Low Bond Volatility Creates Trove of Cheap Bets; Whatever happened to rising interest rates sparking market turbulence?
Brian Chappatta – BloombergQuint
The Federal Reserve is raising interest rates, and that’s going to increase volatility. Or at least that was the nearly unanimous view of investors worldwide heading into 2018. But aside from “volmageddon” in early February, that simply hasn’t been the case. Instead, the stock market’s fear index (formally the Chicago Board Options Exchange Volatility Index) is firmly below its five-year average. Interest rates are even quieter, with Bank of America Corp.’s MOVE index, which tracks price swings on U.S. Treasury options, not far from its all-time low set 10 months ago. The benchmark 10-year yield is still on track for its quietest quarter since 1965.
Wells Fargo Dodges Counterclaims In $16M Margin Call Row
Jon Hill – Law360 (SUBSCRIPTION)
A New York federal judge ruled Tuesday that a Chicago investment fund and its affiliates can’t go after Wells Fargo for more than $100 million in losses they said the bank caused by forcing them to dump their portfolios in the wake of a February financial market flare-up that’s been nicknamed “Vol-mageddon.” LJM Investment Fund LP and several affiliated funds had accused Wells Fargo Securities LLC of breaching its contractual agreement with them when it allegedly cut ties and directed LJM to start liquidating its accounts.
****SD: Just about the only good news for Wells Fargo I’ve seen in months.
Tech Traders Snap Up Hedges as ‘Complacency’ Engulfs Small Caps
Sid Verma and Dani Burger – BloombergQuint
Contracts protecting against drop in Nasdaq 100 in high demand; Hedges contrast ‘complacency’ in small caps
As Wall Street sounds the alarm over brewing risks in global commerce, traders are rushing to hedge against any downturn in the year’s biggest stock-market winners.
Owning Tesla shares about the riskiest it has ever been: options data
Saqib Iqbal Ahmed – Reuters
Owning electric carmaker Tesla Inc’s (TSLA.O) shares is close to the riskiest it has ever been, data by options database and analytics firm OptionMetrics showed on Wednesday.
****SD: It’s not often that an options story, let alone one about a specific company, makes my main Reuters feed. That alone is notable.
Data-Driven Defense Against “Short and Distort”
Joshua Mitts – New York Law Journal
Public companies are under attack by manipulative short sellers. In prior work, I’ve shown how pseudonymous attackers drive down stock prices by buying put options prior to posting hit pieces on blogs and social media. Victim firms are often unaware of how to identify manipulative patterns in trading data, instead bringing defamation lawsuits that fail on First Amendment grounds. Too often, boards of directors are caught flat-footed, lacking the tools to monitor derivatives markets and demonstrate to investors the manipulative nature of a short attack.
****SD: This plays off recent comments from FINRA about the need for better cross product market surveillance.
Battered copper bulls take refuge in LME options market
Andy Home – Reuters
It’s been a hard time for copper bulls. A year of expected supply disruption from expiring labour contracts has failed to live up to expectations as strike deadlines have largely passed without incident.
S. Koreans’ overseas derivatives investment surge in Q2 2
South Koreans’ investment in foreign derivative products grew 34.6 percent on-year in the second quarter of 2018, data showed Thursday.
The Strong-Dollar Spell Is Breaking for Those With the Most at Stake
Cecile Gutscher – Bloomberg (SUBSCRIPTION)
BlueBay lightens up on hedges set up to defend EM investments; Pictet sees dollar correction as it boosts exposure to euro
Investors with the most at stake don’t need high-profile calls from the likes of Jeffrey Gundlach to persuade them the dollar is due a comedown. In emerging markets, they’re already preparing for it. Take BlueBay Asset Management LLP in London. The $60 billion money manager snapped up currency options back in May to insulate local-currency developing-nation bonds from a sudden rebound in the dollar.
Exchanges and Clearing
August 2018 ETD Volume and Open Interest
Worldwide volume of exchange-traded derivatives was 2.52 billion contracts in the month of August, up 18.6% from the previous month and up 12.4% from August 2017. On a year-to-date basis, volume in the first eight months of the year was 19.53 billion contracts, up 17.6% from the first eight months of 2017. Total open interest at the end of August was 909.8 million contracts, up 1.3% from a year ago.
****SD: Link is to FIA page where you can download a spreadsheet of the numbers.
CME Group’s Acquisition of NEX Under Investigation by Regulator
David Kimberley – Finance Magnates
The acquisition of NEX Group (NEX) may be entering rocky territory. This Thursday, the Competition and Markets Authority (CMA) said that it was launching an investigation into the purchase of the financial services company by CME Group (CME).
‘Speed bump’ exchange gets its first stock listing, as Interactive Brokers jumps from Nasdaq
Liz Moyer – CNBC
IEX Group, the two-year-old stock exchange known for putting a “speed bump” on trading, now has its first stock listing, as Interactive Brokers announces plans to move there from Nasdaq. The stock will begin trading on IEX on Friday, Oct. 5, under the same ticker, IBKR.
