Options Markets Stability Act passed; Short-Volatility Bets Boom
Financial Services Committee Unanimously Passes Hultgren’s Options Markets Stability Act
Congressman Randy Hultgren
Today, the House Committee on Financial Services unanimously passed H.R. 5749, the Options Markets Stability Act. The legislation authored by U.S. Rep. Randy Hultgren (IL-14) would facilitate liquidity in options markets by calling on bank regulators to provide targeted capital relief.
****SD: Woo hoo! Securities Lending Times on the issue here.
Short-Volatility Bets Boom as Hedge Funds Take Baton From Banks
Yakob Peterseil – Bloomberg
Fast money bets on muted price swings in debt, mutual funds; Option sales profitable as private-bank clients go long
The short-vol trade is dead. Long live the short-vol trade. Investors are discovering fresh ways to bet volatility across asset classes will tumble anew even as hawkish monetary policy, emerging-market turmoil and February’s vol-mageddon underscore headwinds to the complex trade.
****SD: Now if only there was an exchange traded note that easily let retailers get in on this…
Life After Zero Cost Trading
Vinit Sahni, Arkera – Tabb Forum
Zero cost trading is having a huge impact on the brokerage industry. In time, the model could precipitate full-blown panic across the investment management industry. So how can brokerages and banks differentiate themselves in the wake of zero cost trading?
‘Quadruple Witching’ to Drive S&P Volumes Into Expiration
Gregory Calderone – Bloomberg
Trading volume historically spikes on specific expirations; March, June, September and December push volumes higher
Thursday’s S&P volume dropped by 7 percent from Wednesday but investors should not expect that trend to continue, at least in the near-term.
Trump’s China Tariffs Met With Retaliation Vow From Beijing
Andrew Mayeda and Jenny Leonard
First set of tariffs to hit July 6, another round under review; Move will help U.S. achieve more balanced trade, Trump says
Sterling flash crash inquiry puts speed traders in the clear
Harry Wilson – The Times
It has been fashionable to blame any sudden market crash on the new breed of computerised high-speed traders, but the shock collapse in the value of the pound two years ago may have been caused by more traditional players. An examination of the financial data covering the 21 minutes on the evening of October 7, 2016, when sterling fell by 9 per cent or about GBP10 billion in seconds, found that investment trading desks, rather than high-frequency trading funds, were most likely to blame.
****SD: “City watchdog said mainstream dealers were largely responsible” – lol. ‘Mainstream Dealer Boys’ isn’t a very alluring book title…
Exchanges and Clearing
The EU Is Emerging as the New Sheriff for Global Financial Markets
Silla Brush and Viren Vaghela – Bloomberg
From its Chicago headquarters, CME Group Inc. offers options, swaps, and futures contracts designed to help investors mitigate the potential fallout from, say, a failed gold mine in Africa, a spike in Mexican interest rates, or an oil spill in the North Sea. Today the company itself faces growing risk from an unexpected quarter: Brussels.
****SD: Tell ’em Sunil!
SEC Has Removed ‘Stumbling Block’ for Ether Futures, Says Cboe President
Daniel Palmer – CoinDesk
Cboe Global Markets may now be close to launching an ether futures product, following a recent comment from a U.S. Securities and Exchange Commission (SEC) official indicating that the agency doesn’t consider ethereum’s native cryptocurrency a security.
Equity Index Highlights – June 2018 edition
The result of the Italian elections dominated the headlines in May and drove volatility substantially higher. However, more recently, markets have rebounded as new finance minister Giovanni Tria ruled out Italy’s exit from the Eurozone. Recurring geopolitical topics like the U.S.-North Korean diplomatic relations and escalating tensions over protectionism means market participants remain cautious. Expectations for the U.S. Federal Reserve to lift interest rates again is hitting several EM currency pairs and consequently, Eurex has seen a jump in MSCI EM Index Options hedging for May. Eurex is the only exchange offering both liquid MSCI EM Futures and Options in combination.
The first woman president of the NYSE would really rather not talk about her gender
Emily Stewart – Vox
“It wasn’t, for me, about breaking glass ceilings or breaking barriers; it was about accomplishing what I set out to accomplish.”
