| December 19, 2018 | | | | | Spencer Doar
Editor
John Lothian News | |
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| | | | Lead Stories | | | Natixis's Pursuit of Exotic Trades Falters With $296 Million Hit
Fabio Benedetti Valentini, Viren Vaghela and Donal Griffin - Bloomberg (SUBSCRIPTION)
Equity derivatives unit stumbles after years of expansion; Hedging for products traded with clients proved 'deficient'
Since recovering from the financial crisis, Natixis SA has profited from some of the most esoteric trades in global finance, including derivative deals with names such as the Flash Lizard and the Cobra.
Some of those deals have now come back to hurt Natixis's investment bank. The Paris-based lender took a 260 million-euro ($296 million) hit this quarter from hedging Asian equity derivatives, a risky business that has been a priority for Chief Executive Officer Francois Riahi.
/goo.gl/ka4XJ2
****SD: The culprit? Autocallables tied to South Korean equities. Other sources with background on the $296m hit: BloombergQuint and Reuters. For a peak behind the Natixis curtain before this example of "deficient" risk management, see Risk.net's (unpaywalled) write-up of the bank when it won the publication's "Korea house of the year" during it's August Structured Product Asia Awards. It specifically goes into the bank's innovative autocall structures. And if you're wondering why a hit in esoteric trades could get so big, consider Natixis claimed that just one of its offerings, the lizard autocallable, accounts for "20-30% of all the flows in the Korean structured products market." (I take it this lizard had quite a bit of tail risk? Badump-tsh.) Moreover, "as of May 8 this year, Natixis had hedged more than $1 billion notional on autocalls linked to the Kospi3 index on more than 2,010 trades." (Kospi3 is Natixis' index specifically for autocallable products - one of the bank's key innovations leading to the Risk.net award.)
Citi faces up to $180m loss on Asian fund's currencies trade
Laura Noonan - Financial Times (SUBSCRIPTION)
Citigroup could lose as much as $180m on an Asian hedge fund's ill-fated currencies trade, a person familiar with the situation said on Tuesday.
Citi's potential losses on the Asian trade, which are still dependent on negotiations with the hedge fund and the cost of unwinding the trade, were first reported by Bloomberg. Citi declined to comment.
/on.ft.com/2ClvGdK
****SD: As a result, Citi is reorganizing its prime brokerage unit (via Reuters).
Mnuchin Blames Volcker Rule, High-Speed Trading for Volatility
Saleha Mohsin, Jesse Hamilton, and Craig Torres - BloombergQuint
U.S. Treasury Secretary Steven Mnuchin blamed volatility in equity markets partly on high-speed trading and the effect of the Volcker Rule, adding that he planned to conduct an inter-agency review of market structure.
/goo.gl/9mQmmU
****SD: Both Reuters, Mnuchin pins market volatility on wrong president, and a Bloomberg commentary piece, Mnuchin Rounds Up Some Usual Suspects to Blame for Market Stress, provide appropriate color to his comments in their respective titles. Bloomberg ran the numbers and found that since 1968, there have been 18 years when the Dow's daily average move was greater than 2018.
Husband of UBS M&A Director Sued by SEC for Insider Trading
Matt Robinson - BloombergQuint
Peter Cho eavesdropped on then-fiancée on upcoming deal: SEC; Agrees in settlement to return $250,000 in illicit gains
His fiancee didn't know he was eavesdropping. He swiftly made more than $250,000.
/bloom.bg/2ED0Xey
****SD: Again and again and again - lots of out of the money call options on thinly traded stock = obvious. To that point, see Matt Levine's commentary in Bloomberg today - Insider Trading Is Not a Romantic Surprise
Charts of the Year: US market volatility likely to persist
Mamta Badkar in New York yesterday - Financial Times (SUBSCRIPTION)
Having enjoyed years of tranquility, Wall Street has seen a surge in volatility this year that is "likely to persist", according to folks at Credit Suisse.
/on.ft.com/2EwVt3V
****SD: The piece has a nice SPX term structure chart from Credit Suisse.
UBS has hedge fund-like playbook to combat market mayhem
Yakob Peterseil - BloombergQuint
The world's largest private bank is doubling down on exotic strategies to profit from the intensifying meltdown in the synchronized bull market.
As Wall Street frets another annus horribilis, UBS Global Wealth is embracing a playbook beloved by hedge funds  a slew of options trades that bet, for example, on the continued outperformance of U.S. health care stocks versus industrials when tensions in commerce sink equities.
/goo.gl/qFFQRu
| | | | | | Exchanges and Clearing | | | Miax Emerald to compete in hybrid trading space
Louisa Chender - Global Investor Group (SUBSCRIPTION)
Miax is launching its third US options exchange, Miax Emerald, in February 2019
bit.ly/2CmvwTo
****SD: Exchange recap: currently, Nadsaq's BX Options and BOX offer hybrid fee structures. PFOF/rebate exchanges are Nasdaq's PHLX and Mercury; Cboe Global Markets' eponymous exchange and EDGX; NYSE's Amex and MIAX's exchange of the same name. Maker taker exchanges are Nasdaq's NOM, Gemini and ISE; Cboe's C2 and BZX; NYSE's Arca; and MIAX Pearl.
