| May 07, 2019 | | | |  | Spencer Doar
Editor
John Lothian News | |
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| | | | Observations & Insight | | | 
The Spread - Grinding Gears
JohnLothianNews.com
The JLN team was down in Doral, Fla., for the 2019 Options Industry Conference last week. This episode of "The Spread" covers some of the conference happenings (and a few other things that grind the host's gears).
Watch the video and see the stories referenced here »
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A Great Day to Start Trading Micro E-Mini Futures
John J. Lothian
A Trump-influenced lower equity market and then a near rebound produced the perfect day for the CME Group to start trading micro E-mini equity futures contracts yesterday, specifically Micro E-mini futures on the S&P 500, Nasdaq-100, Russell 2000 and Dow Jones Industrial Average indexes.
The Micro E-mini equity complex volumes were off the board on their first day, trading over 300,000 contracts, which has to be a record.
With the equity markets sharply lower Monday before recovering and with some decent volatility, volume in the Micro E-Mini S&P futures was 159,251, Micro E-mini Nasdaq-100 Index futures volume was 91,928, Micro E-mini Russell 2000 Index futures was 33,996 and the Micro E-mini Dow Jones Industrial Average Index futures was 24,897 on their first day of trading.
To read the rest of the story, go here.
****SD: More market commentary related to yesterday's down/up action: Trump and Trade Fears Threaten the Best Stocks in the U.S. and Two Pillars of the Stock Market Just Became Two Reasons to Sell from Bloomberg.
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Calling all rockstars!
ALTSO's Call to Musicians: Are you a musician who's ready to take their garage band out of the garage? A Leg To Stand On (ALTSO's) 8th Annual Rocktoberfest-Chicago will take place October 10th, at City Winery in Chicago. If you are interested in performing email info@altso.org; capacity is limited and slots are first come, first serve. Since 2004, Rocktoberfest has helped ALTSO provide free prosthetic limbs and mobility solutions to nearly 18,000 children around the world. Nearly 750 leaders from the hedge fund and finance industries will unite on October 10th to Rock For Good, what about you?
Find out more about Rocktoberfest.
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Bad Quote of the Day
I overheard this on Bloomberg TV and it made me sad: "Not everybody knows you can trade options on futures."
| | | | | | Lead Stories | | | Volatility Markets Flash Warning Sign That Preceded Prior Routs
Luke Kawa - Bloomberg (SUBSCRIPTION)
VIX curve inversion shows effect of Trump's trade threats; Equities sell-offs have followed backwardation in recent past
Volatility markets are signaling elevated risks for equities, flashing a warning sign that portended some of the major market meltdowns in recent memory.
/bloom.bg/2Vabkdm
Cboe hints at upcoming acquisition
James Thursfield - FOW (SUBSCRIPTION)
Cboe has hinted at a potential upcoming acquisition as it does not expect to hold such high cash reserves going forward
bit.ly/2V6Qgof
****SD: I missed this at the end of last week! Intriguing...
The Options Clearing Corporation; Order Approving Proposed Rule Change to Require that an Actionable Identifier be Included on Customer and Non Customer Securities Options Trades Other than Market Maker Trades
SEC Rule Filing
Description via OCC: "As part of its ongoing work to provide more operational efficiencies for clearing firms, on Monday, May 6, OCC received regulatory approval from the SEC on its Actionable Identifier rule filing. The Clearing Member Trade Assignment ("CMTA") process at OCC allows a Clearing Member that executed a securities options trade to send the trade directly through OCC to another Clearing Member for clearance and settlement. For some time, Clearing Members have been concerned with the risks they face in handling trades they cannot timely identify in connection with the CMTA process. Clearing Members had reached out to OCC to help them address these risks."
bit.ly/2V8Rm2O
Global Bond Traders Are Betting Against the Latest Trump Threat
John Ainger - Bloomberg (SUBSCRIPTION)
Bond investors are betting that trade tensions will abate to send global yields rising again.
Investors are buying put options on Treasuries and German bunds, positions that will pay off from a decline in some of the world's safest assets. The demand for the contracts, particularly among Asia-based traders, is seen coming from those who expect the latest escalation in the U.S.-China trade conflict to be short-lived.
