Observations & Insight
The Pathway to Liquidity in Unregistered Securities
In the United States last year there were more private unregistered securities issued than public ones. In this video from STAC’s 93rd Annual Midwinter Meeting, Vince Molinari, CEO of Templum Markets, talks about the decline in IPOs, building out market infrastructure to support secondary trading of unregistered securities, the illiquidity discount, and how smart contracts can tie it all together while becoming the ultimate vehicle for structured products.
Watch the video »
****SD: The topic covered is not in my normal bailiwick (nor the purview of this newsletter) but after talking with Vince, I feel so much more informed and intrigued. To paraphrase something he said in the interview: “It’s a $3 trillion market with underdeveloped market infrastructure. Tell me there’s not an opportunity there.”
FlexTrade moves EMS to the cloud with AWS
Hayley McDowell – The Trade News
FlexTrade’s multi-asset execution management system (EMS) for buy-side traders is now available on the cloud via Amazon Web Services (AWS).
****SD: Perfect timing – the video we published yesterday with USAM Group’s Feargal O’Sullivan was titled Fintech in 2019: The Year Cloud Computing Hype Gets Realized.
Cboe Global Markets Reports Record 2018 Fourth Quarter and Full Year Results
-Diluted EPS for the Fourth Quarter and the Year of $1.23 and $3.76, Respectively
-Adjusted Diluted EPS for the Fourth Quarter of $1.54 and $5.02 for the Year, up 77 Percent and 47 Percent, Respectively
-Net Revenue for the Fourth Quarter of $334.4 Million, up 26 Percent; Full Year up 22 Percent
-Set New Annual ADV Highs for Trading in Options, Index Options, SPX Options, VIX Futures and FX
****SD: The full PDF of the SEC earnings filing can be found HERE. Seeking Alpha has the slide deck that accompanied the call. A tidbit: Revenue per contract in multiply-listed options was $.083 — in each of the previous four quarters RPC on multiply-listed options was $.068 or less. Combine that with record ADV in options and index options (RPC in index options was up a smidge as well, up to $.75 from $.737) and the picture becomes clear, doesn’t it? Not to mention that its U.S. equities operations netted $310 million in revenue compared to $287 million or less in the previous three quarters, and FX was also a record in terms of net revenue. Here’s the Reuters story: Exchange operator Cboe beats profit on strong transaction fees. It seems like the Street took a moment to digest the results as Cboe stock opened at $95, dropped to $92.30, then bounced back north of $95, resulting in it being up ~.5 percent (as of this writing).
Cboe Global Markets considers Chicago headquarters move
Lynne Marek – Crain’s Chicago Business
Cboe Global Markets is considering moving its Loop headquarters, though the Chicago Board Options Exchange parent would not leave Chicago and it would leave its trading floor where it is. During a conference call today with analysts about its fourth-quarter earnings release, the company’s chief financial officer, Brian Schell, mentioned the possible move, without providing details. He was explaining a nearly 50 percent increase in capital expenditures forecast for this year, when he referenced the possibility of the move.
****SD: Talk of this has been bouncing around for a bit. While the current outlook is “still in the Chicago area,” that could quickly change if the prospect of a LaSalle Street Tax crops up again.
High-Speed Trader Virtu’s Profit Quadruples as Volatility Returns
Alexander Osipovich – WSJ (SUBSCRIPTION)
Profit surged at high-speed trader Virtu Financial Inc. in the fourth quarter, thanks to the wild volatility of recent months in the stock market.
****SD: If you missed it earlier this week, check out Alphacution’s blog Virtu’s, Flow Trader’s Optionality? Not So Much…
Wall Street’s ‘fear gauge’ for the stock market has clung to its highest level in 7 years, by one measure
Mark DeCambre – MarketWatch
****SD: The important bit: “According to Dow Jones Market Data, the VIX is on track to close above 15 for the longest stretch, 84 days inclusive of Thursday, since a 95-session period ended Aug. 9, 2012.” It’s looking like today will continue the stretch. VIX north of 17 still as of this writing.
