Democrat confirmed to get to the full five-member CFTC. By stepping down, Bowen sets up the ability of Congress to send up a pair of Democrats to go with the pair of Republicans.
Hats off to Bowen for her work on the CFTC and for her selflessness for stepping aside so the politics of Washington can proceed.
Another of our speakers for the MarketsWiki Education series is in the news as Vela Trading Technologies has bought Options City, a longtime sponsor of MarketsWiki. Jennifer Nayar is the CEO of Vela.
Bill Boyk has surfaced as COO of bcause, the trading platform that wants to get registered as a designated contract market and trade crypto-currency futures. Fred Grede, another former CBOT executive, is the bcause CEO. Boyk has been with the CBOT, Nasdaq LIffe, the Chicago Climate Exchange and The Trend Exchange, which sought to trade movie futures before they were outlawed by Dodd-Frank. We will see if he has better luck with crypto-currency futures getting approved.
As the Russell futures contract moves back to trading on the CME Group’s Globex platform starting July 10, it is worth noting that there is open interest in the back months of the Russell futures on ICE, which means that trading can still occur there until that open interest expires. It will be an interesting competition to see if trading will move when CME starts trading, or when it has to when ICE is no longer offering new contracts.
Osaka Securities Exchange’s CEO Discusses Its Global Footprint
“Our priority is to diversify our investor base. About 70 percent of our investors are from outside of Japan and 30 percent are domestic … For the domestic investors we didn’t see active participation from Japanese institutional investors so far.”
The Osaka Securities Exchange might be looking for more institutional activity, but its night sessions see a lot of action already. OSE President & CEO Hiromi Yamaji said that after extending the night session to 5:30 a.m. Tokyo time, the overall share of trading activity that occurs at night rose to more than 42 percent in May. When it comes to the Nikkei 225 mini, nearly 50 percent of trades are executed during the night session.
Academics Clash Over VIX Bragging Rights
Ben Eisen – WSJ
Two academics who did early work on a gauge of stock-market volatility fear they are being written out of its history. Menachem Brenner, a finance professor at New York University, and Dan Galai of the Hebrew University of Jerusalem called their version “Sigma” and say they pitched it to various exchanges years before the Chicago Board Options Exchange rolled out its volatility index in 1993. The CBOE’s VIX is based on the work of Vanderbilt University’s Robert Whaley, who is typically credited with developing the index, widely known as Wall Street’s “fear gauge” for its options-based read on expected stock-price swings. It tends to soar as stocks fall and investors turn anxious.
****SD: Shots fired!
’50 Cent’ Just Reloaded With a Big Hedge Against a Stock Selloff
Luke Kawa – Bloomberg
50 Cent spent roughly $3.8 million hedging against a selloff in risk assets this morning.
Not the rapper — the mysterious volatility buyer or buyers who earned the moniker due to their penchant for buying huge lots of VIX call options priced at roughly a half-dollar apiece.
****SD: Of all the coverage of the options world’s “50 Cent,” I think I prefer Kawa’s coverage since he clearly is more familiar with the rapper than the folks at, say, the FT. I don’t think other authors would end with this kicker: “This reload of VIX options has, by all accounts, been pulled off more smoothly than the ‘Kanan Reloaded,’ the oft-delayed sequel to the original 50 Cent’s eleventh mixtape.”
Trading software firm to be acquired
Lynne Marek – Crain’s Chicago Business
OptionsCity Software, a firm co-founded in Chicago, told customers today that it has agreed to be acquired by a New York company. OptionsCity CEO Hazem Dawani said in a letter that he expects the transaction with Vela Trading Technologies to close by the end of the month. In an email he declined to tell Crain’s how much Vela is paying.
****SD: In case you missed the big news yesterday.
CFTC commissioner to depart amid ‘intolerable’ situation
Gregory Meyer – fastFT
The Commodity Futures Trading Commission looks poised to operate under a single appointee unless new commissioners are confirmed. The US derivatives markets regulator has been operating with just two commissioners for several months now, three less than a full complement.
ETF Flyer: Volatility Shows Up, the Market Winces a Wee Bit
Crystal Kim – Barron’s
Volatility is back, but it’s not showing much.
****SD: Closing sentence of the article – “Watching for turbulence has never been so boring.”
China finally gets long sought-after endorsement as MSCI adds stocks to emerging markets index
Evelyn Cheng – CNBC
In a long awaited decision, MSCI said Tuesday it plans to add mainland Chinese shares to its benchmark emerging markets index. The index giant said it will add 222 China A Large Cap stocks on a gradual basis beginning next year. The review is the fourth straight year MSCI has considered adding the mainland-traded stocks, known as A shares in China.