/jlne.ws/2Y8lEEI
Are European Stocks Really Less Volatile? Or Are Correlations Driving Volatility Lower? Melissa Brown, Axioma via Tabb Forum (Free w/ Registration)
Differentiation across assets is a substantial driver of overall lower volatility in Europe - and elsewhere.
An article headlined, "Risk Takers Take Early Holiday in Europe," appeared in the May 2, 2019, edition of The Wall Street Journal. In the piece, the authors noted that the European market, as defined by the Stoxx Europe 600, "set a record for apparent investor apathy, and as of Wednesday (May 1) hit the 18th consecutive trading session when its price moved by less than 0.5%."
/jlne.ws/2V77YYE
Gold/Silver Options Skews: Upside Risk Ahead?
Erik Norland - CME Group
U.S. monetary policy exerts a strong influence on the skewness of currency, gold and silver options. In a normal monetary environment where short-term interest rates are well above zero, investors tend to be more concerned about gold and silver prices rising abruptly than falling. As a result, out-of-the-money (OTM) calls on the metals tend to cost more than OTM puts. By contrast, during the long period of near-zero rates, especially the Federal Reserve's (Fed) second and third phases of quantitative easing (QE), gold and silver options skewed the opposite way: OTM puts cost more than OTM calls (Figures 1 and 2).
/jlne.ws/2V97fGm
The Machines Are Sitting Out the Trade War in Fresh Rally Threat
Justina Lee - Bloomberg (SUBSCRIPTION)
VIX rising and shares falling amid Trump's new trade threats; CTAs and risk-parity funds may start to unwind longs: Nomura
The machines might not be reading presidential tweets on trade, but they don't like what they see in the markets all the same.
/jlne.ws/2V260J6
China-U.S. trade war disrupting metal markets, sparking volatility: industry
Tom Daly and Shivani Singh - Reuters
A trade dispute between China and the United States is the main issue causing volatility in metal prices and market participants are braced for stormy conditions to persist, industry sources said in Hong Kong this week.
A swift deterioration in China-U.S. trade talks hit global financial markets this week as investors faced the prospect of an escalation rather than an end to a 10-month-old trade war between the world's two largest economies.
/jlne.ws/2YgQDP9
***SD: In other news, water is wet.
| | | | | | Exchanges and Clearing | | | Hong Kong exchange plans China metals expansion with warehouse plan
Tom Daly, Shivani Singh - Reuters
Hong Kong stock exchange Chief Executive Charles Li said on Tuesday the bourse was in official talks with Guangdong authorities on metals warehousing, a major step towards its long-held ambition to expand in mainland China.
/jlne.ws/2V76sFW
****SD: "In London, the LME will make a 'very significant' multi-million-dollar investment to modernise its options offerings towards screen-based trade from the telephone interbank market, London Metal Exchange Chief Executive Matt Chamberlain said. He didn't specify how much money the LME would invest." If you missed it, JLN spoke with Chamberlain about the LME's 2019 plans - see that video HERE.
China's Dalian exchange to open soybean, soymeal futures to foreign investors
Reuters
China's Dalian Commodities Exchange aims to open one of its soybean futures contracts to foreign investors this year, along with futures for soymeal, soyoil and palm oil, a senior official from the bourse told reporters on Monday.
/jlne.ws/2V4dify
****SD: If they open up soymeal futures, you'd figure they have to open up the soymeal options they launched in spring 2017, right? For more background on Chinese options on futures see JLN's A Look at Nascent Chinese Commodity Options.
Nasdaq on the future of technology and the exchanges
FreightWaves
Long thought of as a global exchange company for buying and selling securities, Nasdaq has used the large volumes of data available to it to leverage itself into a partner and provider for market structure, exchange and settlement guidance for markets of all types.
/jlne.ws/2J7w0Bw
Trading Overview in April 2019; Japan Exchange Group released Trading Overview in April 2019.
JPX
Derivatives Market - In April 2019, total derivatives trading volume was 23,626,345 contracts.
