| October 26, 2018 | | | |  | Spencer Doar
Editor
John Lothian News | |
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| | | | Observations & Insight | | | 
Are Lessons from the Financial Crisis Being Heeded? With OCC's John Davidson
JohnLothianNews.com
"Forgetting the lessons of the past - not focusing on fat tails, not focusing on liquidity - is going to lead us down a primrose path that actually has a big pothole in the middle of it."
No financial crisis is the same, but they often share common themes. In this video, OCC President and COO John Davidson talks about what lessons he took away from 2008 and what might still get markets into trouble.
Watch the video and read the rest »
| | | | | | Lead Stories | | | Strong Treasury bid, well-hedged investors behind staid VIX: analysts
Saqib Iqbal Ahmed - Reuters
A muted response by Wall Street's main gauge of investor fear to the drubbing U.S. stocks took earlier this week has left many investors wondering if the VIX index .VIX was caught napping.
Market participants say that a healthy level of hedging activity going into the sell-off and the recent upward bid for Treasury prices explains the volatility index's relative calm.
/reut.rs/2D60nVN
****SD: RCM Alternatives has a take on different VIX responses to turbulence that uses the many faces of Jim Carrey - VIX: Not All 1,000 pt drops are the same
Risk.net podcast: OCC's Fennell on Nasdaq breach, crypto and 'skin in the game'
Dan DeFrancesco - Risk.net
One of the last large clearing houses holding out against contributing to its default fund has had a change of heart.
John Fennell, chief risk officer at the Options Clearing Corporation, says the Chicago-based central counterparty (CCP) is "seriously considering" chipping in to its own default fund.
"We do have our own capital up to absorb operational risks, but we are also in the process of considering whether or not there is a sufficient portion of the default pool that the CCP should put up as skin in the game," says Fennell. "It is something that we are seriously considering."
bit.ly/2O8fJu4
A Listless VIX Says This Sell-Off Reeks of 'Dumb Money'
Luke Kawa - Bloomberg (SUBSCRIPTION)
Stocks are chaotic. The reaction in markets for equity volatility is anything but.
Pravit Chintawongvanich, equity derivatives strategist at Wells Fargo Securities, flags that measures of short- and longer-term protection against haywire markets are showing no signs of overreacting. Those include the Cboe Volatility Index, which rises and falls along with demand for options.
"The dumb money is saying the economy is headed south," he said. "The smart money says, 'This too shall pass.'"
/bloom.bg/2D5MWVP
****SD: If there's enough dumb money in play does it matter what the smart money thinks?
What Is Bill Gross's Bond Fund Even Betting on Anymore?; Its negative duration and equity-related holdings have been a toxic combination.
Brian Chappatta - Bloomberg (SUBSCRIPTION)
When is a self-described "bond fund" no longer a bond fund?
That's my question after looking at the recent performance of Bill Gross's Janus Henderson Global Unconstrained Bond Fund, which saw its net asset value drop on Wednesday to match its lowest level ever. The kicker, of course, is that the latest bout of stock-market volatility has been great for fixed-income investors as a whole. On Oct. 11, the Bloomberg Barclays U.S. Aggregate Bond Index gained the most since late May. It's currently on a three-day win streak.
/bloom.bg/2D3Fuuv
****SD: He was too busy booby trapping property with fart spray during his nightmarish divorce. For a deeper look at the bitterness, see Town and Country's The War of The Grosses: Inside the Bitter Divorce Battle of the Laguna Beach "Bond King"
Technical Correction? Here's Why That May Be Bad News for Stocks
Lu Wang - Bloomberg (SUBSCRIPTION)
As tempting as it may be to chase the bounce, investors should resist the urge, warned some of Wall Street's most widely followed analysts who use price charts to predict the stock market's direction.
From options trading to breadth, indications of panic that usually exhaust sellers have been largely missing during this month's sell-off. That's a sign to Chris Verrone, head of technical analysis at Strategas Research Partners, that the worst is yet to come.
/bloom.bg/2D8zxMX
****SD: Overall context from Reuters - World stocks head for worst losing streak in over half a decade
Here's How 'Investors' Used 'Passive' ETFs During This Week's Nasdaq Crash
Heisenberg Report
Earlier this month, following the October 10/11 drawdown, Goldman decided to take a look at whether investors were turning to ETFs and ETF options for liquidity and index hedging, respectively, during the rout and the answer was a resounding "yes".
bit.ly/2O9Id6H
****SD: Included more for the content from the Goldman note than the commentary.
Soothing words from Fed as rate hits ceiling for first time
Jonathan Spicer - Reuters
Federal Reserve officials have tried this week to ease concerns on Wall Street that bank reserves are growing scarce and that the Fed's key rate will edge up above a policy range, possibly forcing it to permanently hold more assets than planned.
Thursday marked the third straight day in which the federal funds policy rate traded at its effective ceiling of 2.20 percent. Before this week, the policy rate had approached but never landed on the rate the Fed pays banks on excess reserves (IOER), activated in 2015 to keep the policy rate contained.
