| July 05, 2017 | | | |  | Spencer Doar
Associate Editor
John Lothian News | |
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| | | | Observations & Insight | | | June 2017 Options Exchange Marketshare via OCC
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OCC Cleared Contract Volume Up Two Percent in June
OCC
OCC, the world's largest equity derivatives clearing organization, announced today that cleared contract volume in June reached 387,597,223 contracts, a two percent increase from the June 2016 volume of 378,908,938 contracts. OCC's year-to-date average daily cleared contract volume was also up two percent from 2016 with 17,174,603 contracts. Cleared futures volume was up 16 percent in June with 13,194,530 contracts, and securities lending CCP activity was up 27 percent over June 2016 with 1,142,708 new loan transactions.
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Dodd-Frank showdown in the Windy City
Brad Rosen, J.D. - Jim Hamilton's World of Securities Regulation
The opponents of Title VII of the Dodd-Frank legislation, those reforms that brought sweeping changes to the derivatives and swaps industry, came out with guns a-blazing at the recent John Lothian News/FOW conference in downtown Chicago. Over 200 participants representing CTAs, hedge funds, proprietary trading firms, and other trading industry players attended the event, exploring a wide range of regulatory and technology issues facing the trading community during the course of the day.
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****SD: Recap of part of our event last week in case you didn't make it out.
| | | | | | Lead Stories | | | OCC chief Donohue latest to warn over Basel rules
Luke Jeffs - FOW
The head of US derivatives clearing firm OCC has become the latest to add his voice to the growing chorus of opposition to the Basel Committee's proposed capital charges, arguing they will impact liquidity which could jeopardise the integrity of the market.
Craig Donohue, executive chairman and chief executive officer of Chicago-based OCC, the US equity derivatives clearing firm, said the various Basel II capital reforms, set to take effect internationally in stages over the next two years, are poorly drafted.
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****SD: This issue came up during the options market structure panel at Trading Chicago last week. The math doesn't make sense. Saying "poorly drafted" is rather diplomatic from what I understand.
Does a 263% Profit Mean Markets Are Efficient?
James Mackintosh - WSJ
Some dates deserve a place in market history. Black Monday 1987 and Black Thursday 1929 occurred before the VIX fear gauge was created, but the volatility index's three biggest intraday rises also resonate: August 2015's China fears. May 2010's flash crash. February 2007's subprime concerns mixed with another China panic.
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What History Says About Low Volatility
Aaron Brown - Bloomberg
For all that's being said and written about the lack of volatility in financial markets these days, you might think something unusual is going on. In fact, history suggests it's the opposite.
The pattern is pretty clear when one considers realized 30-day volatility for the S&P 500 Index on an annualized basis going back to 1927. Every five years or so volatility rises above 20 percent for a year or two, sometimes getting much higher but usually not, and in between it sweeps out a shallow bowl-like trading pattern that bottoms at about 10 percent. That seems to be exactly what is happening now.
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****SD: Takeaway = "The moral? History shows that crises occur when the VIX and realized volatility are above 20 percent, and investors typically get warned months in advance of what the headlines refer to as 'shocks.'"
War or Recession Might Be Needed to Break Low-Vol, Goldman Says
Will Davies - Bloomberg
It'll take more than central bank tightening to shake volatility from its yearlong slumber, according to Goldman Sachs Group Inc. A large shock such as recession or war is usually required.
That's generally been the case for the 14 similar low volatility "regimes" since 1928, at least in equity markets, Goldman Sachs strategists Christian Mueller-Glissmann and Alessio Rizzi said. These periods on average lasted nearly two years, featured short-lived spikes and realized S&P 500 volatility was usually at or below 10.
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****JB: Careful what you wish for. You just might get it.
*****SD: Could we get a third option?
Fleeting U.S. stock market falls unlikely to derail volatility selling
Saqib Iqbal Ahmed - Reuters
Thursday's sharp drop in U.S. stock prices highlights the risks taken on by investors who continue to bet that market volatility will remain subdued, but these kinds of shocks to the system, experts say, are unlikely to deter them from a very profitable trade.
