Observations & Insight
Miscellany for Thursday
The new edition of FIA’s MarketVoice is available online.
FANG+ Options went live at NYSE on Monday.
Trade Alert is now live with VIX futures info.
We started rolling out videos from FIA IDX. First up was ICE Europe’s Stuart Williams.
Speaking of videos, we released a video with CME Group’s options head Derek Sammann where he talks about the franchise’s continued growth.
In case you missed it, Robinhood’s options trading business is apparently booming.
None of Us Understand Probability
This week kicks off the World Cup, and while the U.S. didn’t qualify for the most watched event in the world, that’s not stopping US groups from making predictions based on each and every data set known to sport. Back in 2014, Bloomberg and FiveThirtyEight gave it their best go at analyzing the stats, to form percentage probabilities of teams making it out of their group and onto the next round.
****SD: Had to get a World Cup reference in the newsletter somewhere today…
’50 Cent’ Volatility Buyer Is Back With Bet VIX Will Double
Dani Burger and Sid Verma – Bloomberg (SUBSCRIPTION)
“50 Cent” is back. Or at least, a pretty convincing impersonator who spent $5 million on volatility hedges this week.
The mysterious buyer, or buyers, earned the nickname — a play on the rapper Curtis Jackson, known as “50 Cent” — after relentlessly purchasing huge lots of call options tied to the VIX at around 50 cents a pop.
****JB: Business Insider on the same topic: https://read.bi/2HPgt42
JPMorgan Says Clients Are Clinging to Risk Despite ‘Palpable’ Anxiety
Dani Burger – Bloomberg (SUBSCRIPTION)
Many are worried, yet few are prepared.
Such is the oddity of investing in 2018, as the bull market staggers on despite cracks forming under the surface. Credit is exhibiting weakness, monetary conditions are tightening and sudden crashes are becoming the norm. Yet selling on the budding late-cycle dynamics may mean missing out on stellar returns from risk assets.
****SD: “What is this ‘downside’ you speak of?”
Prop traders, HFTs do not make markets less stable – CFTC
Louisa Chender – Global Investor Group (SUBSCRIPTION)
Price swings are caused by heightened volatility and news events, according to research by the US regulator
Draghi Ends ECB Bond-Buying Era Saying Economy Can Beat Risk
Piotr Skolimowski – Bloomberg (SUBSCRIPTION)
Mario Draghi said the euro-area economy is strong enough to overcome increased risk, justifying the European Central Bank’s decision to halt bond purchases and close an extraordinary chapter in the decade-long struggle with financial crises and recession.
Wall Street wants more female traders, but old perceptions die hard
Anna Irrera – Reuters
As a biomedical engineering student at Duke University, Priya Karani thought she did not have the right skills to break into the heavily male-dominated field of Wall Street trading.
“I was never interested in a career in trading at a bank because I didn’t know it was an option,” Karani said.
A decade later, Karani is a director at Barclays PLC (BARC.L) in New York where she trades healthcare derivatives and helps the bank’s effort to attract more women to trading by talking to female college students about her job.
Study Finds ‘Speed Bumps’ Help Protect Ordinary Investors
Cezary Podkul – WSJ (SUBSCRIPTION)
Stock markets should take a break. Literally.
That is the message in a paper published on Wednesday by an economist at the Securities and Exchange Commission who concluded that a brief delay in stock trading would protect ordinary investors from high-frequency traders.
****SD: Will options markets get a bump?
Exchanges and Clearing
Eurex EnLight: targeting a new segment
Extension ahead: from 19 June 2018, our selective request-for-quote (RFQ) platform Eurex EnLight is going to cover equity and equity index derivatives. Specifically, the off-book trading service for listed derivatives is going to broaden its product scope to include equity options and equity index options on Swiss underlyings in addition to fixed income derivatives. We launched Eurex EnLight in December 2017 to allow market participants to selectively engage with counterparties to find liquidity and arrange exchange trades off-book.
Hong Kong stock exchange reappoints Charles Li as CEO
Hong Kong Exchanges and Clearing Ltd (HKEX) has reappointed Chief Executive Officer Charles Li for a further three years, the bourse said on Tuesday.
Central Clearing and Systemic Risk – An Interview with BofE Deputy Governor Jon Cunliffe
Will Acworth – MarketVoice
Have clearinghouses become too big to fail?
Clearinghouses are now the central risk hubs of the global derivatives markets, and that’s exactly what was intended. By moving most standardized derivatives into clearing, the reforms have addressed the problems that made the crisis so bad. But what if these new hubs run into trouble? Could the solution to the previous crisis become the source of the next one?
****SD: I can’t be the only one thinking that the Financial Stability Board should rebrand so it’s acronym isn’t FSB, right?
Macro Risk Advisors Expands Strategy Team with Hire of John Kolovos as Chief Technical Strategist; MRA also bolsters its roster of buy-side talent with the promotion of Mayank Seksaria and hire of Vinay Viswanathan
Macro Risk Advisors
Macro Risk Advisors (MRA), a leading provider of global market risk analysis and execution services for institutional investors, announced today the hire of John Kolovos as Chief Technical Strategist, as well as the promotion of Mayank Seksaria to Chief Macro Strategist. Vinay Viswanathan has also been hired as the firm’s Derivatives Strategist.
****SD: Vinay came from Spot Trading.
Regulation & Enforcement
Credit Suisse to get $385 million in Lehman bankruptcy claim
Credit Suisse will get $385 million from its bankruptcy claim against Lehman Brothers Holdings, the Swiss bank said on Wednesday, less than the $1.2 billion it sought from the failed U.S. investment bank for terminated derivatives transactions.
