Observations & Insight

2017 FIA Expo Preview with Walt Lukken

JLN sat down with Walt Lukken, President and CEO of the FIA, to discuss this year’s EXPO event in Chicago. Innovation is the theme this year at EXPO and Lukken is looking for the next generation of ideas. At the innovators pavilion, 20 new and exciting start-ups showcase their brand in front of a panel of judges. With 5,000 industry professionals in attendance, EXPO is a great way to connect with industry leaders, identify trends and staying informed about the latest developments in technology and regulation. Speakers include Craig Phillips of the U.S. Department of Treasury, along with Bob Woodward, of Watergate fame. EXPO is October 16th-19th at the Chicago Hilton.

Watch the video »

Lead Stories

As MiFID Jolts Derivatives, Hong Kong Eyes $483 Trillion Market
Viren Vaghela, Benjamin Robertson and Andrea Tan – Bloomberg
City is said to plan changes to ease the booking of trades; MiFID and Brexit will complicate the process in Europe
Hong Kong is gearing up to grab a bigger slice of the $483 trillion global derivatives market as regulatory upheaval in Europe increases demand for alternative trading centers.

****SD: The phrase “global derivatives market” could mean so many different sorts of instruments so I’m interpreting it as “all the things.”

Panel in NYC on Accessing the Volatility Risk Premium with Cash-Secured Put Writing
Matt Moran – CBOE Blog
Earlier this month CBOE and CAIA Association teamed up to present a panel discussion in New York City on Accessing the Volatility Risk Premium with Cash-Secured Put Writing. I was pleased to see great feedback on the event.

****SD: Solid collection of slides covering use of weeklys, how options benchmarks compare to more common indices, options pricing in 2017 and more.

Investors Expect Stock Market Correction and Fear for Retirement
Suzanne Woolley – Bloomberg
Investors expect the stock market to plunge. Their response: Whatever.
A little more than half of U.S. investors anticipate a decline this year that will wipe out “significant gains,” according to the latest Wells Fargo/Gallup poll results. That’s fully 54 percent of the respondents, though down from previous survey highs in 2013 (62 percent) and 2014 (58 percent).

Low volatility, correlations, and other confounding market riddles
Ryan Vlastelica – MarketWatch
If you look at the U.S. stock market in a certain way, most of the trading action in 2017 makes sense. The labor market is strong, corporate earnings are improving, and there’s a chance that business-friendly tax changes will be enacted—all obvious positives fueling a market that’s been hitting record after record.

Commodities markets swell in size despite price slide
Gregory Meyer – Financial Times
Commodities prices are heading for their sixth loss in seven years. But commodities markets have never been bigger.
Open interest — the number of commodities contracts outstanding — has been booming on futures exchanges this year. From crude oil to soyabean oil, the markets’ size has increased by nearly 1.4m contracts in the first nine months of 2017, the most in seven years.

Quantitative Brokers adds Thomas Ascher to board
Quantitative Brokers (QB), an independent, global financial technology company providing advanced algorithms and data-driven analytics to clients in the Futures and US Cash Treasury markets, has appointed Thomas Ascher to its Board.

****SD: Ascher spoke at our NY MarketsWiki Education event this year about selling bootleg cassette tapes out of his dorm room and how it helped his career (among other things). You can watch that video HERE.

Market Volatility Bulletin: Is Short Volatility A Crowded Trade?
Seeking Alpha
The markets were fairly flat in the overnight session and into the open; VIX headed lower before taking a bump.
A study on VIX vs. High Yield & EM Debt.
What is skew, and what is it telling us?

****SD: Recap of recent events and studies. And to answer the title’s query – yes.

Exchanges and Clearing

Extension of BTP product suite as of 2 October
Eurex, one of the world’s leading derivatives exchanges and part of Deutsche Börse Group, will introduce Options on Euro-BTP Futures as of 2 October 2017. This euro denominated product provides market participants with an efficient and cost-effective listed instrument that extends hedging opportunities in the Italian interest rate market.
At market launch, Eurex will offer a special market-making program to incentivize order book liquidity. Market makers will provide liquidity from day one of trading. The minimum quote size for market makers on-screen and the minimum block size is 100 lots.

Deutsche Boerse targets big data with latest investment
Hayley McDowell – The Trade
Deutsche Boerse has acquired a minority stake in data wrangling firm Trifacta as it looks to advance its analytics technologies and launch new big data products.

****SD: Now if only Trifacta were in the business of handicapping horse races with big data, then I could really get down.

Nasdaq Announces New Fees for Nasdaq Options Trade Outline (NOTO)
Effective January 1, 2018, Nasdaq will revise the Nasdaq Options Trade Outline (NOTO) pricing, subject to Securities and Exchange Commission (SEC) approval.