Friday's recovery in stock prices limited the damage for investors who have bet against rising volatility.
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Traders Brace for Comeback of Volatility
Cecile Vannucci - Bloomberg
As a much-vaunted Trump reflation trade fizzled and the U.S. president found himself embroiled in controversy, the big market surprise in the first half was that volatility actually fell.
Traders who shorted the VIX saw their bets pay off as the gauge plunged 20 percent, taking its quarterly average to the lowest level since 2006. The question is, how long can it last?
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****SD: Bloomberg also has a recent primer in case you're feeling sluggish after the holiday weekend  Why Traders Are Worrying About Low Volatility
Let's Take The Pulse Of Volatility As Geopolitical Risk Rears Its Ugly Head
Seeking Alpha
Given the rather (how should I put this?) "unfortunate" headlines emanating from the Korean peninsula on July 4, it's probably worth penning a quick update on volatility, because as Goldman was kind enough to point out in a note dated Monday, "breaking out of a low volatility regime usually requires a large shock, for example a war."
While I won't endeavor to opine on the likelihood of an armed conflict (at least not in these pages), I will weigh in briefly on where things stand in terms of the market's "fear" gauges.
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****SD: Also, Heisenberg has most recent Goldman note here.
Ag producers say financials stronger than 2016; predict missed financial targets in 2017
CME Group
U.S. agricultural producers indicated their farm operations' financial positions are stronger than at this time in 2016, but expressed concerns that they might not meet their 2017 financial targets, according to a monthly producer survey conducted as part of the Purdue University/CME Group Ag Economy Barometer.
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| | | | | | Exchanges and Clearing | | | Glitch causes prices of Apple, Google, other stocks to appear off
John McCrank - Reuters
The prices of several big-name Nasdaq-listed (NDAQ.O) stocks appeared on some websites to either spike or plummet well after the closing bell on Monday, seemingly due to a glitch related to the market data that runs the largely automated markets.
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****SD: Bloomberg has Nasdaq Stocks Show Wild Swings; Exchange Cites Third Parties. "'I'm surprised it doesn't happen more often,' considering the complexity of today's financial markets, said James Angel, a finance professor at Georgetown University in Washington."
CME Group Reached Average Daily Volume of 16.5 Million Contracts in Second-Quarter 2017, up 7 Percent from Second-Quarter 2016
CME Group
CME Group, the world's leading and most diverse derivatives marketplace, today announced that second-quarter 2017 average daily volume (ADV) reached 16.5 million contracts, up 7 percent from second-quarter 2016. CME Group second-quarter 2017 options volume averaged 3.6 million contracts per day, up 21 percent versus second-quarter 2016, with electronic options averaging 2.2 million contracts per day, up 30 percent over the same period last year. Second-quarter 2017 Interest Rate options and Energy options average daily volume grew 37 percent and 22 percent, respectively. Open interest at the end of June was 113 million contracts, up 7 percent from the end-of-June 2016.
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Eurex plans Q4 launch for electronic RFQ service
Helen Bartholomew - Reuters
Eurex plans to launch a new electronic price discovery service during the fourth quarter for derivatives trading, enabling clients that arrange large blocks off-exchange to comply with best execution and transparency requirements under MiFID II.
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Eurex unlocks new hedging tools
Hedgeweek
Following the launch of futures and options on the popular MSCI EAFE index that represents the developed markets of Europe, Australasia and the Far East, Eurex has become the only exchange that offers futures and options on all major MSCI indexes.
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Intercontinental Exchange Acquires Remaining Stake in ICE Endex from N.V. Nederlandse Gasunie
Intercontinental Exchange
Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today announced that ICE Endex is now a fully owned subsidiary of ICE, following the acquisition of the remaining 20% stake of ICE Endex shares from N.V. Nederlandse Gasunie. The transaction terms were not disclosed and are immaterial to financial results.
In addition, ICE and Gasunie have signed a Memorandum of Understanding (MOU) which sets out the basis for further cooperation between the two parties in relation to the operation of the Dutch gas and power markets following ICE's acquisition of the Gasunie Shares.
