| February 25, 2019 | | | |  | Jeff Bergstrom
Editor
John Lothian News | |
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| | | | Observations & Insight | | | 
The Spread - Excuses and Complaints - 2/22
JohnLothianNews.com
A little bit of beef, a peek into the books of secretive market makers, and some French Revolution-based chastisement await viewers in this week's episode of "The Spread."
Watch the video and see the stories referenced here »
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Editor's Note
Spencer Doar - JLN
On Friday, a broken link was included to Cboe Global Markets' 10k filing - this one works. Apologies for any confusion.
The Chicago mayoral election is tomorrow, February 26. It looks like it'll head to a runoff - keep your eyes on the finalists and their views on a potential LaSalle Street Tax.
Tom Sosnoff offered this tidbit in an email blast - "Over 95% of all brokerage accounts don't have access to futures or futures options but 97% have access to a dividend scanner." I'm trying to find a source for that, because whatever study, research or report that comes from is sure to be worth reading.
The disgraced former Enron CEO Jeff Skilling was released from federal custody last Thursday after serving 12 years of what was initially a 24-year sentence.
| | | | | | Lead Stories | | | The Golden Age of the Quant & The Visual-Spatial Learner
Enrico Cacciatore, Voya Investment Management via LinkedIn
In response to eFinancialCareers article: "The age of the quant is coming to an end" - I fortunately see a very different future for those with STEM skills aka "Quants" in the financial field. The author is using a myopic view, applying his or her own two decades of personal experience and blanketing the entire quant space.
/goo.gl/JUSzkm
****SD: The anonymous piece posted at efinancialcareers got quite a bit of attention - this is a nice counterpoint.
U.S., U.K. Pledge Continuity for Derivatives After Brexit
Silla Brush - Bloomberg (SUBSCRIPTION)
The U.K. and U.S. sought to allay fears of disruption in the multitrillion-dollar derivatives market, vowing to put in place emergency policies to ensure trading continues uninterrupted in the event of a no-deal Brexit.
The heads of the Bank of England, Financial Conduct Authority and U.S. Commodity Futures Trading Commission promised a seamless transition after the U.K. leaves the European Union, whatever form it takes. The moves would help traders use many key exchanges and clearinghouses, including those run by the London Stock Exchange Group Plc., CME Group Inc. and Intercontinental Exchange Inc.
/bloom.bg/2ExwnSl
****SD: FT with the news - US and UK strike long-term derivatives deal. Risk.net adds UK banks build liquidity buffers ahead of Brexit. The joint statement from the CFTC and Bank of England can be found here. Also, Bloomberg has a great longer form piece out about Arron Banks' odd finances (Banks was THE Brexit backer).
Wall Street revives US retail 'big short'; Bears stake out aggressive positions ahead of earnings this week
Alistair Gray - Financial Times (SUBSCRIPTION)
Wall Street is reviving a "big short" of the US retail sector ahead of a raft of earnings reports this week, even though earlier bets on a mall "apocalypse" have failed to pay off. Bears last week staked out the most aggressive positions in a year against SPDR S&P Retail, the sector's benchmark exchange-traded fund. The fund, known as XRT, was so heavily betted against that the short positions were about four times larger than shares in the ETF itself, according to data provider S3 Partners.
/goo.gl/w3zC5k
****SD: OI check
United Capital Fortifies Its Industry-Leading Investment Management Offering with SpiderRock and iCapital Strategies
Business Wire
United Capital Financial Advisers LLC ("United Capital"), the country's first and largest financial life management firm, has created a sophisticated suite of defensive strategies in the U.S. With newly-added strategies from SpiderRock Advisors, LLC, and iCapital Network, the United Capital Investment Management platform rounds out a formidable suite of protective and tactical strategies offered with competitive fees.
bit.ly/2EctgO6
****SD: That's $23.3 billion more in AUM that can benefit from options overlays.
New Test May Be in the Cards for the Nikkei 225 as Calls Pile Up
Min Jeong Lee and Toshiro Hasegawa - Bloomberg (SUBSCRIPTION)
The rally that added $710 billion to Japanese stock values could soon face a new test. That's according to Hideyuki Ishiguro, a senior strategist at Daiwa Securities Co. in Tokyo, who sees 21,500 as a key level for the Nikkei 225 Stock Average after traders piled into call options with that strike. The blue-chip gauge climbed for a second week, closing at 21,425.51 Friday.
