Observations & Insight
The Spread – It Was Nasdaq Week – 9/14
What do an unexpected forecast for rain, long-standing animus in the clearing tech space and a speed bump have in common? In this week’s episode of “The Spread” the answer is Nasdaq.
What does your clearinghouse DEFCON scale look like today?
Jim Kharouf – JLN
Talk about timing.
Ten years after the collapse of the global financial market and a decade of rebuilding it, Nasdaq reports that Nasdaq Clearing had to cover for a clearing member default of EUR114 million on Nasdaq Nordic, a default so large it took up 68 percent of the default funds from other clearing member firms.
VIX Options Volume Soars as Someone Bets Big on Volatility Spike
Gregory Calderone – BloombergQuint
Someone in the options market is betting that the Cboe Volatility Index, which has been trading below its five-year average, is headed back toward the level it was at during the market turmoil of February.
The VIX fell to 12.37 on Thursday. It’s down more than 66 percent from its Feb. 5 peak. One options investor seems to be positioning for a 62 percent surge into November.
VIX Options Investors Pivot, Now Get Paid to Own Volatility
Gregory Calderone – BloombergQuint
With the VIX on track to post its biggest weekly decline since April, owning volatility probably doesn’t look like a very smart bet.
India Faces Concerns Over Extended Derivatives Trading
Santanu Chakraborty – BloombergQuint
Brokers seek postponement of plan, shorter extension – people; India is wooing investors across timezones after spat with SGX
Brokerages are urging India’s market regulator to modify a plan to extend equity derivatives trading hours due to concerns over their readiness and the costs of implementing the proposal, according to people with knowledge of the matter.
Michael Bloomberg set to run for Democrats against Trump for presidency in 2020
David Charter and James Dean – The Times
Michael Bloomberg, the billionaire founder of a business news empire, is preparing to run for president as a Democrat, The Times understands.
Oil Prices: Oil’s Set for Weekly Gain as Volatility Rises on Supply Vs Trade
Jessica Summers – BloombergQuint
Crude is poised for a third weekly advance out of four as Iranian sanctions take center stage, with investors eyeing the impact on supply.
Futures in New York slid on Friday amid a stronger dollar, but are still on track for a 0.5 percent advance this week amid signs that looming U.S. sanctions on Iran are whittling global supply levels. The International Energy Agency warned of higher oil prices amid deepening supply losses in Iran and Venezuela.
Goldman’s Bankers Are Coming Back
Matt Levine – BloombergQuint
Goldman Sachs Group Inc.’s incoming chief executive officer, David Solomon, has been picking his senior executive team, and it is hard not to notice that they are investment bankers. This marks a change from Lloyd Blankfein’s leadership team, who tended to come from sales and trading. “Goldman Sachs Group Inc.’s investment bankers are completing a takeover of their own firm,” writes Bloomberg’s Sridhar Natarajan.
Exchanges and Clearing
Nasdaq to buy Swedish tech rival Cinnober for $190m; US exchange looks to strengthen its hand a provider of technology to rival stock exchanges and clearing houses
Samuel Agini – Financial News
Nasdaq has offered to buy a Swedish competitor for around $190m to strengthen its hand as a provider of technology to rival stock exchanges and clearing houses. Nasdaq, which has a strong presence in the Nordic market, made its all-cash offer for Cinnober on Friday. The deal would take out one of Nasdaq’s rivals in the market for trading systems, clearing and surveillance tech.
The CME/NEX Merger: Efficiency or Chaos?
George Bollenbacher – TABB Forum
The acquisition of NEX by CME is a big event in the ongoing evolution of the Treasury market, but it is only one event in a complex drama that is unfolding in that world.
Notification filed by a National Securities Exchange to Report the Removal from listing and registration of matured, redeemed or retired securities
Cboe Global Markets, Inc. ( f/k/a CBOE Holdings, Inc., “Cboe”) is filing this registration statement on Form 8-A in connection with the transfer of the listing of its common stock, par value $0.01 per share (the “Common Stock”), from the Nasdaq Global Select Market (“Nasdaq”) to Cboe BZX Exchange, Inc. (“BZX”).
MIAX Options & MIAX PEARL – Disaster Recovery Connectivity Testing In Preparation For Reg SCI/SIFMA BCP Testing On October 13, 2018
As previously announced in the April 04, 2018 Alert the MIAX Exchanges will be participating in the 2018 SIFMA BCP Testing on Saturday, October 13, 2018.
All members that are required to test with MIAX Options and/or MIAX PEARL Exchanges in accordance with Regulation Systems Compliance and Integrity (Regulation SCI) have been notified. However, all members are encouraged to test.
Former US options exchange COO joins up with the Winklevoss twins at Gemini; Second former C-level executive from the International Securities Exchange joins Gemini this summer. Jonathan Watkins – The Trade
The former chief operating officer (COO) of US options trading venue, the International Securities Exchange (ISE), has joined the Winklevoss twins’ digital asset platform Gemini as a managing director. Jeanine Hightower-Sellitto worked at ISE for over a decade, moving her way up through a variety of roles before being made COO in June 2016 when the venue was acquired for $1.1 billion in June. She left ISE one year after the takeover in June 2017.