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| | | | | | Regulation & Enforcement | | | Trading Technologies appeals legal decision in patent infringement case against Interactive Brokers, TradeStation
FinanceFeeds
The area of electronic trading is as challenging with regard to patents as any other business area. A piece of proof for this comes from a raft of legal actions surrounding Patent No. 7,533,056 B2, or the so-called '056 patent owned by Trading Technologies International, Inc.
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| | | | | | Technology | | | Equinix Opens State-of-the-Art Data Center in Amsterdam
PRNewswire - Benzinga
Equinix, Inc., the global interconnection and data center company, today announced the opening of its new International Business Exchange (IBX) data center in Amsterdam at its Science Park campus. The $113M facility, called AM4, supports the increasing demand for interconnection capacity to accelerate business performance.
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| | | | | | Strategy | | | Predicting Market Tops and Bottoms is a Loser's Game
Bob Lang - CBOE
As the markets continue to move higher amid low volatility, we hear the constant chatter of market tops. Naturally, these predictions rarely come with any date applied, setting up these foolish prognostications to be right 'at some point in the future', just like how a broken clock is right twice a day. For investors, these predictions of impending loss and perhaps doom are useless and random, not based in fact or reason.
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Low Vix Does Not Boost High Sigma S&P 500 Drawdown Chance
Rupert Hargreaves - ValueWalk
After an extended period of low volatility, investors are beginning to position for higher volatility, that's according to a new research note from Goldman Sachs published at the beginning of this week. The report, penned by Goldman's economic's research team headed by Christian Mueller-Glissmann, CFA, notes that during the past few weeks investors have begun to aggressively position for higher S&P 500 volatility. Demand for VIX calls has increased sharply. Meanwhile, inflows into the largest long VIX ETP (iPath S&P 500 ST future, VXX) have picked up and the net short on VIX futures has decreased. The VIX call/put ratio has spiked to one of the highest levels since the great financial crisis. All of these developments point to one conclusion; investors are positioning for more volatility and a higher VIX.
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The VIX Options Indicator at a 10-Year High
Bernie Schaeffer - Schaeffer's Research
Over the past six months, the CBOE Volatility Index (VIX) has averaged a reading of 11.58 -- lower than its one-year mean of 12.63, and considerably further south than its two-year average of 15.37. The most cursory review of a daily price chart for 2017 clearly displays the VIX's "typical" trading range ratcheting down to the 9.50-12 area during the second quarter, compared to 10.50-13.50 for much of the first quarter.
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Volatility, short VIX ETF just had its biggest day yet
Joe Ciolli - Business Insider
One of the most popular  and controversial  trades in the stock market is showing no signs of slowing.
An exchange-traded note betting that US stocks will essentially sit still for the next month saw record trading volume of $3.3 billion on Thursday, June 22, according to according to Macro Risk Advisors (MRA), a firm that arranges volatility trades.
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| | | | | | Miscellaneous | | | The Big Board's 'Icky' Attack on Short-Sellers
Stephen Gandel - Bloomberg
Tom Farley, head of the New York Stock Exchange, told Washington lawmakers this week that short-selling feels icky. But what he proposed as a solution should leave anyone who cares about free and fair markets grossed out.
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Liquidity, valuations in focus as ETF ownership of S&P500 surges: BofA-ML
Reuters
Higher single-stock volatility, valuation distortions and liquidity concerns could grow due to the surge in popularity of exchange-traded funds (ETFs) which now account for more than a third of U.S. ownership of the S&P 500 .SPX, Bank of America-Merrill Lynch (BofA-ML) said.
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Goldman to Review Commodities After Worst Start in a Decade
Jack Farchy and Dakin Campbell - Bloomberg
Goldman Sachs Group Inc., the dominant commodities trader on Wall Street, is reviewing the direction of the business after a slump in the first half of the year, according to people with knowledge of the matter.
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Renaissance draws billions in new cash as love for quants blooms
Svea Herbst-Bayliss - Reuters
As hedge fund investors have been choosing computers over star stock-pickers, putting ever more money into "quant" funds, one firm has become the undisputed leader in attracting assets.
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