/reut.rs/2D521XD
Do Alternative Asset Managers Have a Tipping Point?
Chris Schelling - Institutional Investor
Back in the 1990's, while conducting research for University College London, a middle-aged British anthropologist named Robin Dunbar began to notice an interesting connection between primate brain size and the size of the social groups they formed.
bit.ly/2OaoMuB
****SD: "Through trial and error, the leadership in the company discovered that if more than 150 employees were working together in one building, personnel disputes and disagreements would invariably soar."
| | | | | | Exchanges and Clearing | | | SEC roundtable on market data fees gets heated.
Daren Fonda - Barron's (SUBSCRIPTION)
Roundtable discussions held by the Securities and Exchange Commission tend to be dull affairs. But things got heated on Thursday during a roundtable held on fees charged by stock exchanges for access to market data feeds.
Broker dealers, banks, and trading firms want the SEC to clamp down on fees for data: things like quotes, bid-ask spreads and depth of book, revealing how much buyer or seller interest is in a stock. The big three exchange companies, Intercontinental Exchange (ticker: ICE), Nasdaq (NDAQ) and CBOE Global Markets (CBOE) charge for that data, along with physical proximity to their computers, which is critical to accessing market data as fast as possible (down to a few millionths of a second).
bit.ly/2D7a4mK
****JB: Financial Times' take on the same story here and The Wall Street Journal here. All are subscription sites so hopefully you can view one of them.
****SD: And due to this story's multifaceted nature, we have more on the meeting in our tech and regulation sections.
HKEX: New Initiatives On Equity Index Options In The After-Hours Trading (T+1) Session
HKEX
Reference is made to the circular dated 7 February 2018 (Ref: MO/DT/026/18) and 17 April 2018 (Ref: MO/DT/075/18). Following the positive market feedback received after the inclusion of three equity index options, including Hang Seng Index (HSI) Options, Hang Seng China Enterprises Index (HHI) Options, Mini-Hang Seng Index (MHI) Options in the After-Hours Trading (T+1) Session on 14 May 2018, the Exchange is pleased to announce the inclusion of Mini-Hang Seng China Enterprises Index (MCH) Options and the following initiatives in the T+1 Session in order to maintain market quality.
/goo.gl/wu8v8B
Traders clash at London Metal Exchange over golden speed bump
Samuel Agini - Financial News
ome of the world's fastest trading firms have called on regulators to review the London Metal Exchange's plans to introduce an intentional trading delay on its venue for precious metals.
The call by the super-fast traders escalates a broader row over the role of delays  known as speed bumps  on exchanges.
bit.ly/2qaybbE
| | | | | | Regulation & Enforcement | | | FCA chief: We are ready for no-deal Brexit
John Brazier - The Trade
The chief executive of the Financial Conduct Authority (FCA) has asserted that the UK regulator is ready to handle a "hard" or "no-deal" Brexit
bit.ly/2OdnDm0
****SD: Are they, though? As Mike Tyson said, "Everybody has a plan 'til they get punched in the mouth."
Statement at The Roundtable On Market Data And Market Access, SEC Commissioner Elad L. Roisman, Oct. 25, 2018
Mondovisione
Thank you, Brett and the Division of Trading and Markets staff, for organizing this roundtable. Further thanks go to the panelists for contributing your time and energy in preparing for and attending this event. Looking at the agenda and at those seated around the room, it is clear that we have very knowledgeable participants who will not hesitate to engage in robust discussions over the next two days.
bit.ly/2O8tLf2
Opening Statement At The SEC Staff Roundtable On Market Data And Market Access
Mondovisione
Good morning. Welcome to our roundtable on market data and market access. We very much appreciate the willingness of such a thoughtful and diverse representation of market participants to join us here today so that, together, we can address this important and challenging set of issues. I am confident that the discussions we will have over the next two days will allow all of us to consider, in a rigorous and comprehensive way, how we might bring greater transparency and clarity to our critical market data and connectivity infrastructure.
bit.ly/2O8bDlG
ISDA and FIA weigh in on proposed Volcker Rule changes
Brad Rosen, J.D. - Jim Hamilton's World of Securities Regulation
The International Swaps Dealer Association (ISDA) and the Futures Industry Association (FIA) were two of 60 interested parties that recently submitted comment letters in response to proposed amendments published earlier this year by the SEC, the CFTC, and banking regulators (the "Volcker Agencies") that would modify the language of the Volcker Rule's prohibition on many forms of proprietary trading. ISDA's comments centered around the theme that that the Volcker Rule should be revised to focus on its core purposeÂprohibiting short-term speculative proprietary trading.
bit.ly/2OaVyvs
FASB Adds SOFR to List of Approved Rates For Hedge Accounting - CFO Journal
Tatyana Shumsky - WSJ (SUBSCRIPTION)
The Financial Accounting Standards Board on Thursday expanded the list of U.S. benchmark interest rates permitted for the application of hedge accounting.
