High-frequency traders adjust to overcapacity and leaner times
Nicole Bullock – Financial Times
Recalling the years around the financial crisis may still bring a shudder to many on Wall Street, but for high-speed traders 2008-2009 were pay dirt.
The high-frequency trading industry was still in an early stage. Recent regulatory change, opening the way for competition, and computing advances had paved the way for its rapid development. As markets took fright through the crisis, there was plenty of price volatility and high volumes of asset dealings — the raw materials for any trader to make money.
****SD: Title could read “adjust to low volatility and regulations.”
Four Facts to Help Address the Issue – Is the VIX “Low” in 2017?
Matt Moran – CBOE Options Hub
In the past year a number of news reporters and others have asked if the CBOE Volatility Index (VIX) was at an unusually “low” level in light of all the worldwide geopolitical uncertainties. The average daily closing levels for the VIX Index are 19.4 since January 1990, but only 12.8 since June 2016.
Chinese firms rush to hedge as yuan swings begin to sting
Samuel Shen, John Ruwitch – Reuters
Hobbled by the yuan’s unexpected surge this year, more Chinese companies are trading currency derivatives to hedge risks, although many mainland firms remain exposed to swings in China’s increasingly volatile currency.
****SD: This quote from the article: “Last year, when the yuan was falling, there was no need to hedge, because depreciation was on our side.” While I get the sentiment, that sounds like a logic trap to me, similar to, “I don’t need car insurance because I haven’t been in an accident.”
Largest US FCMs reverse downward trend
Julie Aelbrecht – Global Investor Group
The majority of the largest US futures commission merchants saw an increase in their brokerage business in August, after months of negative results.
US futures commission merchants (FCMs) held a total of $155.8 billion customer assets in segregation in August, a slight increase from the $154.8 billion held in July, according to the latest data from the Commodity Futures Trading Commission.
From ranchers to fund managers, ‘algos’ cause a stir
Gregory Meyer – Financial Times
Computers do not eat bread, wear jewellery or, for the most part, drive cars. Yet computer algorithms rather than humans are increasingly setting the prices of wheat, gold and fuel.
Automated trading systems account for large volumes of transactions in commodity futures markets. In grains and oilseeds they account for 49 per cent, precious metals 54 per cent and crude oil 63 per cent, according to the US Commodity Futures Trading Commission.
Schwab Launches Web and Mobile Platforms, Completes OptionsXpress Integration
Aziz Abdel-Qader – Finance Magnates
San Francisco-based financial services giant Charles Schwab Corp today announced the release of new web and mobile trading platforms to customers of its subsidiary optionsXpress.
****SD: The sale of OptionsXpress to Schwab was announced in 2011. It took six years to fully integrate?!?
COT Data Showing Market Extremes Everywhere
Lance Roberts – Investing.com
Exchanges and Clearing
Bourses become more than stock exchanges
Philip Stafford – Financial Times
The world’s biggest exchanges have reached a collective solution to their biggest problem of recent years — how to make more money beyond their unpredictable core businesses? As public companies, they are under pressure from shareholders to increase profits. But volatility in trading, normally the industry’s lifeblood, has been low for several years. Antitrust regulators have also prevented some mergers aimed at achieving economies of scale in transactional costs, such as the abortive merger of London Stock Exchange Group and Deutsche Börse.
Nasdaq September 2017 Volumes, 3Q17 Estimated Revenue Capture And Listings Statistics
Nasdaq (Nasdaq:NDAQ) today reported monthly volumes for September 2017, as well as quarterly volumes, number of listings and estimated revenue capture for the quarter ending September 30, 2017, on its investor relations website.
****SD: It’s annoying that most exchanges are defaulting to just sharing a chart of activity in monthly updates rather than actually telling us what happened. Anyway, I’ll save you the trouble – U.S. equity options volumes down in September from August and also from September 2016 to the tune of 13 percent and 5 percent, respectively. European equity options volumes are up 28 percent from August and flat year-over-year.