****SD: Of all the companies to switch, would anyone have guessed the options pioneer?
Trader blows EUR100m hole in Nasdaq’s Nordic power market; Loss raises questions over clearing house controls on eve of Lehman collapse anniversary
Philip Stafford and David Sheppard – FT (SUBSCRIPTION)
One of Norway’s richest men has blown a EUR100m hole in a stability fund that ensures the safety of derivatives trading in European electricity markets. Coming in the same week as the 10th anniversary of Lehman Brothers’ collapse, the trading losses will focus attention on the robustness of standards promoted by policymakers globally after the financial crisis.
Einar Aas, a private trader who has been among Norway’s highest earners in recent years due to aggressive bets in European power markets, saw his positions collapse on Monday after extreme market moves in German and Nordic energy markets.
Nasdaq Announces Regulation SCI BC/DR Test Details
Nasdaq will host its annual Business Continuity and Disaster Recovery Plan test on Saturday, October 13, 2018.
Regulation & Enforcement
The Policymakers Saved the Financial System. And America Never Forgave Them.
Neil Irwin – Bloomberg (SUBSCRIPTION)
A decade ago this week, Wall Street imploded. Read our special coverage. It’s hard to overstate how deeply Americans despised their government’s response to the global financial crisis. It has helped shape the last decade of American politics, fueling distrust of powerful institutions and speeding a drift toward ideological extremes. But for all that anger, the engineers of the American crisis response got the economics mostly correct, and more right than most of those ó including leading economic thinkers and prominent politicians ó who were second-guessing them.
Former US regulators defend financial crisis actions; Bernanke, Geithner and Paulson admit case for bank bailouts failed to sway the public
Robert Armstrong – Financial Times (SUBSCRIPTION)
The three pre-eminent US regulators of the financial crisis have offered a unified defence of their actions a decade ago, saying that Europe’s relatively weak recovery shows the costs of delaying decisive action.
Arista Networks acquires Metamako
Arista Networks, an industry leader in software driven cloud networking solutions for large datacenter and campus environments, today announced that it has acquired Metamako, a leader in low-latency, FPGA-enabled network solutions.
David Kent – Optiver Tech Blog
This series of posts first examined the importance of the CME to Optiver’s trading activities and the implications of their iLink architecture upgrade. We next examined our high-level approach: combine a thorough understanding of the problem with a disciplined scientific approach. Today we want to dive deeper and examine how we strive for simplicity in our system design and architecture.
Banks concerned about cloud capacity during market stress
Louisa Chender – Global Investor Group (SUBSCRIPTION)
Another consideration is whether multiple banks on the same cloud leads to systemic risk, an expert says
Allston Trading Advances Innovation and Execution with Corvil
Corvil today announced that market maker Allston Trading has selected Corvil to provide visibility, analytics, and reporting to optimize its systems and infrastructure and to assure trading performance amidst rapid technology innovation.
A Solid Choice for Conservative Equity Exposure
Patricia Oey – Morningstar
Gateway’s risk-tempered portfolio results in a smoother ride, and its long-term steady performance, veteran team, straightforward approach, and reasonable fees support its Morningstar Analyst Rating of Silver.
Relative to the S&P 500, the fund achieves less volatility in its returns by holding a large-cap U.S. equity portfolio designed to track the S&P 500 and employing an options collar, which sets a cap and floor on returns. To create a collar, the fund sells, or writes, roughly at-the-money index calls and uses a portion of the premium (or income) earned from the sale of calls to buy index puts that are typically 8% to 10% out of the money. Both the calls and puts are usually equal to 100% of the portfolio’s notional value.
****SD: An under-the-hood look at an options mainstay.
Presentation on Volatility-Related Indicators, including VIX, RVX, VVIX, SKEW, Correlation and Dispersion, at #CboeRMC
Matt Moran – Cboe Blog
On September 12 at the 7th Annual Cboe European Risk Management Conference (RMC), Bill Speth, Global Head of Research in the Cboe Multi-Asset Solutions Team, delivered a presentation on Developments in Volatility-Related Indicators & Benchmarks.
The Interest Rate Volatility Environment: Can Rates Volatility be the Next ‘Safe-Haven’? – Presentations at #CboeRMC
Matt Moran – Cboe Blog
On September 12 at the 7th Annual Cboe European Risk Management Conference (RMC), presentations on The Interest Rate Volatility Environment – Can Rates Volatility be the Next “Safe-Haven”? were delivered by two experts – Yoshiki Obayashi, Head of Research, Applied Academics, LLC and by Kokou Agbo-Bloua, Managing Director, Global Head of Flow Strategy & Solutions, SociÈtÈ GÈnÈrale.
Exclusive: China’s Fosun in talks to buy commodity broker Marex Spectron – sources
Eric Onstad, Pratima Desai – Reuters
Chinese conglomerate Fosun International Ltd is in discussions to buy British-based commodities broker Marex Spectron, two industry sources said.