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Virtu Is Pursuing ITG Takeover; Speculative Hedge Fund Bets

Lead Stories

Virtu Is Pursuing Takeover of Investment Technology Group
Nick Baker and Annie Massa – Bloomberg (SUBSCRIPTION)
Companies have been holding recent discussions about a deal; Potential transaction would follow Virtu’s purchase of KCG
High-speed trading firm Virtu Financial Inc. is seeking to acquire independent brokerage Investment Technology Group Inc. as pressure mounts for proprietary traders to branch out.
/jlne.ws/2Qt0n4M

****SD: Wow. The consolidation trend marches on (potentially).

Volatility likely to reach capital markets eventually, experts say
Charles Tomlinson – SmartBrief
Capital markets haven’t shown much of a response to economic volatility, but that is likely to change, panelists at the SIFMA Annual Meeting in Washington, D.C., said on Tuesday.
“We’re in this really weird environment of low volatility around capital markets but high volatility around expected outcomes,” said Katherine Nixon, executive vice president and chief investment officer at Northern Trust.
/jlne.ws/2zRevPW

****SD: How timely – the VIX jumped the most in eight months today.

Hedge funds are making historic market bets similar to dotcom bubble
Akin Oyedele – Business Insider Prime (SUBSCRIPTION)
The sheer size and prominence of hedge funds make their activity hard to ignore.
After Societe Generale’s latest dive into speculative bets, the conclusion was that funds have become too exuberant. In fact, the extent of their wagers across the equity, rates, and commodity markets “bear a worrying resemblance to the dotcom bubble,” according to a team of strategists including Arthur Van Slooten.
/jlne.ws/2OEhSSg

****SD: Hedge funds are net sellers of volatility, eh? How’s the blood pressure doing today on those trading desks? (The answer is probably, “Hey, at least it’s not February.”)

Anxiety Starts to Grow in Junk-Bond Market; Money pulled from high-yield-credit ETF at fastest pace since 2016 as investors hedge with options
Gunjan Banerji – WSJ (SUBSCRIPTION)
Investors are getting antsy about the junk-bond market.
They pulled money out of the biggest exchange-traded fund that bets on high-yield credit during September at the fastest pace in almost 2½ years. And some investors are snapping up protection, buying options contracts that would help them offset losses if junk debt sells off.
/jlne.ws/2OvGT2j

****SD: In 2018, the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has traded in a $3 range. According to Trade Alert the biggest positions in HYG would be in-the-money after a five percent drop – so a pretty hefty move given its recent price action.

Brace for volatility if little Brexit progress by November: Irish central bank
Reuters
European regulators need to be braced for financial market volatility if very clear progress is not evident in Brexit negotiations by November, Irish Central Bank Governor Philip Lane said on Thursday.
/goo.gl/WVzc8k

****SD: Another headline could read, “Brace for volatility as our venerable central banking colleagues pull the QE rug out from under global markets.” Also from Reuters – Nissan, RBS join chorus of warnings over disorderly Brexit. More Brexit content in our “Regulation” section.

Who killed the kernel?
Denver Currie, Product Manager – Vela
High performance algorithmic trading involves sophisticated software and hardware components operating in harmony to effectively accomplish market operations. Traders are continually seeking faster market data and order execution services with lower slippage to more accurately qualify their orders. As volumes continue to rise, firms are faced with increasing levels of throughput while still needing to maintain their current or even lower latency targets in order to stay competitive.
/jlne.ws/2Rpjhed

****SD: Popcorn poppers? Or maybe Professor Plum?

Exchanges and Clearing

CISOs face third-party risk management challenges
Steve Zurier – TechTarget
The Options Clearing Corp. in Chicago runs one of the largest equity and derivatives clearinghouses in the world.
Major trades don’t get finalized until they have been cleared by the OCC. So the company’s fundamental purpose depends on creating secure relationships between all the parties in a trade.
With so much riding on the security of the OCC’s IT systems, maintaining third-party risk management and strong relationships to prevent bad actors from sneaking in and stealing important financial data has become more important than ever.
/jlne.ws/2P8xhr3

****SD: OCC has done a heckuva job getting the word out about the necessity of heightened cybersecurity awareness. Related story from TechTarget – Cloud-first? User and entity behavior analytics takes flight

Nodal Exchange And IncubEx Set Launch Date For North American Environmental Products
Mondovisione
Nodal Exchange and IncubEx are pleased to announce the launch of their first tranche of North American Environmental products, which is planned for November 16, 2018, pending regulatory review.
/jlne.ws/2OyNDMR

Regulation & Enforcement

Traders Are So Scared of Regulators They’ve Even Quit Swearing
Lananh Nguyen and Charlotte Ryan – Bloomberg (SUBSCRIPTION)
Swearing, sending news articles draw red flags from compliance; Banks are acting like Big Brother after billions in penalties
https://goo.gl/348Hf8
****SD: This might be the worst f****** unintended consequence of regulation I’ve ever heard.

EU watchdog seeks to avert Brexit disorder in euro clearing
Huw Jones – Reuters
European Union banks should be allowed to continue using British clearing houses for derivatives transactions even under a no-deal Brexit, a top EU regulator said on Wednesday, in an effort to quell rising concern in markets.
/goo.gl/bPSKGo

****SD: Am I pessimistic or realistic if my first thought was “fat chance of avoiding disorder”? From Risk.net – EU clients face axe from UK CCPs

CFTC And ASIC Sign FinTech Cooperation Arrangement
CFTC
The U.S. Commodity Futures Trading Commission (CFTC) and the Australian Securities and Investments Commission (ASIC) today signed an arrangement to cooperate and support innovation through each other’s financial technology (FinTech) initiatives – CFTC’s LabCFTC and ASIC’s Innovation Hub.
/goo.gl/GLqt6Y

Technology

TD Ameritrade Launches AI-Powered Educational Platform
Aziz Abdel-Qader – Finance Magnates
US-based brokerage firm TD Ameritrade, a broker-dealer subsidiary of TD ?Ameritrade Holding Corporation?,?? has beefed up its offering for tech savvy ?investors, announcing the introduction of a new AI-powered content platform that automatically organizes, categorize, and optimizes content based on clients’ behavior.
/jlne.ws/2Rp7qg5

Strategy

You Should Worry More About Italy’s Bond Market
James Mackintosh – WSJ (SUBSCRIPTION)
The Italian bond market has a whiff of panic about it, while the rest of Europe has remained remarkably calm. This makes little sense, and is unlikely to last.
/jlne.ws/2RrJ5pZ

Traders bet on oil at $100 as Iran sanctions loom
Devika Krishna Kumar, Amanda Cooper – Reuters
Oil traders have piled into wagers that U.S. crude oil could surge to $100 a barrel by next year, a milestone that until recently many considered unthinkable due to record U.S. production growth and relatively flat global demand.
But the imminent return of U.S. sanctions on Iran and bottlenecks keeping U.S. oil from getting to market have fueled a rally that has taken benchmark oil prices to four-year highs.
/jlne.ws/2OC9Dq5

Rare Options Signal Sounds During Small-Cap Sell-Off
Karee Venema – Schaeffer’s Investment Research
The iShares Russell 2000 ETF (IWM) took a quick bounce off its 200-day moving average back in early April, and has since added 12% to trade at $164.98. More recently, the shares of the small-cap tracker spent September retreating from record-high territory, and while a recent options signal suggests IWM could rebound sharply in the short term, it also points to notable long-term underperformance.
/jlne.ws/2QwKlXP

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Graduate of University of Minnesota School of Journalism and Mass Communication