****SD: A ton of Nasdaq fee changes announced yesterday taking effect in 2018 – Nasdaq Announces New Fees for PHLX Options Trade Outline (PHOTO); Nasdaq GEMX Announces GEMX Trade Feed Distributor Fee, Effective January 1, 2018; Nasdaq PHLX Announces Market Data Distributor Fee Change for TOPO Plus Orders, Effective January 1, 2018 and Nasdaq ISE Announces ISE Trade Feed Distributor Fee, Effective January 1, 2018.

CME Not Ready To Introduce Bitcoin Futures; CBOE Plans To, Pending CTFC Review
Adam Reese – ETH News
CME Group Inc. president Bryan Durkin has revealed that even if the Chicago Mercantile Exchange (CME) does eventually introduce bitcoin futures, it’s won’t do so in the “very near future,” explaining that, according to his assessment, “bitcoin is very nascent right now.”
Market watchers have speculated that the exchange would create some sort of bitcoin derivative since it debuted a bitcoin price index in 2016.

****SD: In case you missed it.

Regulation & Enforcement

What Awaits Wall Street in Trump Tax Plan
Telis Demos, Liz Hoffman, Justin Baer and Rachel Louise Ensign – WSJ
Wall Street has hungered for a tax overhaul, and with good reason. If it spurs stronger economic growth, corporate borrowing and finance firms’ profits could jump.
A lower corporate tax rate as called for in the tax framework unveiled by the Trump administration Wednesday should immediately boost banks’ own profits. Bankers expect some pain points, but are confident the benefits will outweigh them.

CFTC’s chief enforcer underscores benefits of self-reporting and cooperation in NYU address
Brad Rosen – Jim Hamilton’s World of Securities Regulation Blog
CFTC Enforcement Director James McDonald reiterated and clarified the benefits that can accrue to commission registrants who elect to self-report violations and offer substantial cooperation in connection with regulatory investigations in an address he made before NYU’s Institute for Corporate Governance and Finance.

****SD: As Brooklyn’s Gary DeWaal says in the piece: “For many years, it has been the perception across the industry that there has been no reward for coming clean and bringing a problem to the attention of the agency. McDonald has made it clear there will be benefits for doing so.”

CFTC chairman appoints clearing and risk director
U.S. Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo on Thursday appointed Brian Bussey to lead the agency’s clearing and risk division, according to a statement.

****SD: CFTC press release here.

EDGAR breach has managers questioning SEC’s own protections
Rick Baert – Pensions & Investments
The Securities and Exchange Commission’s announcement this month that its EDGAR corporate filing system was hacked a year ago is sparking concern that the agency is pushing others on cybersecurity when the SEC itself isn’t prepared for an attack.

****SD: This piece points out another way that the CAT (consolidated audit trail) could scratch.

ECB’s Lautenschlaeger expects Basel III deal by year end
A deal on a new set of global rules aimed at ensuring stability in the banking sector, known as Basel III, is likely to be reached this year, a top European Central Bank supervisor said on Thursday, adopting a more optimistic tone than most.

****SD: Regulators struggling to get the right regulations in place?! Blasphemy.


Despite industry opposition, Canada announces ban on binary options
Maria Nikolova – FinanceFeeds
In the face of opposition from exchanges and industry lobbyists, the Canadian Securities Administrators (CSA) announced the implementation of the proposed ban on binary options.


Dynamic Hedging: Understanding Gamma, Delta and Theta
Doug Ashburn – The Ticker Tape
So you’ve identified a stock in which you believe the implied volatility (IV) is too low. Maybe it’s been fluctuating quite a bit, or maybe you think it is entering a period of uncertainty, but this uncertainty doesn’t appear to be reflected in its IV, so you decide to buy the at-the-money (ATM) straddle, a strategy that rises in theoretical value (TV), all else equal, as IV increases (aka a “long vega” position).

Large Buyer of VIX Calls Today at CBOE
Russell Rhoads – CBOE Blog
Another big bullish VIX trade came into the pit today, with VIX just over 10.00 and the October futures at 12.20, a buyer of about 100,000 VIX Oct 17 Calls came into the market paying 0.45 for the whole lot. The trade got divided up around the pit in several pieces, which shows up in the time and sales from LiveVol below.

VXX: Get Ready For The October Surprise
Victor Dergunov – Seeking Alpha
October is traditionally the most volatile month of the year, producing significant VIX spikes in each one of the last ten years.
There are several prominent factors that could help orchestrate a significant VIX/VXX surge this October.
These elements include a switch from tax reform euphoria to hangover, Fed’s hawkish policy, North Korean tensions, extreme complacency, and seasonality.
October tends to be volatile, and we’re entering it equipped with significant fundamental and technical factors that could spark that surge in volatility, thus producing a spike in VXX shares.