Nasdaq Vice Chairman Jochumsen to retire
John McCrank – Reuters
Nasdaq Inc Vice Chairman Hans Ole Jochumsen, who has been focused on expanding the transatlantic exchange operator’s European operations, will retire at the end of the year, he said in an interview on Tuesday.
***SR: Jochumsen is our MarketsWiki Page of the Day today.
Regulation & Enforcement
Bank Regulators Seek Washington Breakthrough in Basel Talks
Boris Groendahl and Lorenzo Totaro – Bloomberg
A decade on from the last financial crisis, global regulators are close to putting the finishing touches on bank capital rules intended to prevent the next one.
EU markets watchdog urges firms to prepare for new trading rules
The European Union’s securities watchdog has urged financial institutions not to delay applying for their unique identification code by January 2018 when new EU trading rules designed to increase transparency come into force.
****SD: From the FT – Clock ticks down on EU’s Mifid reform
The CFTC Is Still Considering a Cryptocurrency ‘Delivery’ Definition
Stan Higgins – CoinDesk
The U.S. Commodities Futures Trading Commission (CFTC) is reportedly still working to define when exactly a cryptocurrency can be deemed “delivered” due to the complexities of cryptographic key management.
Referencing past enforcement actions by the agency, CFTC Commissioner Brian Quintenz said at an event last week that officials at the agency are “working very hard to provide a suitable response to that question.” At the same time, he also raised recent media criticism of bitcoin, including the argument that it is a “fraud” as advanced by JPMorgan Chase CEO Jamie Dimon.
****SD: “Knock, knock.” “Who’s there?” “Bitcoin delivery.” “Bitcoin delivery who?” “Well, that’s a good question.”
Bob’s Free Lunch: Lobster is on the Menu Today
Our newest blog post looks at the pre-earnings divergence in a stock’s short-interest measures vs. the Hanweck Implied Borrow Indicator, which forecasts whether a stock is becoming harder or easier to borrow using data from the options market . Stock borrow rates offer value as a trading and risk indicator. It can be an important signal, if a stock not ordinarily hard-to-borrow suddenly becomes hard-to-borrow, or if the opposite occurs.
****SD: Another example of what can be gleaned from options market data.
Alt Data Integrates on Trading Desks
Terry Flanagan – MarketsMedia
In 2002, Netflix was an alternative entertainment provider. Its 860,000 U.S. subscribers received (and returned) DVDs through the mail, and neighbors and mail carriers alike were curious about the trademark red envelopes.
Fast forward 15 years: Netflix has 94 million global subscribers, and the streaming service is a household name.
The Implications of Machine Learning in Finance
Bloomberg Professional Services – TABB Forum
Only 16% of firms have incorporated any kind of machine learning into their investment strategies, according to a Bloomberg survey. But machine learning is coming to every firm soon. The biggest challenge, though, may not be the data management; it could be making machine learning and data science a core capability among companies.
Is Gold Really a Good Hedge?
Cameron Crise – Bloomberg
Gold bugs point to a myriad of reasons to own their favorite metal, from fiat currency debasement to gold’s history as a monetary unit. Among the favorites, however, is gold’s utility as protection against a market or political crisis. In August, for example, Bridgewater Associates LP’s Ray Dalio suggested investors should hold 5 percent to 10 percent of their portfolios in gold to hedge against rising political risks. I’m a macro strategist who writes Bloomberg’s Macro Man column, and I found myself wondering: Is gold really an effective hedge in periods of risk?
****SD: Video from CME Group yesterday – Mohamed El-Erian Discusses Gold As A Safe Haven
Fund managers turn cautious on oil as prices fall
John Kemp – Reuters
Hedge fund bullishness towards crude oil and refined products including gasoline and diesel appears to have peaked for now, according to an analysis of regulatory and exchange records.
