| February 17, 2023 | | | |  | Jeff Bergstrom
Editor
John Lothian News | |
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| | | | Lead Stories | | | Wall Street Is Set for Calm Options Event as Short-Term Bets Boom
Lu Wang - Bloomberg
A merciful prospect for Wall Street traders befuddled by endless Federal Reserve-spurred volatility and the frenzy for short-term derivatives: February's options expiry looks set to pass smoothly this time round.
After repeatedly roiling the stock market for the past two years, Friday's deadline for maturing options is potentially less impactful than usual. With just 79 million contracts scheduled to roll out, it's the smallest volume for a monthly expiration in at least two years, according to data compiled by Susquehanna International Group.
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Statement: OCC Reaches Settlement with SEC and CFTC Regarding Error in Implementation of Liquidation Cost Model
Options Clearing Corporations
OCC has reached settlements with the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) regarding OCC's error concerning the implementation of its rule on Liquidation Cost Model Enhancements and its Liquidation Cost Charge ("LC Charge").
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ETFs are increasingly 'mainstream for fast money' amid rise in options activity tied to exposures in stocks, bonds
Christine Idzelis - MarketWatch
Options activity surrounding exchange-traded funds has jumped, as the ETF market evolves to increasingly attract investors engaging in short-term trading strategies or to express their views on stocks and bonds, according to research from Citigroup.
"I feel like the macro is driving a lot of this," said Drew Pettit, director of ETF analysis and strategy in Citigroup's research business, in a phone interview. "Macro" drivers might include economic data on inflation as well as statements from the Federal Reserve, he said.
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The good news is markets look resilient â but the bad news is just about everything else
Phil Rosen - Business Insider
Haven't heard of it? Well the once-niche card game just became a $1 billion brand.
That means sales of these fantastical cards featuring creatures, spells, and planeswalkers are popular enough to comfortably match the GDP of a handful of small countries.
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Fed Fears Rattle Traders
Eric Wallerstein - WSJ
Volatility is bubbling back up across markets.
Hot economic data jolted renewed bets that the Federal Reserve may live up to its own hawkish expectations. That skittishness is sparking demand for hedges.
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How Innovation and Volatility Are Reshaping Futures and Options Trading
Shanny Basar - MarketsMedia
Derivatives exchanges reported record volumes in 2022 due to increased volatility, rising interest rates and geopolitical shocks such as the invasion of Ukraine. For example, 2022 was the best year in CME Group's history as average daily volume increased 19% year-on-year to a record 23.3 million contracts. In addition, Cboe Global Markets reported record net revenue in 2022 which the exchange group said was driven by its derivatives complex.
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| | | | | | Regulation & Enforcement | | | SEC Charges Options Clearing Corporation with Rule Failures
SEC
The Securities and Exchange Commission today announced that The Options Clearing Corporation (OCC) will undertake remedial efforts and pay $17 million in penalties to settle charges that it failed to comply with its SEC-approved Stress Testing and Clearing Fund Methodology rule during certain times between October 2019 and May 2021.
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CFTC Orders The Options Clearing Corporation to Pay a $5 Million Penalty for Violations of Core Principles and Regulations Related to Operational Risk Management
CFTC
The Commodity Futures Trading Commission today issued an order simultaneously filing and settling charges against The Options Clearing Corporation (OCC), a Chicago-based CFTC-registered derivatives clearing organization (DCO). The order finds the respondent failed to establish, implement, maintain and enforce certain policies and procedures reasonably designed to manage the operational risks related to its automated systems in violation of the Commodity Exchange Act (CEA) and related CFTC regulations.
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SEC targets built-in marketing fees in fund-to-ETF conversions
David Isenberg - Financial Times
The Securities and Exchange Commission is investigating whether 12b-1 fees are being appropriately handled during the process of converting mutual funds to ETFs, compliance consultants say.
Certain mutual fund share classes charge 12b-1 fees, which cover marketing, distribution and shareholder costs. But it is exceedingly rare for ETFs to carry such fees. And companies that convert mutual fund share classes with 12b-1 fees into ETFs could open themselves up to SEC scrutiny, the consultants say.
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FIA responds to SEBI consultation paper on safeguarding clients' funds placed with stock brokers/clearing members
FIA
FIA has submitted comments to the Securities and Exchange Board of India's consultation paper on proposals to safeguard clients' funds that are placed with stock brokers/clearing members (CMs).