Nasdaq Dubai To Launch Futures Trading In January On MSCI's Index Of UAE Equities
Mondovisione
Nasdaq Dubai announced today that it will launch trading in futures on the MSCI United Arab Emirates (UAE) equity index on January 15th, 2019. This opens a new route for investors to gain exposure to the performance of UAE companies.
/goo.gl/HWUNCv
****SD: Per the release - "The licence also enables Nasdaq Dubai to launch futures and options in due course on MSCI indices of a number of GCC and regional equity markets."
MIAX Options & MIAX PEARL
Press Release
Please be advised the MIAX Options Exchange will have an abbreviated trading session on Monday, December 24, 2018. All Option Classes will close 3 hours early.
bit.ly/2ClWE4L
| | | | | | Moves | | | PIMCO Hires Adam Shukovsky as Managing Director and Portfolio Manager for Interest Rates and Volatility
Globe Newswire
PIMCO, a leading global investment management firm, has hired Adam Shukovsky as a Managing Director and Portfolio Manager for interest rates and volatility. Mr. Shukovsky will report to Mihir Worah, Managing Director and Chief Investment Officer - Asset Allocation and Real Return. He will join PIMCO in March and will be based in the firm's Newport Beach office.
bit.ly/2EzchHP
| | | | | | Regulation & Enforcement | | | European Commission sets out no-deal Brexit Contingency Plan
FIA
The European Commission today implemented a Contingency Action Plan for a number of specific sectors in the event of a no-deal Brexit, including adopting acts to provide temporary and conditional equivalence to UK CCPs and central depositary services, as well as two delegated regulations to facilitate the novation of certain OTC derivatives.
bit.ly/2EB4BVx
Companies Must Disclose Executive Hedging Strategies; SEC approves rule aimed at shedding light on hedges against a company's poor performance
Gabriel T. Rubin - WSJ
Companies will have to disclose whether executives and directors can hedge against declines in their companies' stock, following a vote by U.S. securities regulators on Tuesday.
/on.wsj.com/2EtiSmO
****SD: Press release from SEC here.
SEC Solicits Public Comment on Earnings Releases and Quarterly Reports
SEC
The Securities and Exchange Commission today published a request for comment soliciting input on the nature, content, and timing of earnings releases and quarterly reports made by reporting companies.
bit.ly/2ClVRkj
| | | | | | Strategy | | | JPMorgan, Nomura in Opposite Corners on Rand 2019 Prospects
Colleen Goko - BloombergQuint
Median analysts' forecast mask wide range of predictions; Election could be boon or curse as headwinds stack up
The rand's implied volatility against the dollar tells you one thing about the currency in 2019: it's going to be a wild ride. It's just not clear which way.
The cost of hedging in the options market against price swings in the South African currency over the next year has climbed almost 500 basis points since April. Though it has moderated from its September high, it's still about 200 basis points above the five-year average.
You've reached yo
/goo.gl/ZdUaZN
How Delta Derivatives Strategist Biggam Is Playing the VIX
Bloomberg (VIDEO)
On this edition of "Options Insight," Delta Derivative Lead Options Strategist Tim Biggam discusses his options strategy with Bloomberg's Taylor Riggs on "Bloomberg Markets: The Close."
/bloom.bg/2Cp1pdV
| | | | | | Miscellaneous | | | Nifty Recovers More Than Half Of Its Losses - The Biggest Contributors And Laggards
Yash Upadhyaya - BloombergQuint
The benchmark Nifty 50 Index recovered more than half of its losses since its October low as the assembly election overhang lifted, crude prices softened, and foreign investors returned. The rebound was led by beaten-down bank and real estate stocks.
The gauge scaled the 10,900-mark for the first time since October, the most volatile month this year, according to Bloomberg data. The India VIX, used measure market risk, fell more than 20 percent so far in December. Also, the mid- and small-cap stocks outperformed their larger peers.
bit.ly/2CoKWXn
The greenback's back!
Jemima Kelly - FT Alphaville
A year is a long time in the fast-paced world of financial markets.
Around this time in 2017, the dollar was on track to post its worst performance in 14 years after sliding 10 per cent on a trade-weighted basis; FAANG (Facebook, Apple, Amazon, Netflix and Alphabet's Google) and BAT (Baidu, Alibaba and Tencent) stocks were the toast of rallying global stockmarkets; bitcoin had bubbled up by more than 1,300 per cent; and sterling was struggling amid Brexit uncertainty
/on.ft.com/2EB66TF
****SD: Included for the cool chart from BAML showing results of its crowded trade survey.
Brexit: What Game Theory Tells Us About Theresa May's Choices
Mohamed El-Erian - BloombergOpinion (SUBSCRIPTION)
Almost immediately after she safeguarded her position as leader of the Conservative Party on Dec. 12, Prime Minister Theresa May headed to Brussels to try to gain concessions from the European Union before a second vote in Parliament on a Brexit deal. Her tireless efforts are commendable. But if success eludes her in the next few weeks, her negotiating stance will be increasingly costly to maintain  economically, politically and socially  strengthening the case for a determined, though risky, pivot.
/bloom.bg/2Cpa0NJ
White House cites 'options' for funding U.S. border wall
Richard Cowan - Reuters
The White House said on Tuesday it was searching for ways to unilaterally fund the building of a controversial wall on the U.S.-Mexico border that Congress is balking at, possibly easing chances of a government shutdown this weekend.
/reut.rs/2CmLDjA
****SD: For a moment I really did think the "options" reference somehow pertained to equity derivatives.
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