****SD: Matt Moran’s preview of the decision with the options angles can be found here from the CBOE blog.
Exchanges and Clearing
E-mini Russell 2000 Index Futures & Options Return to CME Group – What It Means for You
For active traders, the return of E-mini Russell 2000 Index futures and options expands an already broad suite of benchmark U.S. equity index products you can trade at CME Group. That gives you even more ways to tap into the liquidity of small-caps stocks. See how in this webinar.
WHEN:Tuesday, June 27 at 10:00 a.m. – 11:00 a.m. CT
Nasdaq Conducts Annual Election for Subsidiary Board Directors
GlobeNewswire – Nasdaq
Nasdaq, Inc. (Nasdaq:NDAQ) announces the appointment of fifteen directors to The NASDAQ Stock Market LLC; NASDAQ PHLX LLC; NASDAQ BX, Inc.; Nasdaq ISE, LLC; Nasdaq MRX, LLC and Nasdaq GEMX, LLC Boards. Directors will serve a one-year term.
Forcing euro clearing out of London may be justified: ECB’s Coeure
Forcing euro clearing out of London and into the European Union may be justified if the terms of Britain’s departure from the EU do not adequately control risks, European Central Bank Executive Board Member Benoit Coeure said on Tuesday.
SGX welcomes Hua Nan Futures as Derivatives Trading Member
Singapore Exchange (SGX) today welcomed Taiwan-based Hua Nan Futures Co. Ltd. as a Trading Member of its derivatives market.
Regulation & Enforcement
Deutsche Bank may face more civil suits for stock market manipulation
A Seoul court ruled in favor of individual investors who suffered losses in the country’s biggest stock price manipulation caused by Deutsche Bank employees in 2010, paving the way for other victims who were originally led to believe the statute of limitations have expired. On June 15, the Seoul Central District Court ordered Deutsche Bank in Germany and Deutsche Securities in Korea to pay 616 million won (US$538,000) plus interest for damages inflicted on 11 plaintiffs. It also rejected claims by the two firms that the statute of limitations for a civil suit expired in 2014. The plaintiffs are investors who lost money while investing in derivatives trading by setting up futures options accounts through Korean securities companies.
More quadruple-leveraged ETFs proposed despite SEC review
Trevor Hunnicutt and John McCrank – Reuters
Intercontinental Exchange Inc’s NYSE Arca exchange is asking the U.S. Securities and Exchange Commission for permission to list a new set of exchange-traded funds that aim to quadruple the performance of the market, a filing this week showed.
Sebi allows hedge funds to invest in commodity derivatives
Rajesh Bhayani – Business Standard
Market regulator Securities and Exchange Board of India (Sebi) decided to allow the Category-III Alternative Investment Funds(AIFs) to participate in the commodity derivatives market. This, provided they do not invest more than 10% of their investable funds in one underlying commodity. Category-III AIFs, known also as hedge funds, become the first category of institutional investors in commodity derivatives.
A Tower of Babel: Cyber Regulation for Financial Services
Greg Baer and Rob Hunter, The Clearing House
Introduction: Our nation’s approach to combating cybersecurity threats is a jumble of conflicting guidelines. Static, compliance-focused regulations are not the answer. Imagination and cooperation are.
The 10 best jobs big banks can’t fill now
Sarah Butcher – eFinancialCareers
If you’re looking for a new banking job and you want an immediate response, you might want to avoid areas like private equity, which are renowned for attracting a huge surfeit of candidates. Why not focus, instead, on the jobs banks can’t seem to fill? – The obscure jobs in the unusual markets requiring niche skill-sets?
****SD: I learned a lot of random stuff from this article.
Bulls Are Going All-In on the Biotech Rally
Elena Popina, Lu Wang and Tatiana Darie
This week’s gains in sector ETF are biggest since November; Options trading surges in IBB with calls leading 3-to-1
Traders can’t get enough of biotech shares, whose advance this week has made them the top performers among U.S. equities in June.
Equinix, Alibaba Partner To Expand Cloud Services Worldwide
Jo„o Marques Lima
Colocation company Equinix and Chinese cloud giant Alibaba Cloud have entered into a collaboration to provide enterprises with access to Alibaba Cloud via the Equinix Cloud Exchange.
****SD: A more comprehensive look at the partnership from DataCenterNews here. Cool that this happened in conjunction with the MSCI decision.
Oil Returns to Bear Market; Price declines more than 20% since Feb. 23 despite OPEC’s production cuts
Stephanie Yang, Alison Sider and Timothy Puko – WSJ
Oil prices are back in bear-market territory, frustrating OPEC members that cut production in an attempt to boost prices and renewing fears that falling prices could spill into stocks and other markets. A persistent glut has weighed on prices for most of the past three years, a blow to investors who believed that the Organization of the Petroleum Exporting Countries’ move this year to limit production would provide relief.
****SD: Crazy related effect story from Bloomberg – Oil Majors Risk Wasting $2.3 Trillion If Peak Demand Looms