FIA expresses concerns that the proposed requirements could have negative effects on the timing and operational complexity of returning funds to clients, hindering CMs' ability to dynamically meet the needs of their clients.
Additionally, FIA suggests that the proposals could lead to additional risks, such as concentration and systemic risk, counterparty risk considerations, and commercial risk implications.
FIA also recommends that funds from institutional clients be exempt from the proposed requirements.
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JPMorgan bankers & traders upset by new personal phone rule
Sarah Butcher - efinancialcareers.com
Some bankers and traders at JPMorgan have a new gripe. While they're not (yet?) having their bonuses docked for sending work-related WhatsApp messages of the kind that have cost their employer $200m in regulatory fines, they are being subject to a clampdown on personal phone use.
Sources on the trading floor at the bank in London say they've received a succession of increasigly "firm" messages from management instructing them to install message monitoring software on personal mobile phones, and that this follows the withdrawal of their work cell phones.
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| | | | | | Technology | | | MBX Clearing Selects Rival Systems for Index Option Trading and Enterprise Risk Management
Rival
Rival Systems (Rival), a leading trading and risk management software provider, has announced that MBX Clearing, a new self-clearing PTG, is leveraging Rival's multi-asset trading and enterprise risk platform for index options trading. "Rival's vast experience working with index option traders, advanced option functionality, real-time margin calculations, and ability to provide a fully hosted solution to trade on the CBOE were the key factors in choosing Rival over other solution providers," said MBX Clearing's Chief Risk Officer, Jon Galin.
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The financial system is alarmingly vulnerable to cyber attack
Gillian Tett - Financial Times
Derivatives traders tend to watch the US Commodity Futures Trading Commission closely on a Friday. This is the day the CFTC normally releases its weekly "commitments of traders" report showing overall positioning in derivatives markets, such as oil futures. This month, however, the data has been missing in action because a small, publicity-shy data group called Ion Markets - headquartered in Dublin but used by dozens of American and European players - suffered a ransomware attack on January 31.
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| | | | | | Moves | | | Cboe Global Markets is looking for a senior manager, learning & development in Chicago.
| | | | | | Strategy | | | Traders Rolling Positions into May
Cboe (Video)
In today's #Vol411, Dan Deming @djd551 on the $VIX roll market, action in VIX #options and things to look for during the shortened holiday trading week ahead.
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| | | | | | Miscellaneous | | | School of Quant: At $29,000, a Public NYC College Outclasses Princeton
Heather Perlberg - Bloomberg
Princeton has its Gothic spires, MIT its Great Dome. But for a no-frills lesson in 21st-century finance, head to a lackluster high-rise on Manhattan's East 25th Street - AKA, Bernard Baruch Way. Nine flights up, along scuffed linoleum hallways, a handful of math-loving graduate students consider equations that would make most people's heads hurt. On the syllabus recently: three-dimensional volatility surface structures for options pricing models.
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Wall Street Brings Its Financial Engineering to English Football; Chelsea's new US private-equity owners are betting their knowhow will make the London club more valuable than some of its biggest rivals.
Giles Turner and David Hellier - Bloomberg
It's no secret that Wall Street likes to test the rules. Mortgage-backed securities, options pricing, credit risk, SPACs - all have been subject to what's known as financial engineering. Now, it's the turn of football. Ever since a US consortium led by Clearlake Capital acquired Chelsea Football Club for GBP2.5 billion ($3 billion) in May, co-owner Todd Boehly has led a charge to outbid rivals for star players. The result was close to GBP600 million this season alone, more than the total spent in the French, Spanish, German and Italian top leagues combined during the recent January transfer window.
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How did Hindenburg short Adani stock?
Ortenca Aliaj and Antoine Gara - Financial Times
When US short seller Nathan Anderson decided to take on Indian conglomerate Adani Group, he faced the ultimate challenge for someone in his line of business: India's anti short selling rules.
The founder of New York-based Hindenburg Research has not detailed how he structured his financial bet against the infrastructure group, which he has accused of fraud and stock price manipulation in a 100-page report published last month â saying only that the firm had taken a short position in Adani "through US-traded bonds and non-Indian-traded derivative instruments".
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| | | Jeff Bergstrom
Editor
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