Observations & Insight

It’s all in the follow through
Jim Kharouf, JLN

This week, we are continuing our rollout of video interviews from the Options Industry Conference. Today we feature Gina McFadden, the first woman to receive the esteemed Joseph W. Sullivan Options Industry Achievement Award for her decades of education work at the Options Industry Council.

We’ve also posted engaging interviews with industry leaders, Steve Crutchfield, head of market structure with CTC in Liquidity Providers Unduly Penalized By Capital Rules: CTC’s Crutchfield and got a state of the options industry review from Henry Schwartz, president of Trade Alert, The Yin and Yang of Options Markets

We are also preparing an options exchange leader series for the Options Industry Council that will be featured shortly. This sponsored content features interviews with executives from CBOE, Nasdaq, NYSE, MIAX and BOX, outlining their respective exchanges’ current priorities and goals for the rest of 2017. Thanks to OIC for the opportunity to do this first of its kind project for the conference.

Speaking of conferences, JLN and FOW are putting the finishing touches on our speakers and panelist lineup for the FOW Trading Chicago event at the Swissotel in Chicago on June 28th. This full day event is free to CTAs, proprietary trading firms, asset managers and hedge funds. It’s packed with great speakers and a strong focus on the end user customers who make these markets so dynamic. Click on the link to register.


2017 Sullivan Award Winner Gina McFadden Looks Back at a Long and Lively Career

At this year’s Options Industry Conference in Scottsdale, Arizona, Gina McFadden received the 2017 Joseph W. Sullivan Options Industry Achievement Award, the first woman to do so since the award began in May 2002.

McFadden, the former president of the OIC, joined the company about a year after it first got off the ground, so she was involved with its early growth, developing the organization’s first advertising campaign.

Read the rest and watch the video »

Lead Stories

Bitcoin options exchange raises $11.4 million in funding
Gertrude Chavez-Dreyfuss – Reuters
Ledger Holdings, the New York-based parent company of bitcoin options exchange LedgerX, said on Monday it closed $11.4 million in funding led by Miami International Holdings Inc and China’s Huiyin Blockchain Venture Investments.

****SD: Some context on LedgerX from CoinDesk in January – Bitcoin Options Firm LedgerX Crosses Key Launch Hurdle. All of this is happening while bitcoin hits record highs. Just waiting on some regulatory clarity about the currency/asset/commodity/token technology/product…

Bill Brodsky: A Towering Figure in Options
Steve Sears – Barron’s
Bill Brodsky came to Wall Street in the summer of 1968. He was inspired by his father, Irwin A. Brodsky, the managing partner of Model, Roland & Co. The law school graduate began his career in the firm’s legal and compliance department. The son ultimately emerged as a towering figure in the global securities industry. His leadership modernized the Chicago Board Options Exchange and changed the course of the exchange industry. He made CBOE, which he ran for 20 years, into one of the world’s most important exchanges.

****SD: In case you missed our video retrospective with Brodsky, check it out here.

Bond Market Experiences Own Version of Price Stickiness; There’s a point in the political risk narrative where bond traders just throw up their hands and give up.
Scott Dorf – Bloomberg
When economists see the cost of goods and services as resistant to change, they call it price-stickiness, or nominal rigidity. When traders see a pronounced bias for a market to trade one direction regardless of the news, they call it sticky-up or sticky-down. In recent weeks the tone of the U.S. Treasuries market has been emphatically sticky-up. An increasing amount of perceived political turmoil in Washington has threatened the equilibrium in higher risk assets such as equities and dimmed the outlook for the Trump administration’s initiatives on taxes and infrastructure.

****SD: Boredom combined with pressure to perform is a tricky thing… “The Washington headlines came after one of the quietest periods in recent Treasury market history, as a lull between Federal Reserve interest-rate hikes induced many traders to relentlessly sell options to augment their performance.”

Commodity Traders Have a Really Big Problem
Serene Cheong, Dan Murtaugh and Sharon Cho – Bloomberg
More transparency seen eroding profits from arbitrage trades; Traders need to get involved in supply chain to gain advantage
For commodity traders operating in the Information Age, just good old trading doesn’t cut it anymore.

****SD: One way the issues is being addressed – making the trade more complex.

Opinion: Wild swings in global currencies show volatility is alive and kicking
Nicholas Spiro – South China Morning Post
Whoever said volatility had died a death? Over the past year or so, and particularly in the last several months, much has been made of the dramatic decline in volatility in financial markets. The Vix index, a popular gauge of anticipated volatility in the benchmark S&P 500 Index, fell to a 23-year low earlier this month and currently stands at just 12 points – significantly below its long-term average of nearly 20 … Yet in the US$5 trillion global foreign exchange markets, volatility is surging.