/goo.gl/UXui8E
Sterling rallies on talk UK government considering Brexit delay
Tom Finn - Reuters
Sterling gained on Monday as traders considered whether the British government might delay Brexit if Prime Minister Theresa May fails to secure support in parliament for her withdrawal agreement.
Britain's Brexit crisis is going down to the wire as May struggles to get the changes she needs from the EU to get her deal passed by a divided parliament. She faces a growing risk that she will be forced to delay Brexit.
/reut.rs/2EwnvMH
Hedge funds bet cautiously on even higher oil prices
John Kemp - Reuters
Hedge funds added more bullish positions in crude and fuels in the most recent week in the expectation that positive trade talks between the United States and China would keep the global economy expanding.
Saudi Arabia's substantial output cuts and U.S. sanctions on Iran and Venezuela also are restricting crude supplies and helping eliminate a previously expected surplus in the market in 2019.
/reut.rs/2Exuntj
****SD: Goldman's call via Bloomberg - Goldman Sachs Sees Oil Taking a Fleeting Trip to $70-$75 a Barrel. Another reason to be cautious on oil prices? Donald Trump's persistent public pleas to OPEC to keep oil prices low.
A Chinese Brokerage for U.S. Stocks Seeks a Nasdaq Listing; Owner of online-trading platform Tiger Brokers plans to raise up to $150 million in IPO
Stella Yifan Xie - WSJ (SUBSCRIPTION)
One of China's largest and fastest-growing online brokerages filed plans to go public in New York, offering a window into the world of Chinese investors who are increasingly trading U.S.-listed stocks. The owner of the Tiger Brokers online-trading platform said in a prospectus filed Friday with the U.S. Securities and Exchange Commission that it plans to raise up to $150 million in a Nasdaq initial public offering. Backers of Tiger, which was founded in 2014, include U.S. online brokerage Interactive Brokers Group Inc. and Chinese smartphone giant Xiaomi Corp.
/goo.gl/DCjsx5
****SD: Bloomberg has a story about China's current bull run with this data point: "A Bloomberg gauge for mainland-listed brokerages is trading at its highest level relative to the Shanghai Composite benchmark since September 2017. Every stock with the word 'securities' in its name rose by the daily limit on Monday." Sounds like a good time for Tiger to take a swing at an IPO.
| | | | | | Exchanges and Clearing | | | Incentives for Central Clearing and the Evolution of OTC Derivatives
CCP12 via Eurex (Full PDF)
Ten years after the G20 Leaders' commitment to reform over-the-counter (OTC) derivatives markets, this paper examines the progress made in central clearing with an emphasis on the incentives that are in place. It is intended to complement the Derivatives Assessment Team of the Financial Stability Board report, "Incentives to centrally clear over-the-counter derivatives".
bit.ly/2EaVAAv
****SD: Plenty of OTC options activity floating around in here. For example: "Options clearing is most notably offered by the CME (interest rate swaptions and cash-settled FX options) and recently LCH (FX options). So far, the market has chosen to continue trading these products bilaterally. This is despite large volumes continuing to trade in exchange traded options across a variety of asset classes. It is a conundrum that should be solved."
Brazilian market enters "new stage of development"
Louisa Chender - Global Investor Group (SUBSCRIPTION)
B3 attributes record volumes in 2018 to increased volatility and a new era of lower interest rates
/goo.gl/Eeygkv
****SD: B3 had a killer 2018 - its volumes were up 42 percent compared to 2017.
CME Group CEO Duffy Learned From Crisis To Create Long-Term Success
Investor's Business Daily
Terrence "Terry" Duffy's parents would be very proud of him now. But they almost ended up homeless in the process. Duffy  now CEO and chairman of CME Group (CME), the world's leading financial trading marketplace  still vividly recalls an error that nearly financially ruined his family. His reaction to this harrowing misstep helped him avoid a disaster and taught him a lesson about success that powers his career to this day.
bit.ly/2XpzYZN
| | | | | | Moves | | | Goldman Sachs loses top quant trader to Citadel after just six months
eFinancialCareers
A top London-based quant trader quit Goldman Sach after just six months for Citadel. Vivek Upadhyay, a senior quant trader and briefly an executive director at Goldman Sachs, joined the Chicago-based hedge fund's London office earlier this month.
/goo.gl/PJFAZ7
****SD: Seems like "losing to Citadel" is pretty common - recall how last week Samantha Greenberg closed her own hedge fund, Margate Capital, to go join Citadel.
