Observations & Insight
Bitcoin rockets above $5,000 to all-time high
Jemima Kelly – Reuters
Bitcoin smashed through the $5,000 barrier for the first time on Thursday, jumping as much as 8 percent on the day as investors shrugged off the latest warnings on the risks of buying into the booming cryptocurrency market.
****SD: There will be plenty of crypto talk at FIA Expo next week, especially as exchanges progress with their nascent endeavors to launch crypto products. However, I still am not certain what percentage of people who talk about digital currencies/blockchain actually know what the heck makes it all work. I see the same sort of handwavy talk when it comes to discussions about machine learning. If you’re looking for somewhere to start regarding the subject of smart machines, there’s no better place to start than Alan Turing in 1950 – Computing Machinery and Intelligence. That piece is where the “Turing test” concept came from.
FIA and ISDA comment on unwarranted G-SIB surcharge capital requirements
FIA and the International Swaps and Derivatives Association (ISDA) sent comments to the Fed Board of Governors today expressing serious concerns with proposed changes to the mandatory Banking Organization Systemic Risk Report form (FR Y-15) that would affect the treatment of client-cleared over-the-counter (OTC) derivatives transactions for purposes of the capital surcharge (the G-SIB Surcharge) imposed on U.S. global systemically important banking organizations (G-SIBs).
****SD: Some more on the Fed’s G-SIB alterations from Risk.net at the end of September – Fed G-Sib plan threatens 50bp jump in FCM capital. Oh, and what do you know, MarketWatch has this story – Citi among 9 banks IMF says will struggle to be profitable
Michael Friedman, Trillium – TABB Forum
A coordinated effort has been launched to delay the deployment of the Consolidated Audit Trail, largely because the SEC—which is neither building nor hosting the CAT—recently revealed its imperfect track record on cybersecurity with its EDGAR corporate filing system. But these arguments are either wrong or misguided. A vulnerability in a 1992 system that was exploited in 2015 is in no way indicative that an unrelated system built in 2017 will also be vulnerable.
****SD: Very valid points.
A Volatility Comeback May Not Bring the Catastrophe Investors Fear
Cormac Mullen – Bloomberg
A jump in volatility doesn’t have to lead to losses: Goldman; Eight times out of 10 exiting a low-vol period shows gains
Low volatility is spurring hand-wringing from Nobel prize winners to central bankers, but a change in the status quo might not be all that bad.
****SD: Definitely would not be a catastrophe for the options world (concerns about a sudden unwind of vol positions exacerbating a sizable market pullback notwithstanding).
Wall Street is underestimating just how volatile 3rd quarter earnings season could be
Ryan Vlastelica – MarketWatch
Third-quarter earnings season is widely expected to extend the stock market’s streak of better-than-expected corporate results, potentially setting up even more gains, but that doesn’t mean that the recent trend of quiet trading will continue.
Investors, based on what is currently implied by the options market, seem to be playing down the potential for volatility in the season, according to Goldman Sachs, which noted that third-quarter results “are typically the most stock moving of the year.”
Brexit will give the derivatives market a nasty headache
For all the talk of banks deserting London as Britain’s departure from the EU looms, relatively little attention has been paid to the derivatives market. Yet this is a crucial area of business for British-based banks. The City handles a big chunk of the market, including 39% of the market in interest-rate derivatives alone, where global daily turnover averages $3trn. The rest of the EU accounts for just 9%. Brexit seems sure to cause significant disruption. Mark Carney, the governor of the Bank of England, recently warned that the very “legal validity” of pre-existing derivatives contracts could be put into question.
Wall St. trading revenue tanks because there was no Brexit this year
Nicole Sinclair – Yahoo Finance
The late summer and early fall of 2016 was highlighted by a spike in market volatility, triggered by geopolitical events like the Brexit vote. It was a boon for Wall Street’s bond traders.
2017 has been much more calm, which is bad for these businesses.
Why Shouldn’t Market Volatility Be Low?
Russell Rhoads – CBOE
Richard Thaler has been doing the media circuit since being announced as the winner of this year’s Sveriges Riksbank Prize in memory of Alfred Nobel (which we all know as the Nobel Prize in Economics). I heard him reiterate something he said at the CFA Conference in Philadelphia about market volatility. Basically, he’s surprised stock market volatility is low as well as perplexed by the low level of VIX. My thought is, “Why wouldn’t stock market volatility and VIX be low?”
Exchanges and Clearing
Exchanges to acquire small service providers – expert
Louisa Chender – Global Investor Group
Andy Nybo, director at Burton-Taylor International Consulting, owned by London-based broker TP Icap, says large cross-border mergers are unlikely as exchanges look to complement their business lines such as market data, index, analysis and tools in order to expand their client base.
HKEX To Start Its After-Hours Trading Enhancements On 6 November
Hong Kong Exchanges and Clearing Limited (HKEX) will introduce the first phase of its after-hours trading (AHT) enhancements on Monday, 6 November 2016, when AHT of Hang Seng Index (HSI), Hang Seng China Enterprises Index (HHI), Mini-HSI and Mini-HHI futures will be extended to 5:15 pm to 1 am the following day (the revised T+1 session) from the current T+1 Session of 5:15 pm to 11:45 pm.
