Breaking News

OCC margin breaches spike in Q1; Flash crash blame game

Through the breach!

Observations & Insight

Traders Grapple With a Big Question: Are Tariffs Priced In?
Samuel Potter – Bloomberg
After months of simmering tension between the world’s two largest economies, the U.S. will impose tariffs on $34 billion worth of Chinese goods at just after midnight on Friday. The key question for financial markets: will it trigger fresh volatility, or is the trade war escalation already priced in?

****SD: Well?! Are they?

Lead Stories

OCC margin breaches spike in Q1
Alessandro Aimone – (SUBSCRIPTION)
The Options Clearing Corporation (OCC), the world’s largest equity derivatives clearing house, reported 38 margin breaches with an average size of $61.4 million in the first quarter of this year. It is the largest average size since public disclosures began in the third quarter of 2015.

****SD: It’s the average size of the breaches, not the number of occurrences, that really catches the eye. The previous high was $9.4 million.

HFTs Not to Blame for ‘Flash Crashes’?
Rob Daly – MarketsMedia
Is the conventional wisdom regarding high-frequency trading’s contribution to ‘flash crashes’ wrong?
Is it unfair to lay the blame of the worst market-structure characteristic at the feet of high-frequency traders?

Binary options trading is dead – though few will mourn it
Hannah Murphy – Financial Times (SUBSCRIPTION)
Dearly beloved readers. We are gathered here today to celebrate the passing of binary options, the much-hated financial instrument.
Traded by risk-hungry speculators, binaries brought riches to the few and hefty losses to the many. They inhabited that tantalising grey area between financial investment and gambling, luring us in with promises of mega returns and pictures of people on Twitter with Lamborghinis. Instead, most were left red-faced with empty pockets.

****SD: I agree with the author – a good takeaway is to view any advertising or marketing material that heavily features luxury goods with a wary eye.

It’s So Hot Out, It’s Slowing Down the Speed of Stock Trades
AJ Dellinger – Gizmodo
If the heat wave and the accompanying blanket of humidity have you feeling like the world is moving just a little slower than normal, well you’d be right—at least in when it comes to radio transmissions. Nasdaq warned customers Tuesday that the weather was resulting in slight delays in the transfer of data, which could affect stock trades.

The retreat from easy money that markets cannot escape; Thin summer trading conditions risk amplifying the pressure facing risk assets
Michael Mackenzie – Financial Times (SUBSCRIPTION)
The poor performance of many equity and credit markets this year has come alongside central banks’ retreat from the era of easy money, raising the prospect of a testing summer for investment portfolios.

Amplify Plans ‘Black Swan’ ETF
Amplify ETFs recently filed for a fund that will look to protect investors from those rare, “out-of-nowhere” market downturns that are often referred to as “black swan events.” The Amplify BlackSwan Growth & Treasury Core ETF (SWAN) will track an index that invests primarily in Treasury securities and LEAP options on the SPDR S&P 500 ETF Trust (SPY).

Exchanges and Clearing

NSE and SGX Nifty dispute: Uncertainty for investors in India markets
Cheang Ming – CNBC
A dispute between stock exchanges in India and Singapore has cast doubts on a popular investment product, and it has raised questions about the future of India’s more than $2 trillion equity market.

Growth in Use of S&P 500 Options at Cboe Over 35 Years
Matt Moran – Cboe Blog
Thirty-five years ago, Cboe revolutionized the financial world with the introduction of options on broad-based stock indexes. On July 1, 1983, Cboe launched S&P 500 (SPX) index options with posted volume of 350 contracts. This year the average daily volume for S&P 500 options is around 1.4 million contracts, as many individual and institutional investors now use the contracts for purposes such as portfolio management, hedging, and income generation.

‘Jittery’ market piles into record volume of dairy derivatives after steep price drop at GDT auction
Jonathan Underhill – (New Zealand)
Unexpectedly weak prices for whole and skim milk powder at this week’s Global Dairy Trade auction have seen market participants pile into a record volume of dairy derivatives on the NZX, with most of the jump in options to buy or sell the products.

Intercontinental Exchange Reports June and Second Quarter 2018 Statistics
Intercontinental Exchange

****SD: Of note – NYSE equity options are up 38 percent YoY.

LSE applies for Dutch trading licences in case of hard Brexit
The London Stock Exchange Group (LSE.L) said it has applied for several trading and trade reporting licences so that it can continue to serve customers in the European Union if Britain leaves the bloc without a deal with the EU.

Euronext announces volumes for June 2018
…In June 2018, the overall average daily volume on derivatives reached 582,375 contracts, down -24.3% compared to June 2017 and down -9.7% compared to the previous month. In detail:

SGX welcomes Blackwell Global Futures as Derivatives Trading Member
Singapore Exchange (SGX) today welcomed Hong Kong-based Blackwell Global Futures Limited to its derivatives market.

SGX proposes to recalibrate financial and capital requirements of Bank and Remote Members
Singapore Exchange (SGX) is seeking feedback on proposed recalibrations of the financial and capital requirements of Remote Clearing Members, Remote Trading Members, Bank Clearing Members and Bank Trading Members (“RCMs”, “RTMs”, “BCMs” and “BTMs” respectively).


Portfolio Protection with Cboe’s S&P 500 Options: Overview of Basic Concepts
Matt Moran – Cboe
Many investors are asking questions about how to protect their investment portfolios in light of a number of developments, including (a) the potential for global trade wars, (2) low interest rates for fixed income investments and high price-earnings ratios for key stocks, and (3) the most severe peak-to-trough drawdowns a decade ago were down 51% for the S&P 500 Index, down 62.7% for the MSCI Emerging Markets Index, and down 81% for the S&P GSCI Index.


‘This Is Unbelievable’: A Hedge Fund Star Dims, and Investors Flee
After more than a decade of winning and unconventional behavior, David Einhorn’s Greenlight Capital has shrunk by half. Frustrated clients are bolting

****SD: There’s something kind of mesmerizing about this included picture from 2012. Also from the article – “Adding to distress among some investors is Mr. Einhorn’s pending divorce. ‘If someone goes through a divorce, I usually get out,’ said Mr. Kielland, Mr. Einhorn’s early backer. ‘I made an exception with David, but I made a mistake…He has to be distracted: I’m convinced that’s 30% to 40% of’ why Greenlight has been underperforming.” For more commentary see Matt Levine’s Bloomberg column today.

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Graduate of University of Minnesota School of Journalism and Mass Communication