Observations & Insight
Joe O’Neill, New York Commodity Exchange(s) Executive, Passes Away
By John Lothian
Longtime New York commodity exchange executive Joe O’Neill passed away on August 4, 2018 at the age of 74. This plain statement tells little of a life lived in the most colorful of times in New York commodity exchange history or a career that included launching the first financial futures (before CME/IMM by 2 years), the creation of the Dollar Index Contract (with the help of Paul Tudor Jones) and being the consultant for the futures trading aspects of the script of the hit movie “Trading Places.”
O’Neill started working in the exchange space in New York in 1970 when there was a Coffee Exchange, a Sugar Exchange and a Cocoa Exchange. Later, there was a Coffee, Sugar and Cocoa Exchange.
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According to Borsa Italiana’s monthly update for July, equity derivatives volumes were down ~38 percent to 2.2 million contracts month-over-month. (In July, FTSE Mib volatility dropped from above 20 to 14.)
TMX reported statistics for Montreal Exchange – derivatives volume was 8,618,506 contracts in July, up more than 30 percent compared with July 2017 , but down from June (although open interest increased by more than 1 million contracts).
Euronext similarly reported that derivatives volumes in July were up compared with July 2017 (by 9.3 percent) but down from June (by 6.6 percent).
New VIX Index Market Advisory Notices
Cboe Tradedesk Update
Beginning this month, Cboe Exchange, Inc. and Cboe Futures Exchange, LLC. (“Cboe”) will introduce “VIX Index Market Advisory Notices” which will be issued on monthly expiration dates for Cboe Volatility Index (VIX) futures and options, when warranted by market conditions outlined below.
****SD: From the notice: “if Cboe observes conditions that it believes could potentially lead to a repricing of volatility or otherwise potentially impact the final settlement value, an Advisory Notice will be posted to the Futures and Options Systems Status pages on the Cboe website.” But at what time would a notice go out? There’s a big difference between “the barn doors were open and the horses are gone” and “the barn doors might be suspect – protect your horses.” While the majority of the catalysts for an advisory notice are in line with existing market concerns – off-hour VIX trading/liquidity and SPX options order imbalances – it also specifically mentions “major shifts in international relations and domestic politics.” Bloomberg has Traders Will Now Get Alerts on VIX Turbulence
The World Federation of Exchanges publishes H1 2018 Market Highlights report
The first half of 2018 was eventful for stock markets worldwide. While the year started on a high note with domestic market capitalisation and benchmark indices scaling record levels in markets across the globe, February 2018 was marked by a global stock market correction and a return of volatility after a remarkably calm period over 2017. Overall market valuation declined in the months that followed, with market capitalisation at the end of H1 2018 down 1.6% on the end of H2 2017 (though still up on the same period in the previous year). Trading activity (value and volumes of trades in equity shares) was up on H1 2017; however, primary market activity was mixed, with IPO listings down and investment flows slightly up on H1 2017.
****SD: “Exchange traded derivatives volumes traded were up 17.4% on H1 2017, driven by increases in volumes traded across all asset classes, except commodity futures.”
Liquidity Crunch Is the New Bubble Gripping Credit Investors
Dani Burger and Sid Verma – Bloomberg (SUBSCRIPTION)
BofAML survey finds fears have shifted from two months ago; ‘The concern is a more pervasive rush for the exit,’ bank says
…To satisfy their liquidity thirst, investors are increasingly embracing a smorgasbord of products, from credit-default indexes and options to exchange-traded funds and even single-name CDS.
****SD: A liquidity crunch is the new concern of ALL markets.
LedgerX Claims ‘Record’ July for Bitcoin Options Trading
Nikhilesh De – Coindesk
Bitcoin derivatives trading provider LedgerX says it saw a “record” amount of trading volume over the last two months.
The firm cleared $50 million in derivatives volume in July alone, president and chief risk officer Juthica Chou told CoinDesk. Earlier this month, the firm also executed its largest trade to date for a December $15,000 strike call.
****SD: Please take this with a gigantic hunk of sodium chloride. Consider the trading yesterday – BTC 7000 calls with 8/31 and 9/28 expirations traded a combined 451 contracts. Those were the only active options contracts. The last displayed bid and ask for the August call? $474 and $603, respectively. There were seven swaps traded for a grand total of 458 contracts on LedgerX yesterday.
Exchanges and Clearing
Same, same, but different and better: T7 Release 7.0
With the launch of our trading architecture T7, we at Eurex provided our clients with more choices and greater performance – all in Eurex’ renowned reliability. With its convincing cutting-edge technology, ultra-low latency, robustness and safe handling of very high throughputs, T7 has already been adopted by a number of exchanges for derivatives trading as well as cash trading. T7 Release 7.0 is planned for 3 December 2018. So it’s about time to give you a short summary of the upcoming advances and enhancements.
Regulation & Enforcement
Trump Is Likely to Nominate Allison Lee as SEC Commissioner, Sources Say
Benjamin Bain, Robert Schmidt and Jennifer Jacobs – Bloomberg (SUBSCRIPTION)
She would fill Democratic seat being vacated by Kara Stein; Progressives pushed for nominee who would be tough on banks
Allison Lee, a former enforcement attorney at the U.S. Securities and Exchange Commission, is the Trump administration’s likely choice to replace her former boss in a Democratic seat at the Wall Street regulator, according to people familiar with the matter.
Due Diligence as an Alpha Generator
Highly Evolved Vol
In my last post I discussed some of the hazards of assigning numerical measures to hedge fund performance and suggested that keeping things simple might be the most robust approach. Here I’m going to write about evaluating the business side of a fund.
Turkey’s Cratering Markets Stoke Speculation Over Extreme Measures
Constantine Courcoulas, Onur Ant and Tugce Ozsoy – Bloomberg
Desperate measures are in the air in Turkey: trading rooms are awash with talk of a bailout by the International Monetary Fund and potential capital controls. But there’s a vacuum at the core.
The central bank and government have been largely silent as the currency plummeted to record lows and the U.S. imposed sanctions and threatened more. The lira slipped for a seventh day against the dollar after falling by the most in a decade on Monday, while the yield on 10-year bonds surged above 20 percent to an all-time high.
Record decline in the ag barometer as trade war concerns and low commodity prices weaken producer outlook
The Purdue University/CME Group Ag Economy Barometer declined 26 points, down to 117, in July making it the largest one-month decline in producer sentiment since data collection began in October 2015. The drop in sentiment was fueled by increasing trade war concerns and decreasing commodity prices.