Regulation & Enforcement
UK prepares legal fight with EU over commodities trading; Treasury to resist Commission attempts to impose VAT on derivatives
Laura Hughes and Jim Brunsden – FT (SUBSCRIPTION)
The British government is preparing for a legal battle with Brussels over EU attempts to force it to increase taxes on commodity derivatives trading, with the UK pledging to fight a move that could hit the City of London’s competitiveness after Brexit.
CFTC Will Block Any Effort to Impose EMIR in the US: Giancarlo
A draft EU law which could impose EU clearing regulation on US-based clearing houses servicing European clients has prompted concern from CFTC (Commodity Futures Trading Commission) chairman Christopher Giancarlo, who said that only US regulation will apply to US derivative markets.
Cryptocurrency regulation requires a ‘do no harm’ approach, US regulator says
Weizhen Tan – CNBC
U.S. Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo said that the internet flourished because the government did not step in too heavily, and applied a “do no harm” approach. Speaking with CNBC at the annual Singapore Summit, he said he’s advocating for the same approach for cryptocurrencies. “When it comes to fraud and manipulation, we need to be strong. When it comes to policy making, I think we need to be slow and deliberate and well informed,” he said.
SEC Monitoring Impact Of Hurricane Florence On Capital Markets
The Securities and Exchange Commission is closely monitoring the impact of Hurricane Florence on investors and capital markets.
Volatility Trades for Nervous Times
Gunjan Banerji – Barron’s
The stock market’s grind higher belies the jitters in the options market.
Domestic stocks have continued to notch gains as other global equities stumble. But U.S. stock volatility is diverging from actual equity performance, mimicking other risky assets around the world, analysts say. Stock volatility has been relatively high compared with major indexes’ strong gains.
The difference is jarring, given that the actual level of swings experienced by markets, known as realized volatility, is low. How low, exactly? The S&P 500 hasn’t moved up or down more than 1% for 56 days, the longest such streak since January, before U.S. markets slipped into correction territory.
Options Trader Hedges Marijuana ETF as Cannabis Craze Continues
Gregory Calderone – Bloomberg (SUBSCRIPTION)
An options buyer put a sizable hedge against the U.S. exchange-traded fund tracking the marijuana industry in a bet that pot stocks won’t continue to soar.
Shortly before the market closed Thursday, the investor bought 5,000 October $34 puts and 5,000 October $24 puts on the ETFMG Alternative Harvest ETF, which goes by the ticker MJ, while simultaneously selling 10,000 October $29 puts. The move sent total options volume in the fund to more than five times its 20-day average. Put options give investors the right to sell the underlying shares for a set price.
****SD: I wonder what the investor’s execution was like – that’s not a very liquid ETF. For some background on the fund – it switched from being focused on Latin American real estate to pot stocks at the end of 2017 – see this Bloomberg story. For general background on the weed stock sector, see this IHS Markit report.
Traders Ease Back on Short Yuan Bets to Gauge U.S.-China Dispute
Traders aren’t adding bearish options on the yuan as quickly as before, amid expectations China may take more steps to arrest the currency’s decline.
Cboe Global Markets President and COO Chris Concannon Welcomes Cboe RMC Europe 2018 Attendees
Matt Moran – Cboe Blog
Cboe Global Markets President and COO Chris Concannon opened the second day of the Cboe Risk Management Conference Europe reflecting on the market events of the last year, including volatility’s return to the market earlier in 2018, and looked at the opportunities and challenges that lie ahead.
****SD: Also from the Cboe Blog regarding the conference: Credit and Credit Volatility Discussed by Blackrock and Applied Academics at Cboe RMC and Are We Still in a Bull Market? – Address by Louis-Vincent Gave at Cboe RMC
The Real Lesson Of The Financial Crisis
Steven M. Sears – OCCAM
By now, a few hundred thousand words have been written to commemorate the anniversary of the most significant financial since the Great Crash of 1929. The failure of Lehman Brothers, once one of the world’s largest, most important investment banks, has been trotted around as some kind of warning to what just might await the proud and mighty. Essays have been written opining about this factor, or that risk, that contributed to the crisis. But almost nothing has been said, or written, about what is really needed: a way for investors to look inward, rather than outward, to better navigate whatever it is the market will throw at them.
INTL FCStone Markets Division launches new OTC interest rates swap products
INTL FCStone’s Chicago-based subsidiary, INTL FCStone Markets has expanded its OTC interest rates swap dealing capabilities to include cap and floor options on the London Interbank Offered Rate (LIBOR) with tenors out to 10 years.
The trillion-dollar ETF boom triggered by the financial crisis
Bryan Borzykowski – CNBC
It was a decade ago that Lehman Brothers collapsed, sending markets into tailspin and causing investors to wonder if their portfolios would ever recover. While everyone knew that things would change post-crisis, no one could have predicted then that, over the next 10 years, many investors would sell off their mutual funds and buy billions of passive, index-hugging investments.
****SD: And an ensuing boom in the volume of ETF options.
Maybe This Financial System Can’t Be Fixed
Cathy O’Neil – BloombergQuint
Ten years after a crisis that brought the world to the brink of Armageddon, the people overseeing the world’s largest economy insist they’ve reduced the risk of another financial disaster. Just one problem: We need a different financial system, not just better risk management.