****SD: Get ready for all the Halloween flavored “trick or treat” market stories.

Reading Into Interest Rate Trends
Sage Anderson – tastytrade blog
The US Federal Reserve recently decided to maintain interest rates at current levels during their September meeting. However, the central bank also indicated that another hike should arrive in December.
Taking a broader view of the general interest rate environment, those signposts indicate that the current trend in the US is still upward.
For traders from a variety of niches in the financial market, the interest rate direction in the US is an important data point, and in many cases can even help guide ongoing portfolio management and strategy.

Mysterious trader is making a huge bet on a volatility spike
Rebecca Ungarino – CNBC
A multimillion dollar bet on a surge in market volatility is gaining notice in the options market and appears on track to become the largest trade this year in the CBOE volatility index.
That’s according to Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors.
In a note to clients Tuesday, Chintawongvanich pointed out that the trade initiated in July is betting that the CBOE’s VIX will rise meaningfully in the short term. The index has traded around historically low levels for much of this year.

****SD: More context on Monday’s action.

Crypto-currencies can’t salvage hedge-fund junkies
Lauren Silva Laughlin – Reuters
Hedge-fund star Mike Novogratz thinks he has crypto-currencies figured out. The one-time manager of Fortress Investment Group’s flagship macro fund is pinning his comeback hopes on digital coins. Their volatility is alluring when tranquil markets are depressing industry returns. But that can be a trap, as the investor well knows.

****SD: Mentions hedging issues that could be addressed if certain instruments and platforms get off the ground in the U.S.

Goldman: Wal-Mart Is Worth a Bet
Steve Sears – Barron’s
Wal-Mart Stores is probably the world’s largest “show me, don’t tell me” stock. Even though the behemoth retailer is credibly fighting back against Amazon.com, investors still view the company with skepticism.

****SD: Aka buy 79.50 strike calls that expire Oct 13 (after an analyst meeting concluding on Oct 10).


Know Your Contract Specifics: Multiplier, Delivery Terms and More
T. J. Neil, Sr. – TD Ameritrade
When trading stock, knowing the amount of capital you’re investing is as straightforward as multiplying the price of the stock by the amount of shares being traded. But when you trade listed derivatives, such as options and futures, the calculation is not always that simple. Although there are some standard parameters, each product has its own set of specifications. Before you trade or invest in anything, it’s important to know the contract specifics—multipliers, delivery specifications, minimum price fluctuation (aka “tick size”)—because that is the only way to fully assess your risks and potential profit and loss.
Here are a few things you should know about those contract specifications.


Tech Tuesday: Crowd Sourcing in Listed Derivatives – 17 October 2017, 3:30pm to 5:30pm CDT
The use of crowd sourcing in trading and investments has enabled innovation across multiple asset classes. This trend has revealed itself in the creation of blockchain, in artificial intelligence applications, in algo development and in programming tools and platforms that vendors, as well as buy and sell side firms are beginning to utilize. What are the applications of crowd sourcing that can be applied to the world of listed derivatives and how are they likely to change the landscape? What are the potential legal pitfalls, for instance IP or KYC issues, that could arise from the use of crowd sourcing? How will it affect the way that our industry innovates in terms of hiring, partnering, rewarding, attracting talent?


Breaking Through: Margie Teller, Part 2
Kara Grygotis, VP, Customer Success – Trading Technologies Blog
Throughout my time in fintech, I’ve had the privilege of working with some strong female role models. However, and specifically in the world of trading, the female point of view rarely gets exposure. That’s unfortunate, as some of the best and biggest traders have been and are women.
To that end, this fall we’re releasing a series of interviews with women who have helped pave the way for the current generation of female traders. For this first installment, I spoke with Margie Teller, a former CME floor trader whose trading achievements earned her a formidable reputation, an induction into the FIA Futures Hall of Fame—and a nickname to boot.

****SD: More from “Large” Marge. Part I can be found HERE.

Ray Dalio’s Principles: A Radically Truthful Review
Axel Merk – ValueWalk
Spending $26.95 to pick Ray Dalio’s brain for over 16 hours listening to the audiobook appears fantastic value to me. The thought crossed my mind to offer Mr. Dalio a charity donation in his name if he gave me the opportunity to make it a two-way conversation over lunch. But that wouldn’t have been consistent with his (or my) Principles. Instead, I’m offering my radically truthful review for $0. The challenge for Mr. Dalio is whether reading this review will be time well spent. Ray, you do not know my ‘believability’ – and that is a key deficiency in your principles you might want to address, especially when applied to the next phase in your life. Let me expand.

****SD: Talks about hedge fund managers’ perception of options a bit.

This 31-Year-Old Is Trying to Revolutionize Cryptocurrency Trading
Matthew Leising – Bloomberg
Michael Oved helped Virtu Financial Inc. become the most consistently profitable market maker in the history of electronic trading. Now he has his sights set on revolutionizing how digital currency exchanges operate.

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