/jlne.ws/2JmnJZv
TMX Group Consolidated Trading Statistics - April 2019
TMX
TMX Group Limited today announced April 2019 trading statistics for its marketplaces - Toronto Stock Exchange, TSX Venture Exchange, TSX Alpha Exchange (Alpha) and Montréal Exchange (MX).
/jlne.ws/2JlPLEE
ASX opens testing for post-trade blockchain system; ASX is working to replace its equities clearing and settlement system with blockchain technology.
Joe Parsons - The Trade
The Australian Securities Exchange (ASX) has opened a Customer Development Environment (CDE) for users to test and interact with its new clearing and settlement system, based on technology developed by Digital Asset.
/jlne.ws/2JtEsdH
****SD: Keep an eye on this - lots of rumors floating around about the project.
| | | | | | Technology | | | McKay Brothers & Quincy Data deliver lowest latency between the largest US Stock Exchanges
McKay Brothers
McKay Brothers and Quincy Data today announced that they have connected the largest US equity exchanges at the lowest latency. The new services link equity exchanges in Mahwah, Carteret and Secaucus - the New Jersey Equity Triangle. McKay's network is currently offering two-way market data and private bandwidth services between Mahwah and Carteret as well as Mahwah and Secaucus. The company will have one-way service from Carteret to Secaucus within days and expects two-way service in the third quarter.
/jlne.ws/2Yd0Dc8
Pico Continues Global Expansion With New Co-Lo Facility And Direct Connectivity To Hong Kong Exchanges And Clearing
Pico
Pico, a leading infrastructure, connectivity, data and cloud technology provider to the global financial services community, today announced its continued global expansion with the launch of a new colocation facility and direct connectivity to the Hosting Services Data Centre of Hong Kong Exchanges and Clearing Limited (HKEX).
bit.ly/2V98pBI
Options Announces New Global Managed Colocation Facilities with ASX
BusinessWire via Yahoo
New exchange facilities to provide ultra-low-latency market data and order entry access across Equities and Derivatives Options, the leading provider of global market data and colocation services for trading firms, today announced additional colocation coverage with the Australian Securities Exchange (ASX) at the Australian Liquidity Centre (ALC) to supplement existing market data access to clients in the region and across Options' global Managed Colocation backbone. Options clients colocated within ASX will benefit from vendor access to ASX 24 and ASX Trade, further bolstering the firm's ultra-low-latency exchange feeds across equities and derivatives.
/jlne.ws/2V6U1ds
| | | | | | Moves | | | Paris hiring heats up as BofA poaches Goldman equity derivatives structurer
Sarah Butcher - efinancialcareers
Bank of America just poached a mid-ranking equity derivatives professional from Goldman Sachs in the French capital. Remi Collignon left Goldman Sachs in Paris and joined Bank of America last month, according to his LinkedIn profile. Collignon is an equity derivatives structurer and occupied this role at both banks.
/jlne.ws/2V6Hmar
Societe Generale announces the following appointments within its Global Markets division
PRNewswire
Sylvain Cartier is appointed as Head of Fixed Income and Currencies within market activities. Sylvain Cartier will be based in Paris and will report to Jean-François Grégoire, Head of Global Markets. In line with the strategic adjustments recently announced by the Bank in Fixed Income and Currencies, Sylvain will work on the refocusing of the flow activities (cash and flow derivatives) and to further develop investment and financing solutions to make Rates, Credit and Currencies activities more profitable.
/jlne.ws/2Vi1IT5
Another senior JPMorgan equities trader has bolted for Citigroup to run a business in prime finance
Dakin Campbell - Business Insider Prime (SUBSCRIPTION)
Jitendra Jaisinghani, a senior trader in JPMorgan's prime services unit, has left to join Citigroup in the coming weeks, according to people with knowledge of his move.
Jaisinghani will be joining the bank to run its Delta One flow business in North America, with oversight of ETF market-making, single stocks and custom baskets, according to the people. Delta one desks trade derivatives with a linear relationship to their underlying securities. That includes swaps, futures and forwards, among other instruments.