****SD: Options will be included in what HKEX calls Phase 2.
CME Group declares victory over cattle market volatility
Tom Polansek – Reuters
CME Group Inc plans no further moves to reduce volatility in its cattle futures market, after making a series of changes to rein in wild price swings that drove away hedgers, a managing director said on Wednesday.
CME Group Sees Significant Uptick in September 2017 FX Options
Aziz Abdel-Qader – Finance Magnates
FX options averaged 101,102 contracts per day, which represented a rise of 72 percent year-on-year.
Drew Forman and Evan Karp Join Cowen’s Derivatives Sales and Trading Team
Cowen Inc. today announced that Drew Forman, Managing Director, Head of Derivatives Sales and Trading and Evan Karp, Director of Derivatives Sales and Trading, recently joined Cowen’s Derivatives Sales and Trading team. Mr. Forman and Mr. Karp are responsible for further expanding Cowen’s institutional derivatives capabilities and report to Kyle Solomon, Managing Director of Alternative Equity Strategies.
Wedbush Securities appoints Executive Vice President and Chief Financial Officer
Billings (pictured), joined Wedbush in 2015 as the firm’s Senior Vice President and Controller. In his new role he will oversee Financial and Regulatory Accounting, Finance, and Internal Audit and Controls.
LiquidityBook Completes Global Migration to Amazon Web Services Data Centers
LiquidityBook, a leading Software-as-a-Service (SaaS)-based provider of buy- and sell-side trading solutions, today announced the completion of its migration to Amazon Web Services (AWS) data centers globally. As a result, LiquidityBook now maintains a Point of Presence (POP) in AWS regions in the US and Europe, with the ability to quickly scale up globally across Europe, the US, Asia-Pacific and LatAm as client need arises.
Colt Bolsters Connectivity Between Leading APAC Exchanges
Jeff Patterson – Finance Magnates
Colt Technology Services has introduced revamped low latency trading routes in the Asia-Pacific (APAC) region. This includes a new connectivity service between the HKEX, SGX, ASX, and JPX exchanges, constituting one of its broadest network optimisations to date.
Bullish flows into financial ETF belie worries ahead of bank results
Saqib Iqbal Ahmed – Reuters
Recent options market activity shows traders have turned less bullish on a key financial sector exchange-traded fund, analysts said, just ahead of earnings reports from some of the largest U.S. banks.
Virtu, the ‘ultimate play’ on volatility on Wall Street, is set for a rough quarter
Frank Chaparro – Markets Insider
We won’t know exactly how Virtu Financial fared during the third quarter until November 7, when the high-frequency trader unveils its earnings, but one UBS analyst is betting things won’t look good.
Times are tough for high-speed traders, which do better during more volatile market conditions. The firm posted weak earnings for the second quarter, which came in below Wall Street’s estimates. Alex Kramm, an analyst at UBS, said the third quarter will be even worse.
Market Volatility Bulletin: Are Tax-Reform Gains Already Priced Into Equities?
Equity markets were flat earlier today as markets anticipate the release of minutes from the latest Fed meeting. Recall that the April release of the March minutes did in fact create consternation for equities.
The Flow Show: Here’s The Single Most Important Issue For Volatility
That debate boils down to this: is it the stock of assets held on central bank balance sheets or is the flow of purchases that matters?
Market Leaves Trail of Minor Divergences
Helene Meisler – TheStreet
There has not been a lot of change in the market since Monday, but there are now some small, minor negative divergences. Thus far, they remain minor mostly because so far breadth has not rolled over and, as I explained the other day, if breadth is strong it is hard for the market to go down hard. And yes, I still expect we’ll see some short-term volatility.
How To Use Options During Earnings Season
Spencer Israel – Benzinga
Earnings season and options trading go together like Amazon.com and Whole Foods. Or Microsoft Corporation and LinkedIn. Or Gilead Sciences, Inc. and Kite Pharma. You get the idea.
The binary nature of an earnings event—either Wall Street likes the numbers or it doesn’t—makes this six-week period a great time to use options strategies.
Investors Sitting Tight Despite Volatility Worries: Edward Jones
Michael S. Fischer – ThinkAdvisor
A majority of Americans say they are concerned about market volatility over the coming year, and a third believe their retirement portfolio would suffer in the event of a market correction, according to new research by financial services firm Edward Jones.
2017 CBOE Risk Management Conference Asia
CBOE Holdings, Inc. will host the 3rd annual CBOE Risk Management Conference (RMC) Asia, on Tuesday, December 5, through Wednesday, December 6, 2017, at the Conrad Hong Kong Hotel.
Turkey to develop energy market model safe from currency volatility
In an emerging market the volatility of currency affects the Turkish lira. It is also a major problem for the Turkish energy sector because it immensely affects the prices in a market heavily dependent on imports.
“In order to minimize the repercussions of currency fluctuations and thwart them, Turkey is taking steps to develop an energy market model that will not be affected by currency moves, particularly in electricity production from coal,” Energy and Natural Resources Minister Berat Albayrak said yesterday at a meeting on energy in Antalya.
****SD: This is very short on the “how” part of implementing such a market.