| October 03, 2022 | | | | | Jeff Bergstrom
Editor
John Lothian News | |
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| | | | Lead Stories | | | After a Brutal Quarter, Investors Wonder What Will Crack Next
Gunjan Banerji - WSJ
U.S. stocks and bonds just recorded one of their biggest tandem falls of the past century, tumbling for a third consecutive quarter and exposing weaknesses in a range of trades that suffered while interest rates rose.
Some, like technology stocks, were comparatively obvious. Others were more subtle, like the liability-driven investment strategy that caused losses for U.K. pensions. Now, investors - facing the prospect of even higher interest rates ahead - are wondering: What's next?
/jlne.ws/3V0yy5S
Crypto Volatility Creates Opportunity for Wall Street Traders
Justin Baer - WSJ
Wall Street is preparing for the next round of crypto volatility with tried and true tactics, according to brokers and analysts.
Leverage is building again among crypto investors. The market for bitcoin and other digital assets has swung wildly in 2022, pushing prominent crypto firms into bankruptcy. It has also made for the kind of conditions in which savvy, deep-pocketed traders can thrive.
/jlne.ws/3E8wX83
'Fear Is Contagious' as UK Crisis Boils Over Into Other Markets; Global market risk surged to highest level since March 2020; UK troubles show how quickly tensions over policy can erupt
Denitsa Tsekova - Bloomberg
The UK's rapid descent from stability to crisis is threatening to expose the fragility of global efforts to crush inflation, raising the specter of chaos spreading across financial markets. Volatility has surged to the highest level since March 2020 across currency and bond markets. Bank of America's global cross-asset market risk indicator also jumped to a level not seen since the start of the pandemic. Current and former government officials in the US warned about potential spillover.
/jlne.ws/3SBCxUX
FX Traders Relish Volatile Markets After Years in the Doldrums
Katherine Doherty, Maria Elena Vizcaino, and Mary Biekert - Bloomberg
Scary times in currency markets mean boom times for the bankers that companies turn to in order to manage foreign-exchange risk.
"Clients really need FX," said Carlos Fernandez-Aller, who oversees a team of more than 160 as head of FX and emerging-market macro trading at Bank of America Corp. "It has been up in activity which has been very lucky for us," and there's little sign that volumes are going to abate down any time soon, in his view.
/jlne.ws/3yzzDbx
Credit Suisse (CSGN) Stock Whipsaws as CEO Memo Backfires, Analysts Back Bank
Marion Halftermeyer and Myriam Balezou - Bloomberg
Credit Suisse Group AG shares briefly turned positive in a wild day of trading that saw them drop as much as 12% before climbing back to near where they closed last week.
The stock recovered late on Monday after several analysts published notes bolstering bank executives' arguments that the firm has ample capital and liquidity to weather the current uncertainty and market volatility. That's ahead of its second restructuring in as many years.
/jlne.ws/3rpClfo
Wild Moves in Credit Suisse's Default Swaps Cap Bank's Bad Day
Abhinav Ramnarayan and Laura Benitez - Bloomberg
Credit Suisse Group AG's wretched day in the capital markets resulted in huge distortions in the price of credit derivatives protecting against a default by the Swiss lender.
The rush to hedge against losses pushed credit default swaps on the bank to an all-time high on Monday, according to ICE Data Services. The troubled Swiss bank's CDS curve inverted as investors rushed to protect themselves against a near-term default within the next 12 months.
/jlne.ws/3rtHUcM
Tech stock shocks test concentration risk for ETF investors
Dave Baxter - Financial Times
Stock market falls amid fears of global recession, rising inflation and higher interest rates have made 2022 a miserable year for many investors.
And exchange traded funds skewed towards disruptive, high-growth companies have been particularly hard hit.
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| | | | | | Exchanges | | | How Exchange Fund Replication (EFR) Brings the Power of Options to Investors
Cboe
Exchange Fund Replication (EFR) is a strategy designed to achieve the diversification and capital-gains tax deferral of exchange fundsânot to be confused with exchange traded funds (ETFs) âwhile also providing greater liquidity, transparency, flexibility and tax efficiency.
EFR allows investors to diversify their concentrated stock positions by applying option strategies within a separately managed account (SMA). Although some investors, and even advisors, may automatically equate option strategies with risk and speculation, option strategies are more often used to precisely hedge and manage risk and taxes. For example, collar option strategies on individual securities are a tried-and-true method for managing portfolio risk, especially and more importantly, idiosyncratic risk.
/jlne.ws/3Mb1tQZ
| | | | | | Regulation & Enforcement | | | CME Group Proposes Direct Crypto Derivatives Trading to Regulators
Nicholas Otieno - Blockchain News
CME Group, a US-based financial derivatives exchange, has proposed to regulators its plan to offer derivatives trading directly to retail customers.
According to The Wall Street Journal's report on Saturday, CME Group filed paperwork to register as a so-called futures commission merchant (FCM).