/jlne.ws/2Y9TU2v
| | | | | | Regulation & Enforcement | | | Transaction Tax Proposed, Again
Rob Daly - MarketsMedia
In the attempt to rein in high-frequency trading Democrats in the US House of Representatives and Senate have filed identical bills to establish a transaction tax across a broad range of listed and over-the-counter products that likely will result in throwing out the baby with the bath water.
/jlne.ws/2H0CcHZ
Where now for the rules that rocked European finance?; More than a year on from implementation, calls to amend Mifid II are growing louder
Philip Stafford and Katie Martin - FT (SUBSCRIPTION)
Helping small and medium companies access capital markets was at the heart of Mifid II but more than 16 months on, bankers and regulators are worrying that Europe's flagship securities-industry overhaul has become more of a problem than a solution.
/jlne.ws/2J7Mmd1
****SD: Meanwhile, a whole industry mutters under its breath, "No s***, Sherlock."
CFTC Announces Approximately $1.5 Million Whistleblower Award
CFTC
The Commodity Futures Trading Commission (CFTC) today announced a whistleblower award of approximately $1.5 million to be paid to an individual whistleblower. The CFTC granted the whistleblower's award application for both a CFTC action and a related action brought by another federal regulator. In ordering the award, the CFTC recognized the contribution of a whistleblower who sought to report his or her concerns internally prior to reporting to the CFTC.
/jlne.ws/2J3LK8p
****SD: I've said it before, I'll say it again: these press releases only serve to make me curious about things I'll likely never know, like the who, what, where, when and why. You know, all the important stuff. Such a tease.
Big Banks Seek to Liberate Billions of Dollars in Funds; Dodd-Frank forced banks to hold funds in reserve; now some have found a way to free up that cash
Liz Hoffman - WSJ (SUBSCRIPTION)
Big banks have complained for years about a key feature of the Dodd-Frank overhaul requiring them to keep billions of dollars of cash in reserve. Some are trying to find a way around it.
/jlne.ws/2J3Wp2Z
| | | | | | Strategy | | | The Options Market Is Ignoring a Way to Play the Trade War
Luke Kawa - Bloomberg (SUBSCRIPTION)
There's a well-worn playbook for navigating the trade war, but the options market hasn't caught on.
"The price action yesterday was reminiscent of the Q2 2018 period, when tariff worries caused the Russell to outperform the S&P, and emerging-market equities to sell off while U.S. equities rallied,'' wrote Pravit Chintawongvanich, Wells Fargo's equity derivatives strategist.
/jlne.ws/3069Btc
Federal Reserve Moves Mean Time to Bet on Interest Rate Volatility, Jeffrey Gundlach Says
Ben Walsh - Barron's
Bond manager Jeffrey Gundlach railed against Democratic presidential candidates Joe Biden, Beto O'Rourke, and Elizabeth Warren on Monday. But his most substantive criticism, during remarks at the Sohn Investment Conference in New York, was reserved for Federal Reserve Chair Jerome Powell's interest rate policy.
/jlne.ws/2YegSW6
****SD: Via Bloomberg - Gundlach Says Buy Rate Volatility Via Treasury Bond ETF
| | | | | | Events | | | OCC Webinar: Option Overwriting for Income
OIC
The latest OCC webinar focuses on option overwriting for income. What if it turned out you might be able to earn income on a stock or ETF you already own, while at the same time potentially lowering the impact of a downturn?
bit.ly/2VaNpuh
| | | | | | Miscellaneous | | | As Public Pensions Pile on More Risk, Returns Fail to Keep Pace
Martin Z Braun - Bloomberg (SUBSCRIPTION)
Riskier assets like private equity, real estate and hedge funds haven't provided a magic bullet for state and local government pensions seeking to cover trillions in retirement benefits for aging workers.
While public pensions have boosted their average allocation to high-risk equities and so-called alternatives to almost 80 percent, the median fund fell short of the 7- to 8 percent returns they count on each year to pay the ballooning costs of benefits. As they take on more risk, states and local governments are increasing their exposure to market volatility and the risk of contribution spikes in a market downturn.
/jlne.ws/2YfjEut
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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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Editor
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