NSE in talks to get LIC money in derivatives market
Sumit Moitra – DNA India
For how long country’s big daddy of Indian equity market, Life Insurance Corp of India (LIC), will stay out of the derivative market? India’s premier bourse, National Stock Exchange (NSE) is in talks with LIC as well as insurance regulator and other major domestic institutions will start investing in derivatives markets. The objective of this is to raise depth at a time when Gujarat International Finance and Tech City (GIFT) is looking at ways to get popular and Singapore’s SGX is trying to enter the Indian markets.
CME Group Prices $1.2 Billion Aggregate Principal Amount of Senior Unsecured Notes
…CME Group intends to use the net proceeds from the offering, together with cash on hand, to finance the payment of the cash consideration due in respect of its previously announced proposed cash and share acquisition of NEX Group plc by CME Group and CME London Limited, a wholly-owned subsidiary of CME Group. CME Group still expects the NEX transaction to close in the second half of 2018.
Mark Viani Returns to CAPIS
John D’Antona Jr. – Traders Magazine
Former buysider, contributor to Traders Magazine and market veteran Mark Viani has returned to CAPIS, the Dallas-based agency-only brokerage in a new role as its Executive Director of Business Development.
****SD: He was “co-creator of the Cowen C.O.R.E payment for order flow option router designed to route option order flow to the best price and best payment for flow for broker and asset management customers.”
Regulation & Enforcement
Volcker ‘fix’ may cause new headaches for Wall Street
Pete Schroeder, Michelle Price – Reuters
A proposal to simplify a rule banning banks from proprietary trading, rather than making life easier for Wall Street, could ensnare billions of dollars’ worth of assets not currently caught by the regulation.
Italy court rules it cannot hear Morgan Stanley derivatives case
Domenico Lusi – Reuters
An Italian administrative court has ruled that it cannot hear a case over derivatives brought against Morgan Stanley (MS.N) that included a request for 2.7 billion euros ($3.1 billion) in damages from the U.S. investment bank.
Penalties for Naked Shorting Selling Too Light
Yoon Young-sil – BusinessKorea
Goldman Sachs could face up to 1 billion won (US$923,788) in fines if its naked short selling allegations prove true. The financial authorities said they would take stern measures against the Seoul branch of Goldman Sachs Group if it is found to have been engaged in the illegal practice. Yet the 1 billion won can hardly be said to be a heavy fine. The upper limit of the fines for an individual company is limited to 10 times of the fines per naked short selling transaction. Some say that this is nothing but a slap on the wrist.
Average Moves in Monthly Volatility
Sage Anderson – tastytrade blog
As amateur painters train and develop into masters, a good portion of their ability to improve comes with a better understanding of the tools they need to produce masterpieces.
Experimenting with a wide range of paints, brushes, and canvases ultimately helps a master like Vincent van Gogh select the precise instruments for a given project.
Smoother Returns and Less Severe Drawdowns with VIX Call Options and the VXTH Index
Matt Moran – Cboe Blog
Is there more interest in hedging and protecting portfolios in 2018? The May 31st Striking Price column in Barron’s noted — “Investors Return to Hedging in Volatile Times. Traders leery of sharp declines after a wild few months in the U.S. equity markets could spring for stock hedges through options. … This year, trade tensions and other geopolitical problems appear more likely to sway stocks, in sharp contrast to the placid markets of 2017. … “
Hedge Funds Cautiously Return to Italian Stocks
Laurence Fletcher – WSJ
Hedge funds have been among the most pessimistic investors on Italy. Now they’re beginning to tiptoe back in.
Funds had bet against Italy for several months before the country’s markets went into freefall in late May on concerns about its new antiestablishment government.
Italian shares and bonds have made a small recovery since, and hedge funds are among the early buyers.
Reason behind the recent bitcoin sell-off may have just been uncovered
Amanda Diaz – CNBC
It’s been hard out there for a bitcoin trader.
The cryptocurrency has plunged nearly 30 percent in the last month, and more than 50 percent this year. But Tom Lee of Fundstrat may have just uncovered the reason behind recent weakness ó or at least part of it.
In a recent note, Lee, the firm’s head of research, wrote that since the launch of Cboe bitcoin futures in December, prices have plunged leading up to expiration.