/on.wsj.com/2OdzKiY
| | | | | | Technology | | | Battlefield: Data
Terry Flanagan - MarketsMedia
Is SIP data a useful entry-level product or is it woebegone and antiquated?
That was a topic for debate yesterday in the latest battle in what is possibly the longest-running war on Wall Street: the market-data war. The setting was Day 1 of the two-day Roundtable on Market Data and Market Access, hosted by the U.S. Securities and Exchange Commission.
bit.ly/2O94wJI
****SD: I'll tell ya what, Battlefield Data has been way more entertaining thus far than "Battlefield Earth." (That film, if it can even be called such, sports a hilariously bad 3% rating on Rotten Tomatoes.)
Leave ordinary investors out of the high-speed data battle
James Angel - TheHill
Wall Street firms and stock exchanges have been feuding for over a century over the price and quote data that fuel the markets: Who owns it, how much should it cost and what is the role of government in regulating it?
bit.ly/2O9ADsL
****SD: This opinion piece (obviously) is on "the SIP is just fine" side of the debate.
CUSIP Global Services Improves Transparency in Futures Markets; Partnership with Euromoney TRADEDATA Brings North American Exchanges' Options on Futures Products into CUSIP Numbering System
CUSIP Global Services
CUSIP Global Services (CGS) today announced the expansion of its CUSIP Options service to now include futures and options on futures for the North American market. The expansion was made possible through an extension of the CGS 2009 partnership with Euromoney TRADEDATA, a financial information provider specializing in futures and options products. Building on the partnership, CGS will now also assign CUSIPs and CGS ISINs to all standard options on standard futures listed by the major North American exchanges.
/prn.to/2qeW2qV
ADM and other top grain traders partner to digitize global trades
Seeking Alpha
Archer Daniels Midland (NYSE:ADM), Bunge (NYSE:BG), Cargill and Louis Dreyfus say they will work together to standardize and digitize international grain trades using technologies such as blockchain and artificial intelligence, in an effort to replace a system that relies on paper contracts and invoices and manual payments with an automated electronic system.
bit.ly/2O8fFKQ
The Economic Value of Artificial Intelligence
Irving Wladawsky-Berger - WSJ (SUBSCRIPTION)
Companies slow to adopt AI-based productivity improvements be warned: Artificial intelligence is the biggest commercial opportunity for companies, industries and nations over the next few decades, according to a recent report from PwC. AI advances will increase global GDP by up to 14% between now and 2030, the equivalent of an additional $15.7 trillion contribution to the world's economy.
/on.wsj.com/2O5Dl2d
| | | | | | Strategy | | | When Markets Fall, Pay Attention to Implied Volatilities
Zacks via Nasdaq
We speak all the time about implied volatilities in options, mostly with the intention of designing trades that allow us to purchase options that are relatively cheap and sell those that are relatively expensive, tipping the odds in our favor.
/goo.gl/VUbvBt
Forget About Zuckerberg and Cook Bailing Us Out: Taking Stock
Arie Shapira - Bloomberg (SUBSCRIPTION)
50 handles here, 85 handles there.
Volatility appears here to stay, from the every-other-minute jolt in the S&P 500 to the VIX brushing up against ~25 for several days on end and the 10-year whipping around 5-10 bps a day like it's nothing.
And now we get a grab bag of brutal tech earnings that'll send things spinning again, as corroborated by the near 4 percent drop in the QQQS and the ~2 percent pullback in the SPY.
/bloom.bg/2D4UpVh
****SD: "Siri, make the market go up."
Mr. Market's Rorschach Test
Steve Sears - OCCAM (SUBSCRIPTION)
The stock market has become a giant Rorschach test. What you think you see says more about you than it does about the market. If you are bearish, the erratic trading action likely has you preparing for the apocalypse. Should you be bullish, you probably think the market is oversold and you see opportunities everywhere.
bit.ly/2O9gyme
| | | | | | Miscellaneous | | | FIA joins Industry Associations on Cyber Risk Programs
FIA
In response to a survey of chief information security officers from financial institutions that indicated nearly 40% of their time was spent on compliance and reconciling competing, duplicative, redundant, and inefficient cybersecurity supervisory examinations, the Financial Services Sector Coordinating Council (FSSCC) led a group of financial trade associations today in unveiling a new Cybersecurity Profile.
bit.ly/2O9dYN4
Fear, greed and 'incredible certitude' in financial news
Patrick Commins - Australian Financial Review
Sydney and Melbourne house values are falling $1000 a week. Did that get your attention? I bet it did. It got mine when it flashed on the TV screen at work, triggering my monkey brain straight away.
That initial reaction (sell!) was, as Nobel laureate Daniel Kahnemann wrote, first-level thinking.
But on reflection, you have to wonder what exactly is the purpose of this statistic - and what do you do with it?
Context can help. A quick Google search replacing "falling" with "rising" and you only need to go back six months to get this headline: "House prices in Western Sydney increased by up to $2000 a day".
bit.ly/2O9nCz8
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