Pound Traders Are More Riveted by BOE Than Cloudy U.K. Politics
Vassilis Karamanis – Bloomberg
Volatility stays sensitive to rate-hike odds, not EU summit; Bearish pound bets remain at levels not seen since late June
When trading the pound, anything coming out of 10 Downing Street may be easily overshadowed by what Mark Carney has to say. For all the latest talk on U.K. politics and the spillover on sterling, price movements on Monday in both the spot and option markets suggested monetary policy sits firmly at the epicenter of attention.
Secrets To The Hottest Trade – Shorting VIX
REX Shares – Seeking Alpha
Financial regulations such as the Dodd-Frank Act and Volcker Rule were constructed to keep large banks from straying from their core lines of business. As these rules have been incrementally implemented over the past five years or so, realized volatility has only spiked above 20 twice.
What Could Affect Market Volatility This Week?
Ricky Cove – MarketRealist.com
Stock market volatility remains at lower levels despite an uptick in global uncertainty. For the geopolitical corridor, the war of words between the United States and North Korea continued, and Russia said the North Korean regime could launch another missile test over the weekend, which didn’t happen.
Political uncertainty in Spain surrounding Catalonia declaring its independence and the looming elections in Japan continue to keep global uncertainty
Time To Look To FX For Volatility
Kathleen Brooks, Research Director, City Index – FN Arena
Volatility is thin on the ground for most markets at the moment with the [US] Vix trading close to 10 and stocks indices close to record highs. For those looking for a change in trend or rising volatility it has been a frustrating time, however, looking beyond stock markets, there are signs of life coming back to other markets including the FX and bond markets. Below we look at three events that could trigger volatility in the FX market and beyond.
Webinar: Earnings Season – What Options Strategies To Consider
Wednesday, October 11 – 3:30 – 4:30 p.m. CT
Corporate earnings announcements can either “surprise” the market or be a non-event. Either way, the options market may be offering the best opportunities to capitalize on the stock’s reaction. Have you ever wondered how options can “imply” a magnitude of movement in the stock? Do you find it difficult to decide between a directional strategy versus a volatility “play”? Join OIC instructor Bill Ryan from the NYSE as he discusses the upside and downside of various option strategies during earnings season.
Here Is How TD Ameritrade Is Grooming the Next Generation of Investors
Scott Gamm – TheStreet.com
TD Ameritrade (AMTD – Get Report) is helping young people learn about the markets with its thinkorswim Challenge which kicks off Monday.
“We open this up to all universities across the country,” said JJ Kinahan, chief market strategist at TD Ameritrade.
Brexit poses threat to London’s role as global markets hub
Philip Stafford – Financial Times
More than a year on from the Brexit vote, the future of the City of London as one of the world’s biggest financial trading hubs is no clearer.
The UK capital is pre-eminent in foreign exchange and over-the-counter derivatives, used by investors to hedge their portfolios against swings in currencies, interest rates and commodity prices.
Nice Analogy for Potential Problem With Passive ETFs
Amey Stone – Barron’s
Nat Beebe, a portfolio manager at Ulland Investment Advisors, which specializes in preferred securities, has a short but sweet analogy for why he thinks investors should be careful buying exchange-traded funds in asset classes that can be illiquid.
****SD: Here’s Beebe’s LinkedIn post with the analogy. And for more context – ETFGI Reports Assets Invested In ETFs/ETPs Listed In The United States Have Increased 24.2% In 2017 To Reach A New Record Of US$3.166 Trillion At The End Of September 2017 and Exchange-traded funds are the go-to investment for advisors
The Metal in Your Phone is Getting Expensive
RCM Alternatives Blog
With World Stocks up 20% YTD, it might be surprising to know it’s not even the best performing asset on the year? For that designation, we turn to a commodity. No, not gold or crude oil, but palladium. Not sure what palladium is? At one point, the metal was used most commonly in catalytic converters to filter car emissions. But people are up close and personal with the metal a lot more these days – thanks to it being one of the metals commonly used in cell phone production. That’s right – that stuff in your phone is up roughly 35% for the year.