Breaking News

Goldman Sachs desk’s huge Feb profit; Eurodollar options bet pays big

Observations & Insight

Trump cancels Kim summit amid North Korea ‘hostility’
US President Donald Trump has cancelled a planned summit with North Korean leader Kim Jong-un.

****SD: Bu-bu-but the White House already released the commemorative coin!?!


Options Exchange Landscape and Misc. Notes
(Click for larger image)
It’s time for another fun slide from Trade Alert President Henry Schwartz’s “State of the Industry” presentation at the Options Industry Conference. This slide lays out the pricing structure of the soon-to-be 16 options exchanges and those structures’ respective marketshare.

MIAX’s Shelly Brown discusses that 16th options exchange, Emerald, in an Options Exchange Leader Series video which will be released shortly.

If you’ve missed the series thus far, videos of Nasdaq’s Kevin Kennedy, BOX’s Ed Boyle (we spoke before the BOX/tZERO deal, so that’s not mentioned in the interview), Cboe’s Andy Lowenthal and NYSE’s Ivan Brown have been published.

Besides the NoKo meeting cancellation this morning (when did the news start using NoKo as shorthand for North Korea?), here are some more random headlines from the last 24 hours.

->WSJ – New York’s Subway, Bus Overhaul Will Take 15 Years, Cost $43 Billion

->Financial Times – US suspects “sonic attack’ on diplomat based in China

->ESPN – Lenny Dykstra arrested, charged with making threats to Uber driver

->MarketWatch – Caribbean pirate attacks – including robberies on yachts – surge 160 percent in one year

Lead Stories

Goldman Sachs made a staggering $200 million in one day as markets plunged
Hugh Son – CNBC
Boom times have returned on Wall Street, at least for one trading desk. Goldman Sachs made $200 million in profit on a single day this February as calm in stock markets was shattered with a historic surge in volatility, according to people with knowledge of the move. That’s on par with what the firm’s derivatives unit typically makes in an entire year, said the people.

****SD: Somebody had to be on the other end of all those short vol positions. Goldman ain’t the only one who raked in some serious ducats on that day.

Bond Trader of the Year Reaps 2,000% Profit Just by Trusting Fed
Edward Bolingbroke – Bloomberg (SUBSCRIPTION)
Eurodollar options bet pays off as more rate hikes priced in; Timing was prescient, leaving strategy with near-maximum gains
The bond market has an early candidate for trade of the year: a 2,000 percent gain on a eurodollar options position held for just four months.

****SD: A twist on the Fed put

Deutsche Bank finalises Equities business review
Deutsche Bank
Deutsche Bank will significantly reshape its Equities Sales & Trading business. Overall, the bank aims to reduce headcount in this area by approximately 25%. In Cash Equities, it will concentrate on electronic solutions and its most significant clients globally. In Prime Finance, the bank will reduce leverage exposure by a quarter, equivalent to a reduction of approximately EUR50 billion.

****SD: That’s a big lift. More on Deutsche Bank from Reuters – Deutsche Bank’s chairman defends abrupt change in CEO. Story below is also related.

Wall Street dominance over Europe’s struggling banks hits record
Lawrence White – Reuters
Wall Street’s dominance over struggling European banks has reached record levels as U.S. firms reap the benefits of booming markets at home, while their transatlantic rivals are trapped in endless restructurings, data showed on Thursday.

BTS Partners with Actant to Provide Enhanced Options Capabilities
Business Wire
Driven by changes in regulatory requirements at Cboe Global Markets, Blue Trading Systems and Actant have joined forces to offer a compelling new solution for floor and screen traders. Participants leveraging BTS’ flagship options product, BTS Edge, will continue to have modeling, risk, analytics and floor capabilities but will now benefit from additional quoting capabilities including RFQ response functionality via Actant.

Exchanges and Clearing

MCX launches India’s first silver options
India’s Multi Commodity Exchange (MCX) said it launched the country’s first silver options contracts on Thursday.

Competition among exchanges has reached a new low, and it’s dangerous for the stock market
John Ramsay, IEX – Business Insider
ICE, the parent company of NYSE, this week relaunched the old National Stock Exchange, after acquiring its license early last year. This follows last month’s news that ICE has agreed to acquire the Chicago Stock Exchange, after CHX failed to get regulatory approval for a plan to be acquired by a group of Chinese investors.
But media reports are missing what I think is the bigger story, which is the long-term effort by three multinational conglomerates to use control of U.S. stock exchange licenses to perpetuate their dominant position, as if those licenses were properties on a Monopoly board. With the CHX deal, they now own all but one.

****SD: Just a reminder that the author works for IEX.

CME Group Inc. Announces Election of Class B-1 Directors
CME Group
CME Group Inc. (NASDAQ: CME) today announced the election of its Class B-1 directors, Jeffrey M. Bernacchi, Gedon Hertshten and William W. Hobert, each for a one-year term ending in 2019.
These results are related to the Class B-1 proposals that were adjourned at the CME Group annual meeting held May 9, 2018.


Morning Coffee: Deutsche Bank’s new job cuts will extend WELL beyond equities. Goldman Sachs partner makes big money in 24 hours.
Sarah Butcher – eFinancialCareers
So, early reports of Deutsche Bank’s latest round of job cuts were understated while more recent reports were exaggerated. The reality lies somewhere in between.