Morning Coffee: Top trader's revenge on the bank that fired him. Fresh horrors at SocGen
Sarah Butcher - efinancialcareers
David Fotheringhame is not your average trader. The former head of electronic fixed income currencies and commodities (FICC) trading at Barclays is a man of exceptional intelligence, as suggested by his array of top class university degrees. He has a first in natural sciences from Cambridge University, a PhD in computational neuroscience from Oxford University, a first class degree in mathematics from the Open University, and - latterly - a distinction in the Masters in Machine Learning from University College London.
/goo.gl/2LhCmg
Rising stars of Wall Street headhunting 2019
Alex Morrell - Business Insider Prime (SUBSCRIPTION)
It's shaping up to be a wild year in Wall Street hiring.
2018 was a bumper crop of senior moves in areas like investment banking and equity derivatives, and some expect the merry-go-round to continue at a breakneck pace. Others fear that the collective preoccupation with forecasting the next recession may keep some firms on the staffing sidelines.
Competition remains intense across the industry for quants, data scientists, and senior-level technologists, as institutions spend billions to try to stay ahead of the pack and highly capitalized fintechs enter the fray.
/read.bi/2EuGI13
| | | | | | Regulation & Enforcement | | | FTT: This Time It's Different. Or Is It?
Jim Toes, President and CEO, Security Traders Association via MarketsMedia
As the field of 2020 Presidential candidates unfolds, it is becoming evident that a financial transaction tax (FTT) will be presented as a progressive means of raising funds for government programs. This will not be the first time our industry has faced this issue, and while details have yet to unfold, a proposed FTT will most likely espouse the perceived attributes of past versions. Mainly, that its low rate and broad based design raises reliable revenue while curbing behavior deemed threatening to our markets perpetuated primarily by proprietary trading firms. In the end, an FTT is a tax on capital and the savings of individual investors that causes rippling effects detrimental to our nation's GDP.
/goo.gl/c7EkDX
Sebi slaps fine on 6 entities for fraudulent trade
Economic Times
Markets regulator Sebi on Monday slapped a penalty of over Rs 32 lakh on six entities for ''non-genuine'' trading in illiquid stock options on the BSE.
bit.ly/2EeUcNr
****SD: This comes on the heels of another set of fines last Thursday.
| | | | | | Strategy | | | Factor Decay
Euan Sinclair - Talton Capital Management
Recently John Cotter and Niall McGeever posted an interesting paper to ssrn.com. They studied the persistence of nine anomalies in the U.K. equity market: 1)Accruals 2) Asset growth 3) Book to market ratio 4) Profitability 5) Stock issuance 6) Return reversal 7) Momentum 8) Equity turnover 9) Size
They found a general decline in the profitability of these factors from 1990 to 2013. On average, the annual excess return dropped about 50% between 1990 to 2001 to the 2002 to 2013 period. Eight of the nine factors decayed. Momentum disappeared completely.
/goo.gl/iuL37i
Where the VIX Freefall Might Finally End
Bernie Schaeffer - Schaeffer's Investment Research
It was not quite a year ago in this space when we discussed a very unusual start to the year for the now-defunct iPath S&P 500 VIX Short-Term Futures ETN (VXX). The volatility tracker had racked up big back-to-back monthly gains in both January and February, breaking its seasonal trend of firmly negative returns during each of the first three months of the year.
bit.ly/2Ev0nxU
'Oblivious' stock investors aren't ready for what's next, hedge-fund manager warns
Shawn Langlois - MarketWatch
Investing in passive index funds has enjoyed a stellar run over the past 10 years, exposing the shortcomings of the active approach in a market where everything is in full-on rally mode. In fact, during that time, only 24% of active funds outperformed their passive counterparts through 2018, according to Morningstar.
/on.mktw.net/2EwoSLl
****SD: Check out the returns of the firm mentioned, Crescat Capital.
BlackRock Is Last Bull on Once-Loved, Now-Vexed Quant Strategy
Ksenia Galouchko - Bloomberg (SUBSCRIPTION)
BlackRock Inc. may be Wall Street's last high-profile supporter of a quant strategy that's flipped from the bull market's biggest driver to its most-conspicuous laggard.
The world's largest money manager is touting momentum stocks even as its own ETF tracking the style suffers its longest outflow streak ever and the market-neutral version of the trade clocks the worst year-to-date performance of any factor.
/bloom.bg/2EwmFzx
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