| April 19, 2018 | | | |  | Spencer Doar
Editor
John Lothian News | |
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| | | | Lead Stories | | | VIX Rigging Talk Erupts on Wall Street After Another Wild Swing
Lu Wang, Elena Popina and Luke Kawa - Bloomberg
The Cboe Volatility Index is how Wall Street measures anxiety. Lately it's the gauge's own plumbing that's making people nervous.
/bloom.bg/2HcVuMX
****JB: Financial Times story on same subject here. Bloomberg Daybreak has a video describing the action here.
Manipulation of Europe's stocks volatility gauge 'very unlikely'
Reuters
Any manipulation of Europe's main gauge of stocks volatility would be "very unlikely", France's financial markets regulator said in a research note on Thursday, following allegations that the equivalent U.S. "fear gauge" was being manipulated.
Europe's VSTOXX .V2TX, the region's equivalent to the U.S. CBOE S&P 500 volatility index VIX .VIX, would probably be protected from any possible rigging due to the different method used to settle prices for the VSTOXX futures, the Autorité des Marchés Financiers (AMF) said.
/reut.rs/2JWPvJU
****SD: Don't you love when volatility's plumbing is all over the news?
Back to Future for VIX Curve Signals Volatility's New Normal
Dani Burger - Bloomberg
VIX curve falls back into contango in sign of normalcy; New continued high-vol regime "unlikely," says Goldman
Welcome back, tranquility. The first stages of restored market calm are underway, suggesting that a sky-high Cboe Volatility Index isn't the new normal, unlike what so many observers warned about after the recent turmoil. Instead, traders are pricing derivatives in a way that suggests equity swings will soon ease even further.
/jlne.ws/2vrReUs
****SD: I was told in this industry NEVER to resort to a "Back to the Future" reference, but only after I'd done it...
Markets Should Brace for More Volatility, IMF Finance Chief Says
Andrew Mayeda - Bloomberg
Investors should be prepared for more volatility as overstretched markets adapt to the end of easy central-bank money, according to the head of the International Monetary Fund's capital-markets department.
The sharp selloff earlier this year in the stock market was a "fairly isolated" event that involved the unwinding of bets that low volatility would continue, the IMF's Tobias Adrian said in an interview Wednesday at the fund's headquarters in Washington. Still, markets will probably face more choppy waters ahead, he said.
/bloom.bg/2K1tz0j
Brokers May Have to Put Customers First
Matt Levine - Bloomberg
...VIX manipulation?
There's a classic form of market manipulation where you own a derivative on, say, gold, and it pays out 1,000 times the price of gold at a particular time, and you go into the market and buy 100 ounces of gold at that particular time to push the price up, and if you overpay for the gold by $5 and it pushes the price up by $5, then you lose $500 on your gold and make $5,000 on your derivative, and so it is worth it, but it is generally considered to be cheating, when you put it like this.
/goo.gl/mMcq5q
****SD: The above excerpt about the VIX is partway down the column - the first part of the column is also relevant and deals with the SEC's new broker-dealer proposal. Matt's point - there are legitimate reasons for the activity but it sure looks weird. Quite the fine line.
VIX Index And Products: The Autorité Des Marchés Financiers Publishes A Study On The Strong Volatility Observed On The Markets In Early February 2018
Press Release
Given the spike in volatility perceived by investors in early February, the AMF is publishing an analysis of the main products concerned and their behaviour during this episode. Broadly speaking, the extent of investment strategies based on volatility calls for a certain vigilance.
bit.ly/2K0pTMb
Deutsche Bank Inadvertently Made a $35 Billion Payment in a Single Transaction
William Canny - Bloomberg
A routine payment went awry at Deutsche Bank AG last month when Germany's biggest lender inadvertently sent 28 billion euros ($35 billion) to an exchange as part of its daily dealings in derivatives, according to a person familiar with the matter.
/bloom.bg/2HdcoLp
Northern Trust's Cherry Speaks on Options
John D'Antona - Markets media
While the bevy of financial market news focuses on cryptocurrencies and Presidential tweets targeting specific companies, there is one segment of this universe that is flying under the radar. And successfully. Options.
/goo.gl/qjAjqp
| | | | | | Exchanges and Clearing | | | Cboe blasts 'draconian' plan to test banning stock exchange rebates
John McCrank - Reuters
A plan by U.S. regulators to test banning the rebates stock exchanges pay to brokers that provide liquidity, in an effort to reduce potential conflicts of interest, will ultimately harm investors, the president of exchange operator Cboe Global Markets said on Wednesday.
/reut.rs/2HcwIg1
Fire extinguisher prompts lengthy outage at Nasdaq Nordic
Adam Samson yesterday - Financial Times
The open of trade on Nasdaq equities bourses in seven countries was delayed by hours on Wednesday after the exchange operator faced a serious issue at a Swedish data centre that houses its servers.
Trading across the group's stock markets in Sweden, Denmark, Finland, Iceland, Latvia, Estonia and Lithuania did not begin on Wednesday until 1:15pm  2:10pm CET (12:15pm  1:10pm BST), hours after the typical opening time.
/on.ft.com/2K1hM2g
Cboe Conducts April Settlement of Cboe Bitcoin Futures
Cboe.
bit.ly/2K08Wlo
| | | | | | Regulation & Enforcement | | | Morgan Stanley seeks new court in Italian derivatives case
Reuters
Morgan Stanley (MS.N) on Thursday asked to have a lawsuit against it for 2.7 billion euros ($3.34 billion) in damages thrown out of an Italian administrative court, an Italian judge said.
At the opening of the trial in Rome, the U.S. investment bank the other defendants asked a three-judge panel at the Court of Accounts, which rules on abuses of public funds, to reject the case in an acknowledgement that the judges do not have jurisdiction, Marco Fratini, one of the judges, said.