TradingScreen Shareholders Association Formed; Rico Action Announced
The TradingScreen majority shareholders announced today the formation of “TSA”, TradingScreen Shareholders Association, an organization created to pursue the defense of all shareholders’ interests against the current management and Technology Crossover Ventures.
****SD: In case you were wondering, yes, there is still wonky legal action over at TradingScreen.
Big Banks’ Regulatory Bonanza Not as Advertised
Aaron Back – WSJ
In the early days of the Trump administration, expectations were high for sweeping financial deregulation that would be a boon to bankers. While much of that agenda has been realized, large banks have reason to be disappointed.
This week marks the first anniversary of a U.S. Treasury Department report that laid out the administration’s deregulatory vision for banks and credit unions.
Citi Wants Analysts to Add Python to List of Languages on Resume
Jennifer Surane – Bloomberg (SUBSCRIPTION)
Forget Wall Street lingo. The language Citigroup Inc. wants its incoming investment bank analysts to know is Python.
The computer-programming language will be taught as part of training classes for the bank’s analysts who start in July, said Lee Waite, who leads the markets and securities-services unit in North America. The New York-based bank is testing adding the classes to the curriculum after traders expressed interest in this type of continuing education, he said.
Systematic Trading with Rob Carver
Grace Quigley and Liza Donor – Quant News
…Until 2013 Robert worked for AHL, a large systematic hedge fund, and part of the Man Group. He was responsible for the creation of AHL’s fundamental global macro strategy, and then managed the fund’s multi-billion dollar fixed income portfolio. Prior to that Robert worked as a research manager for CEPR, an economics think tank, and traded exotic derivatives for Barclays investment bank. He spent his early career in the Middle East.
Is AI the Antidote to Aggregate Underperformance?
Bloomberg Professional Services – TABB Forum
One of the problems faced by active managers today is a failure to outperform in aggregate. This aggregate failure is linked to the assumption that there is stability between correlations in the past and in the future
Are You Ready for the Convergence of Front- and Middle-Office Risk Management?
Ian Lumb, Axioma – TABB Forum
Risk management is at the center of an asset manager’s investment process. At the same time, risk-based regulations are driving an urgent need for proactive, comprehensive and firm-wide risk management that provides a holistic view of the organization. Cloud computing offers a solution for moving away from legacy hardware and inflexible data management processes.
RBC Plans $3.2b in Tech Spending, Targeting Client Acquisition
Jeff Patterson – Finance Magnates
Banks have increasingly been pushing an emphasis on new technology over the past few years. The desire to harness digital banking services over legacy systems has been central to most strategies. This includes the Royal Bank of Canada (RBC), which rolled out plans to spend upwards of $3.2 billion on tech spending this year alone.
NYSE trader: That $45 million bond options bet is about volatility (VIDEO)
Alan Valdes of Silverbear Capital joins Yahoo Finance’s Melody Hahm from the floor of the New York Stock Exchange to discuss the latest market moves.
****SD: More on the trade from yesterday.
Wall Street Is Fooling Everyone as It Secretly Preps for a Big Summer Dive
Brian Sozzi – TheStreet
The market is overdue for a plunge.
What’s more impressive than this market? A hole-in-one by Tiger Woods on day one of the U.S. Open on Thursday, surely. But really, the market on paper is set up to be obliterated over the next two weeks and yet the bid remains with the bulls.
What Is VIX Telling Investors?
Gaurav Sinha – Seeking Alpha
I have written on the jump in the VIX that occurred in February, taking investors by surprise. While there was a precursor to this unprecedented surge in the VIX (a compression of spreads between implied minus realized volatility), it was subtle and the move was very sudden. VIX moves are important due to their strong negative correlation to equities.
In this blog post, I will highlight another relatively more stable signal we have been following and the one that has been flashing red for some time, the VIX futures curve. I will also talk about strategies that can cushion market corrections that typically follow periods of heightened volatility.
Are ETFs ‘Weapons of Mass Destruction’?
Nathan Reiff – Investopedia
Passive investing vehicles and exchange-traded funds (ETFs) in particular have grown at an incredible pace in recent years. What’s more, according to Ernst & Young’s Global ETF Survey, this expansion is forecast to continue for the foreseeable future. While many investors are drawn to ETFs for their low costs and reliable returns, it’s important to keep in mind that there may be risks associated with the ETF market’s growth as well. Indeed, borrowing from a 2003 statement in which Warren Buffet called derivatives “weapons of mass destruction,” FPA Capital fund managers Arik Ahitov and Dennis Bryan have adopted the same highly charged terminology for some elements of the ETF world.
****SD: An article about ETFs and WMDs that doesn’t even mention volatility linked ETPs – wow.
E*TRADE Financial Corporation Reports Monthly Activity for May 2018
E*TRADE FINANCIAL Corporation (NASDAQ: ETFC) today released its Monthly Activity Report for May 2018.
****SD: Derivative DARTs down a smidge MoM but up YoY.
This Year’s Best-Performing Commodity Is About to Hit a Snag
Mathew Carr, Brian Parkin and William Wilkes
Options, renewables, low power margins could send prices down; Nations getting record windfall from selling permits in 2018
Argentine Peso Tumbles to New Low
Patrick Gillespie – Bloomberg
Argentina’s peso tumbled to a record low Thursday amid reports a group of central bank directors will depart from the institution and a truck drivers’ strike threatened to disrupt the country’s economy.
The peso dropped as much as 5 percent, its biggest decline in one month, to trade at 27.3 per dollar in early afternoon trading. The peso is down more than 30 percent this year, the worst performance in emerging markets.