Citi And HSBC Foreign Exchange Prime Broking First To Go Live With Capitolis Novation – Capitolis Has Dramatically Accelerated The Completion Time For FX Options Novations, Benefiting Prime Brokers, Executing Banks And Buy Side Participants
Capitolis, the pioneering technology provider for the capital markets, announced today that Citi and HSBC are the first FX prime brokers to be live on Capitolis Novation, its ground-breaking novation service in foreign exchange. The two leading banks were live in December 2018 and contributed to bringing the service to the market alongside Capitolis. The service has streamlined the novation process, helping to meaningfully reduce the time it takes for FX options novations to complete, for the benefit of the sell and buy side.
****SD: The Trade with the story HERE.
Hedge Funds Post First Monthly Gains Since July
Bloomberg via Yahoo Finance
Hedge funds gained 2.9 percent in January, the first positive return since July, as the rally in stocks offered managers some relief.
Six out of seven strategies made money, according to preliminary figures from the Bloomberg Hedge Fund Database. Event-driven funds led the pack, rising 5.4 percent.
****SD: Related blog from RCM Alternatives – Asset Class Scoreboard: January 2019.
No One Wants Umbrellas When The Sun is Shining (AUDIO)
Steve Sosnick, Chief Options Strategist, Interactive Brokers, joined Rishaad Salamat and Bryan Curtis on Daybreak Asia. He looks back on the explosion in volatility one year ago, considers what a normal level for the VIX is now and goes into the importance of liquidity.
Rand volatility rises as investors turn bearish after Ramaphosa speech
Mfuneko Toyana – Reuters
Investors on Friday raised their bets on a weaker South African rand as the options premium for buying currency jumped and implied volatility rose to its highest in a month, just days ahead of the budget speech and national elections in May.
Trading houses hit speed bumps in reselling Venezuelan oil: sources
Marianna Parraga, Mircely Guanipa – Reuters
Trading houses that resell Venezuelan crude oil have not yet found workarounds since the United States announced sanctions to cut off socialist President Nicolas Maduro’s revenue, according to shipping data and sources.
Energy Sector Turns South As Crude Oil Retreats Amid Global Growth Worries
JJ Kinahan – Forbes
As this week comes to a close, it seems that traders and investors are continuing to focus on global growth worries stemming from trade fears and concerns about the eurozone economy.
The U.S. market appears headed for its third down day in a row after European and Asian shares were mostly lower following a selloff on Wall Street yesterday as investors appeared to fret about the U.S.-China trade war as the deadline for more tariffs approaches.
Exchanges and Clearing
Debate over market data costs
Dan DeFrancesco – Business Insider Prime (SUBSCRIPTION)
The equities market might be close to a tipping point in its fight over market data fees.
A new survey conducted by financial research firm Greenwich Associates found 79% of traders at hedge funds and asset managers believe fees charged by exchanges for their market data feeds are not fair.
MIAX Options Wins for Most Innovative Exchange Technology at Fund Technology and WSL Awards 2019
MIAX Options Exchange announced today that it won the “Most Innovative Exchange Technology” category at the Fund Technology and WSL Awards 2019. The Fund Technology and WSL Awards 2019 recognize and reward providers catering to asset managers and institutional traders that have demonstrated exceptional customer service and innovative product development over the past 12 months. This is the first time MIAX Options has won in this category. Previously, MIAX Options was named “Best Overall Exchange” in 2017 and won “Best Infrastructure/Technology Initiative by Exchange/ATS” in 2015, 2016 and 2018.
Key Highlights for 11 Select Sectors
Over the next week, Cboe will roll out options on 11 Select Sector indices. Cboe’s Select Sector Index options are designed to provide investors with an easy way to add specific U.S. industry sector exposure to their portfolios and are expected to have particular utility for investors seeking an alternative to options on ETFs.
*****SD: Tax benefits!
Equity Index Highlights
The January Effect returned, as equity markets staged a broad recovery after December’s rout. All could merely be a relief rally though, as the markets took note of the mixed earnings reports of American bellwether stocks as a possible early indicator for the year ahead.