The defendants, who deny any wrongdoing, maintain the issue should be reviewed by a civil court.
/reut.rs/2HgVJa8
| | | | | | Technology | | | UBS, Credit Suisse Said to Explore Sharing Back-Office Costs
Jan-Henrik Foerster and Patrick Winters - Bloomberg
Zurich-based banks said in early-stage talks on cost-sharing; UBS CEO said recently banks can't afford separate back offices
Credit Suisse Group AG and UBS Group AG are in talks about combining some back-office functions to cut costs, according to people with knowledge of the matter.
/bloom.bg/2Hc8tyt
Machine Learning's 'Amazing' Ability to Predict Chaos
Natalie Wolchover - Quanta Magazine
Half a century ago, the pioneers of chaos theory discovered that the "butterfly effect" makes long-term prediction impossible. Even the smallest perturbation to a complex system (like the weather, the economy or just about anything else) can touch off a concatenation of events that leads to a dramatically divergent future. Unable to pin down the state of these systems precisely enough to predict how they'll play out, we live under a veil of uncertainty.
But now the robots are here to help.
bit.ly/2HbYn0O
****SD: From the article - "The approach is being lauded by outside experts as groundbreaking and likely to find wide application." No kidding.
Colt connects ASX and CME
Finextra
Colt Technology Services today announced the launch of its new ultra low latency service connecting the Australia Securities Exchange (ASX) and the Chicago Mercantile Exchange (CME), offering the lowest latency available in the industry.
bit.ly/2Hg3ywE
| | | | | | Strategy | | | Why Option Selling Strategies Make Sense In 2018
Gaurav Sinha - WisdomTree Blog
2017 was a unique year in two respects. One, it was the ninth consecutive positive year for the S&P 500 (a bull run, which has happened only twice since the 1950s); and two, this bull run was accompanied by extraordinarily low volatility for equities. For most of 2017, the Chicago Board of Options Exchange (Cboe) Volatility Index (VIX), a measure of the market's expectation for forward volatility, traded below 10. That is less than half its long-term average of 20. In the baseball world, this would have been like the Yankees winning all games in 2017 with no nail-bitters going down to the last innings. As much as I love the Yankees, it has rarely happened, in my memory at least!1
bit.ly/2HcdpU8
How to Play a Renewed Bout of Tech Volatility
Gunjan Banerji - Barron's
Stock market volatility is sliding once again, but investors should watch out for explosive moves in technology shares.
bit.ly/2JXhfhE
Arbitrage: Relaxed currency derivatives norms to bring more arbitrage opportunities
Economic Times of India
Mumbai : Easier currency derivative rules have helped traders exploit the opportunities of arbitrage between rates in the overseas options markets and those back home.
bit.ly/2Hd46Dt
Trading The New Volatility
Seeking Alpha
The Volatility Index (VIX) was first created in 1993.
The Volatility Index we have today is not your father's Volatility Index.
The VIX was originally a weighted measure of the implied volatility of just eight S&P 100 at-the-money put and call options.
Ten years later, in 2004, it expanded to use options based on a broader index, the S&P 500, which allows for a more accurate view of investors' expectations on future market volatility. That formula continues until today.
bit.ly/2HcyZI9
Volatility Markets Signal Trouble for Best-Performing Currency
George Lei and Justin Villamil - Bloomberg
Mexico's peso is leading gains in major currencies this year as Nafta negotiators push for a quick deal to save the trade pact. Meanwhile, volatility markets are saying the rally won't last with elections on the horizon.
/bloom.bg/2JWRG02
Acceleration in lira volatility may spark Turkey rate hike  analysts
Key meeting of Turkey's central bank less than a week away
Adam Samson - Financial Times
A jump in lira volatility against other emerging market currencies has preceded sharp rate rises by Turkey's central bank in the past, and has boosted the chances of a "bolder" response from policymakers at a meeting later this month, analysts say.
/goo.gl/DHZWRb
| | | | | | Education | | | "Moneyness" - options to give investors choice
Gary Delany - TradingFloor.com
Today's web post covers something more generic which can sometimes get lost in the detail. The theme is quite simple - 'moneyness'. Moneyness refers to the relationship between the option strike price and the price of the underlying asset.
bit.ly/2JZhXuX
| | | | | | Miscellaneous | | | Never mind OPEC - Brent oil market braces for Iran deadline
Amanda Cooper - Reuters
Oil investors are taking no chances that Iran's nuclear deal with Western powers will remain intact next month.
/goo.gl/xhVBDW
Indicators that signal financial-market trouble are flashing
The Economist
Watching financial markets can be like watching a horror film. A character walks into the darkness alone. A floorboard creaks. The latest spooky sign is the spread between the three-month dollar London interbank offered rate (LIBOR) and the overnight index swap (OIS) rate. It usually hovers at around 0.1%, but has recently climbed to 0.6% (see chart). As it widens, bankers are bracing for a jump scare.
/econ.st/2HevOQp
Trading volume is way down, but there might be some simple explanations
Bob Pisani - CNBC
Overall volumes have been declining for some time. Friday and Monday were the two lowest-volume days of the year at the NYSE.
The prevailing thinking is that volume is down because there is more risk.
The shift to passive investing and ETFs has reduced the number and frequency of traders buying and selling individual stocks.
/cnb.cx/2HdQ2ts
Treasury Curve Collapse Spurs Showdown Between Fast, Real Money
Edward Bolingbroke - Bloomberg
A tussle seems to be ensuing in the Treasuries market, with real-money and fast-money accounts locking horns over the direction of the yield curve.
/bloom.bg/2JYcm88
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