Flashback Friday: Options Exchange Fatigue
After Reg NMS was born and gave birth to dozens of public and private stocks exchange, derivatives were still traded among a handful of venues. But then in the shadows of the 2007 financial crisis, new exchanges looking to grab options market share sprang up. Let’s take a look at the birth of fragmentation – in the options market – which is still going strong today.

****SD: What’s old is new again.

Exchanges and Clearing

LSE boss warns of EUR100bn cost to euro-clearing grab; But Xavier Rolet accepts the EU’s need to ‘enhance’ its supervisory powers post-Brexit
Samuel Agini – Financial News
Brussels should have greater oversight of the City’s clearing houses in the wake of Brexit, according to the chief executive of the London Stock Exchange. But he warned that forcing euro-denominated derivatives to be cleared within the eurozone could hit investors with a EUR100bn bill.

Intercontinental Exchange Announces 2017 Annual Stockholder Meeting Results
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, announced the results of the company’s 2017 Annual Meeting of Stockholders, which was held Friday, May 19 in Atlanta. A replay of the meeting is available at http://ir.theice.com.

Regulation & Enforcement

Japan passes law to tighten regulations on high-frequency trading
Japan tightened regulations on high-frequency trading (HFT) this week, passing into law measures that will require HFT firms to register with regulators. Other nations in Europe and elsewhere in Asia are looking to tighten the leash on high-frequency traders who programme ultra-fast computers to trade in milliseconds without human intervention. Some major U.S. exchanges want to introduce speed limits on trading.


The Quants Run Wall Street Now; For decades, investors imagined a time when data-driven traders would dominate financial markets. That day has arrived.
Gregory Zuckerman and Bradley Hope – WSJ
Alexey Poyarkov, a former gold-medal winner of the International Mathematical Olympiad for high-school students, spent most of his early career honing algorithms at technology companies such as Microsoft Corp. , where he helped make the Bing search engine smarter at ferreting out pornography. Last year, a bidding war for Mr. Poyarkov broke out among hedge-fund heavyweights Renaissance Technologies LLC, Citadel LLC and TGS Management Co. When it was over, he went to work at TGS in Irvine, Calif., and could earn as much as $700,000 in his first year, say people familiar with the contract.


Hedge funds shuffle positions as OPEC decision nears
John Kemp – reuters
Hedge funds have started to rebuild bullish long positions in crude oil as OPEC prepares to extend its production cuts for an additional nine months. Hedge funds and other money managers increased their net long position in the three major futures and options contracts linked to Brent and WTI by 6 million barrels in the week to May 16.

Volatility Update: Markets wobble on White House worries ó #SaxoStrats
Georgio Stoev – Tradingfloor.com
More controversial comments coming from the White House sent equities lower across the globe last week. The bulls, however, responded the very next day and used the weakness to add to their positions the next day. These quick, knee-jerk reactions seem to be very typical in a consolidation pattern.

Weekend Review of VIX Futures and Options – 5/15/2017 to 5/19/2017
Russell Rhoads – CBOE Options Hub
The term structure and payoff below does not do any justice to what those of us that focus on VIX and related markets this past week. In fact, when the dust settled, all the standard futures were hardly changed on the week.

Weekend Review of Russell 2000 Options and Volatility – 5/15/2017 to 5/19/2017
Russell Rhoads – CBOE Options Hub
Small caps did not have a good week, despite the rebound in the equity markets after Wednesday’s swoon. The Russell 2000 (RUT) was down over 1% last week actually dipping into negative territory for 2017 before recovering at the end of the week. Large cap stocks as represented by the Russell 1000 (RUI) held up better than small caps with RUI down only 0.40% for the week.

Weekend Review of Volatility Indexes and ETPs – 5/15/2017 – 5/19/2017
Russell Rhoads – CBOE Options Hub
The week over week VXST – VIX – VXV – VXMT curve moved higher and appears to have done so in a very parallel fashion. Since the week over week change doesn’t do the actual activity justice so I added the Wednesday closing curve to the graphic below.


B-book P&L is rife among many brokers but is very shortsighted. Why don’t retail FX firms execute like Tier 1 banks?
Andrew Saks-McLeod – FinanceFeeds
The sooner the peripheral element of the retail FX industry embodies this ethos and begins to populate its offices with professionals with institutional and interbank experience on the technological, execution and relationship side, as well as customer facing staff who understand the means by which the market infrastructure of London and New York operates, the better for everyone, including themselves.

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