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The Pound’s Brexit Test; FX Flash Crashes; Basel Rules

Observations & Insight

Sunday, Sunday, Sunday
Spencer Doar – JLN

My fantasy football team was bad this year. The Detroit Lions in 2008 bad. I went 0-13.

A mathematically inclined friend in the same league ran the numbers – not sure of the specifics, but he used ESPN’s point predictions versus actual performance – and his calculations showed that my abhorrent results were nearly three standard deviations outside the norm. I would not have found this nearly as amusing before I started covering the options space and following earnings seasons.

Bottom line, that frees up some of Sunday night. Good timing as this Sunday at 5 p.m. Central, Cboe will jump head first into a brave new world with the launch of its bitcoin futures – ticker XBT.

Tighten those seatbelts folks – chances are we’re going to have some more outsize moves that put my fantasy results to shame.

Here’s some of the recent BTC news:

Lead Stories

Pound’s Acid Test on Brexit Is Yet to Come for Options Traders
Vassilis Karamanis – Bloomberg (Soft Paywall)
As the U.K. and the European Union announced they had secured a divorce deal, the pound rose — and its gains all but evaporated in a fleeting few seconds.
What gives?
On display was the classic market adage of “Buy the rumor, sell the fact.”

****SD: NOT the Timothy Leary variety of acid test.

Flash Crashes More Common Than Thought in World’s Biggest Market
Lananh Nguyen – Bloomberg
Flash crashes in the pound and Swiss franc have roiled the currency market in the last couple of years — but there have been dozens of others that have gone under the radar.

Basel to monitor impact of leverage ratio on clearing
Louisa Chender – Global Investor Group (SUBSCRIPTION)
The Basel Committee on Banking Supervision has finalised outstanding Basel III post-crisis regulatory reforms, changing the way derivatives are reflected in the leverage ratio exposure measure.
Basel III, which imposes tougher capital requirements on banks in a bid to increase resilience of the financial sector, was expected to be signed off by the end of 2016.

****SD: Monitor the impact? How about acknowledging the tremendous impact it’s had on options clearing already? Bloomberg with the bigger picture – Global Bank Regulators Reach Deal on Tougher Capital Rules

The boldest market call for 2018?
Jamie – McGeever – Reuters
Credit markets should brace for a U.S. recession, the U.S. yield curve will invert and growth in America will reach President Trump’s lofty and oft-derided target of 4 percent.

****SD: It’s nearing the end of the year so you know it’s recap, prediction and list season.

A tale of three central banks
Balazs Koranyi – Reuters
Three central banks, meeting on both sides of the Atlantic, will highlight the diverging fortunes of the world’s biggest economies as they head into 2018 after an exceptionally tranquil year.

Assets held by US brokers continue to dwindle
Julie Aelbrecht – Global Investor Group (SUBSCRIPTION)
US futures commission merchants saw sharp declines in customer business during October, after several months of record drops in broker-held assets this year, according to the latest data from the US futures regulator.
US futures commission merchants (FCMs) held a total of $143.1 billion in customer assets under segregation at the end of October, a 3% decline from the $146.8 billion held in September. Six out of the ten top US brokers reported losses for the month.

Exchanges and Clearing

A Closer Look At ICE’s Equity Options And Cash Equity Trading Volumes
Trefis via Forbes
After a slight increase in October, Intercontinental Exchange’s equity options volumes saw a 14% year on year (y-o-y) decline in November, with a 300 basis point (3%) dip in its market share. The industry-wide equity options daily trading volumes remained around flat in comparison to November 2016. ICE’s market share decline is likely due to competitor NASDAQ’s strong position in equity options after the acquisition of ISE in 2016. Owing to the improvement in U.S. macro conditions, ICE’s trading volumes and market share have improved sequentially from prior months (+7% above October volumes).

****SD: In other news, ICE just appointed Sharon Bowen to its board of directors.

Traders Want to Know What Exchanges Earn From Market Data
Dave Michaels – WSJ (SUBSCRIPTION)
Some of Wall Street’s biggest banks, asset managers and high-speed trading firms have united in a battle over a shared adversary: stock exchanges and the profit they earn from selling market data.

CME Group Announces 2018 Annual Meeting Date
CME Group Inc. (NASDAQ: CME), the world’s leading and most diverse derivatives marketplace, today announced that its 2018 Annual Meeting of Shareholders will be held at 10:00 a.m. Central Time on Wednesday, May 9, 2018, in the Auditorium at CME Group, located at 20 South Wacker Drive, Chicago, Illinois.


Nobody rings a bell at key turning points
RCM Alternatives Blog
One of the cons of being able to distribute information so easily through the internet is that there’s constant commentary, constant speculation, and constant updates. In the finance world, it seems that it’s almost become a game to “call” when the market is finally going to turn. But it seems everyone just reads the articles, gets a moment of anxiety, and then ignores it like everyone else. The thing is there’s no penalty or repercussion of people being wrong and for those that call when the market is going to turn hope that they happen to be right, setting up their career for TV appearances, book deals as “market experts.”


The Rise of the Buy Side
Rob Daly – MarketsMedia
If one word described the evolution of the buy side’s relationship with the sell side in the past decade, it would be “empowerment.”

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Graduate of University of Minnesota School of Journalism and Mass Communication