/jlne.ws/3RzwKxI
SEC Charges Family Office Executives with Insider Trading
SEC
The Securities and Exchange Commission today filed insider trading charges against Charles Rustin "Rusty" Holzer, a former broker who now manages a New York-based family investment office, and Fernando Moraes, the Chief Operating Officer of that family office. The SEC's complaints allege that Holzer and Moraes traded in options of Dun & Bradstreet Corp. (NYSE: DNB) based on material nonpublic information ahead of the company's August 8, 2018 announcement that it had agreed to be acquired by a private investor group at a price of $145 per share pursuant to an offer made approximately a month earlier. The SEC further alleges that Holzer and Moraes tipped two other traders who also traded ahead of the announcement.
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ISDA Responds to ESMA on Clearing and Derivative Trading Obligations in View of 2022 Benchmark Transition Status
International Swaps and Derivatives Association, Inc.
ISDA members are overall supportive of ESMA's consultation on adapting the derivatives clearing obligation (CO) in the context of the on-going interest rate benchmark reform. We also welcome that this consultation allows us to feed into the process again. ISDA members acknowledge the benefits of central clearing, as demonstrated by the current clearing rates for risk free reference rate (RFR) swaps. We believe that introducing a CO for these products could be a helpful tool for avoiding liquidity fragmentation.
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FIA, ISDA respond to ESMA call for evidence on pre-hedging
FIA
FIA and the International Swaps and Derivatives Association have jointly responded to a European Securities and Markets Authority call for evidence on pre-hedging activities. FIA and ISDA offered comments on ESMA's proposed definition for pre-hedging, how to distinguish it from hedging, the relationship with MiFID and MAR including legitimate and illegitimate indicators, the treatment of RFQs and more.
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| | | | | | Moves | | | ICE Names Caterina Caramaschi as Head of Combined Global Interest Rates and Equity Derivatives Product Portfolio
ICE.
Intercontinental Exchange, Inc. (NYSE: ICE), a leading global provider of data, technology, and market infrastructure, and home to the most liquid markets for trading FTSE , MSCI and multi-currency European interest rate derivatives, today named Caterina Caramaschi as head of a combined portfolio covering ICE's global interest rates and equity derivatives futures and options. Caramaschi, who becomes Vice President, Financial Derivatives, has worked at ICE and formerly LIFFE, for 21 years. She has held the role of ICE's Global Head of Equity Derivatives since December 2020. "Caterina demonstrates many of the qualities which differentiates leaders at ICE across teamwork, collaboration, and being focused on solving our customers' problems, no matter how complex, every single day," said Trabue Bland, SVP, Futures Exchanges at ICE.
/jlne.ws/3frBzvK
| | | | | | Strategy | | | Wall Street Just Completed This Mirror-Image Selloff
Nasdaq
Since the beginning of September, the major focus of this commentary from week to week has been how the options market could exacerbate selling into September's end. Going into the month of September, the market's technical backdrop had been weakening, and major option expirations were approaching, seriously amplifying market risk. The idea was that the market weakness could snowball into a sharp decline, driven in part by option-related selling, much like we saw in June 2022.
/jlne.ws/3Sy2Mf7
British Pound (GBPUSD) Hedges Become Most Expensive Since Brexit as Fears Grow
Ruth Carson and David Finnerty - Bloomberg
The pound has bounced back from a record low but the worst may be yet to come.
Three-month pound-dollar risk reversals, which measure the premium of hedging against a drop in sterling, jumped to the highest since the June 2016 Brexit vote on Friday, signaling traders anticipate further losses. The UK currency slid as much as 0.8% Monday, and options show there's a 24% chance it will decline to parity by year-end.
/jlne.ws/3fECCbZ
Buffer Strategies on the Nasdaq-100 Index
Nasdaq
The historical performance of Zero-Cost Buffer strategies range significantly based on an investor's desired downside protection. The simplest approach to implement a Zero-Cost Buffer consists of the following three-leg structure:
/jlne.ws/3STGYdG
| | | | | | Events | | | The Options Industry Council (OIC) Proudly Supports World Investor Week 2022
The Options Industry Council (OIC)
World Investor Week (WIW) is a week-long, global campaign promoted by the International Organization of Securities Commissions (IOSCO) to raise awareness about the importance of investor education and financial protection.
Starting October 3, OCC and The Options Industry Council (OIC)SM will join organizations across the globe in support of this important initiative. Check out the World Investor Week website for details on events and other ways to get involved.
/jlne.ws/3fCMeUu
| | | | | | Miscellaneous | | | Cboe's Tim Carey Suits Up to Fight Domestic Violence
Cboe
Tim Carey never considered himself a runner.
"I wasn't fast, so I thought I was bad at it," says Tim, Project Manager. "I later realized running is something you get better at the more you do it. It also turns out I'm not a sprinter, but I'm a great distance runner."
In the last 10 years, Tim has run 12 marathons. He ran his twelfth in Berlin in September and is preparing to run his thirteenth in Chicago on October 9. This time, in honor of his friend Jenny.
/jlne.ws/3Een60K
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| | | | John Lothian News (JLN) is the news division of John J. Lothian & Company, Inc. (JJLCO). The online media and financial services firm is staffed by derivatives industry, journalism and technology professionals. | | | | | | | John Lothian News Editorial Staff: | | | John Lothian
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| | | Jeff Bergstrom
Editor
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