CME Group Inc. Names Slate of Director Nominees
CME Group Inc. today announced its slate of candidates for its board of directors for election at the company’s annual meeting to be held Wednesday, May 8, 2019.
NYSE-owner ICE warms to new challenger as profits rise
John McCrank, Bharath ManjeshR – Reuters
The New York Stock Exchange will not stand in the way of the creation of a new low-cost challenger recently proposed by some of its biggest clients, the head of NYSE-owner Intercontinental Exchange Inc said on Thursday after his company reported higher-than-expected earnings.
****SD: FT has ICE will not fight upstart exchange MEMX, CEO says
M&A Activity Sparks Into Life Among Global Exchange Groups As FTSE Mondo Visione Exchanges Index Up By 5.4% In January, Brazil’s B3 Up by 24.9%
M&A activity among global exchanges flickered into life at the end of 2018 when large shareholders in Oslo Bors pitched to be bought out by Euronext. In mid January Euronext launched a formal bid to acquire Oslo Bors. The flickering M&A flame became more intense when at the end of January Nasdaq made an offer to acquire Oslo Bors, setting it on a collision course with Euronext. Oslo Børs’s board considers Nasdaq’s offer the best alternative for all stakeholders and unanimously recommends that shareholders accept the offer and not accept Euronext’s.
Regulation & Enforcement
Not Your Father’s SEC Rule 606 …
Chris Montagnino, Jordan & Jordan – TABB Forum
Many firms are prioritizing the work to implement the changes to order routing disclosures over the Consolidated Audit Trail (CAT) work, given that Rule 606 is effective five months earlier (May 20, 2019) than CAT. The impact of the changes to 606 is significant and may implicate some of the same challenges posed by CAT, as well as entirely overhauling the current 606 reporting requirements. In this article, we will focus on the most notable changes and the difficulties that may arise for sell-side firms when attempting to implement such changes.
Ex-Deutsche Bank trader Andrew Donaldson pleads to be spared jail
Misa Han – Australian Financial Review
A former derivative trader who inflated his key performance figure while working at Deutsche Bank has pleaded for no jail time, arguing no one lost money because of his conduct, and that his personal and financial situation is dire after the corporate regulator was delayed in prosecuting him.
At a sentencing hearing on Friday, former Sydney-based Deutsche Bank forex, options and futures trader Andrew “Andy” Donaldson, 51, broke down into tears as he answered his barrister’s questions about how he had to work overseas and be separated from his family in order to make ends meet.
US buy-side agree brokers must have access to direct data feeds
Hayley McDowell – The Trade
A significant majority of North American asset managers have agreed that access to direct data feeds from exchanges is a ‘must-have’ when executing with brokers, according to Greenwich Associates.
How Santander Call Confusion Is Roiling $340 Billion CoCo Market
Tasos Vossos and Neil Denslow – Bloomberg (SUBSCRIPTION)
Banco Santander SA has a $340 billion corner of the debt market on tenterhooks. In the coming days, Spain’s biggest lender has a first opportunity to announce a call, or repurchase, of some of its riskiest bonds. While most investors expect banks to trigger such options, Santander has so far stayed silent on the subject, raising market tension. For while the decision is only over 1.5 billion euros ($1.7 billion) of so-called Additional Tier 1 notes, it has the potential to set an industrywide precedent and roil the entire market. The bank has said it has until Feb. 12 to issue a call notice.
E*Trade Suit Against Morgan Stanley Centers on Client Data
After exiting the broker recruiting protocol, Morgan Stanley played legal hardball with breakaway advisors, attempting to prevent them from soliciting former clients.
Climateer Investing: The First USDA World Agricultural Supply Demand Estimates Since The Government Shutdown (WASDE)
Climateer Investing Blog
From the U.S. Department of Agriculture, February 8, 2019
Mysterious Turkish Firm Helped Maduro Move $900 Million in Gold
Two months after Venezuelan President Nicolas Maduro visited his counterpart Recep Tayyip Erdogan in Ankara, a mysterious company called Sardes sprang into existence.