****SD: A bit more on two stories we had up in lead story section.

Regulation & Enforcement

Court Extends Stay in India-Singapore Dispute Over Stock Futures
Santanu Chakraborty, Andrea Tan, and Upmanyu Trivedi – Bloomberg (SUBSCRIPTION)
The Bombay High Court extended an injunction against Singapore Exchange Ltd. as it deferred hearing a dispute over plans for new offshore Indian derivatives contracts.
National Stock Exchange of India Ltd. obtained an interim order on May 21 that restrains SGX from launching the products in June. The stay will remain until at least the next hearing in the case between the bourses, set for May 26, the NSE said in a statement late Wednesday. SGX officials declined to comment.

Bitcoin Price Manipulation Probe Launched By Justice Department
Matt Robinson and Tom Schoenberg – Bloomberg (SUBSCRIPTION)
The Justice Department has opened a criminal probe into whether traders are manipulating the price of Bitcoin and other digital currencies, dramatically ratcheting up U.S. scrutiny of red-hot markets that critics say are rife with misconduct, according to four people familiar with the matter.

U.K. Sees Close EU Ties Post-Brexit With Similar Rules Enduring
Emma Ross-Thomas – Bloomberg (SUBSCRIPTION)
The U.K. set out its goals for the post-Brexit economic partnership with the European Union, calling for the future trade deal to break new ground and allow mutual recognition of each other’s rules.


QuantConnect launches algorithm framework
QuantConnect, an open-source, cloud-based algorithmic trading platform, today announced that its community of over 55,000 users now has access to Algorithm Framework, a tool that provides a defined structure for developing algorithms and allows users to share and utilize individual code modules from other members to build and enhance their strategies.

Buy side using compression tools to create, not destroy
Lukas Becker –
Designed to wipe out trades and reduce risk, trading platforms’ compression tools are increasingly being used to do the opposite, an accidental innovation that has become the primary way for some buy-side firms to trade.
Features of the tools that allow users to create precisely offsetting trades that can be fed into the compression process can also be used to design custom transactions – potentially improving pricing, cutting costs and reducing the burden of new reporting requirements.
***SD: Compression tech has broken into the swaptions market in a pretty big way, too. I’m going to assume that there is a hearty swaptions component in a variety of the bespoke packages referenced in the story.

Check out this Financial Times story from the start of 2016 for a bit of swaptions compression background.

That story was published shortly after BGC Partners debuted their swaptions compression tool. By that juncture the broker’s service had already torn up EUR 800 billion of redundancies. By March 2016, reported BGC’s service had saved banks EUR 3.5 billion in leverage exposure reductions.

Cowen research report indicates AWS and Azure to remain market leaders
Troy Wolverton – Business Insider Prime (SUBSCRIPTION)
Amazon Web Services and Microsoft’s Azure are the top two players in cloud computing and are likely to remain so, a new report indicates.


Don’t confuse low stock-market volatility with an all-clear signal, Goldman warns
Ryan Vlastelica – MarketWatch
While major U.S. stock-market indexes are still a few percentage points below records hit earlier this year, recent trading may feel reminiscent to 2017, when equities rose in essentially uninterrupted fashion, with little in the way of volatility.

Lots of Options for Trading Treasury Futures (VIDEO
Volatility in emerging markets brought about a haven bid in Wednesday’s Wall Street session, with bonds rallying for just the fourth time in 2018. On “Charting Futures,” Bloomberg Intelligence’s Mike McGlone dissects Treasury futures and offers a simple options strategy with limited downside.

Stock market: Evidence mounting that it could see chaos this summer
Joe Ciolli – Business Insider (SUBSCRIPTION)
The stock market has stabilized quite nicely after a 10% correction rocked major indexes earlier this year, so it’s easy to understand why investor concern has ebbed.
This can be seen in the spot price for the Cboe Volatility Index, or VIX — also known as the stock market’s fear gauge — which has declined precipitously, recently falling to its lowest level since January.

‘Stealth’ Economic Slowdown Is Bad News for Stocks
Mark Kolakowski – Investopedia
Investors are unduly optimistic about the economy and stocks, according to Lakshman Achuthan, co-founder of the Economic Cycle Research Institute, in remarks on CNBC. Once extremely bullish, he now warns that “There is a stealth slowdown already happening.” In particular, he notes that real, inflation-adjusted, consumer spending and income growth have been “rolling over,” or slowing down. “That points to a fresh softening in a big part of the U.S. economy,” he says. Another source of worry for Achuthan: “Spending is outpacing income growth. That puts a lot of pressure on consumers, especially if interest rates are starting to rise.” His conclusion is that stocks are “cruising for a bruising.” (For more, see also: 8 Threats to the Market in 2018.)

****SD: We call this a B-2 Spirit economy.


When Rates Go Up, Stuff Blows Up
Jared Dillian – Mauldin Economics
Households, corporates, and governments are all negatively exposed to higher rates, in different degrees. Back in 1994, we found that it was Mexico, Procter & Gamble, and Orange County, California who all suffered because of higher interest rates.

****SD: A similar thread in the story below

How Federal Reserve rate hikes always end up creating ‘a meaningful crisis somewhere’
William Watts – MarketWatch
Whenever the Federal Reserve embarks on a round of rate increases, it’s a lot like shaking an overripe fruit tree.
That’s the analogy offered by Deutsche Bank macro strategist Alan Ruskin in a note late Wednesday, in which he urged clients not to “overcomplicate” the macro picture.

Fed and Bank of England tell markets to step up shift from Libor
David Milliken – Reuters
The U.S. Federal Reserve and Bank of England on Thursday urged global financial markets to step up efforts to shift from the scandal-plagued Libor reference rate to alternative interest rate benchmarks.

****SD: Speaking of rates…

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Graduate of University of Minnesota School of Journalism and Mass Communication