Observations & Insight

MIAX Options: Consolidated Audit Trail (“CAT”) Fee Dispute Resolution Rule
MIAX Options filed with the Securities and Exchange Commission a rule filing to adopt MIAX Options Rule 1713 that will establish the procedures for resolving potential disputes related to fees to be charged to Industry Members related to the National Market Plan Governing the Consolidated Audit Trail.


The CAT Scratches: Fees on Options Exchanges
Spencer Doar – JLN

Seeing the above MIAX press release got me thinking about these Consolidated Audit Trail (CAT) fees and why there would be reason for dispute. Please note, I don’t know if the following is on any exchange’s collective mind, but it seems like a point of contention.

I’ll set the table with this stat from a Reuters story earlier this month – “Options execution venues with more than 1 percent of industry volume will pay $57,615 per quarter and those with less than 1 percent will pay $39,612 per quarter.” “Per venue” means per medallion/exchange.

That means that MIAX would pay $388,908 per year to support the CAT — MIAX at $57,615 a quarter and MIAX Pearl at $39,612 a quarter, since Pearl executes less than 1 percent of industry volume. Comparatively, NSYE would pay $460,920 per year to support the CAT — NYSE Arca and NYSE Amex both come in at $57,615 a quarter as both execute more than 1 percent of industry volume. On a monthly basis, NYSE overall executes some 12-15 percent of industry volume, whereas MIAX executes some 5-6 percent of industry volume.

I can see an argument to be made by MIAX (or BOX, or Nasdaq, or NYSE for that matter) for this being a disproportionate application of CAT costs when compared to the volume of information generated. If the CAT is intended to track trade activity and serve as a repository for all activity, doesn’t it make sense that those with more marketshare — more trades to track — would pay proportionately more? Because under the current model NYSE, which has some two to three times the total volume of MIAX, would only pay 18 percent more per year.

Yearly CAT fees for all exchange groups with rounded April marketshare next to exchange name:

-Nasdaq (36%) – six exchanges, two with less than 1 percent volume = $1,238,736
-CBOE (44%) – four exchanges with more than 1 percent daily volume = $921,840
-NYSE (12) – two exchanges with more than 1 percent daily volume = $460,920
-MIAX (5%) – two exchanges, one with less than 1 percent volume = $388,908
-BOX (2%) – one exchange with more than 1 percent daily volume = $230,460

Note: This $3+ million is just a sliver of the CAT cost ($50.7 million) and brokers will be footing 75 percent of the total bill.


Lead Stories

Manipulation in the VIX?
Matt Levine, Bloomberg via Crain’s Chicago Business
The CBOE Volatility Index — the VIX — is a measure of expected volatility in the S&P 500 index. People pay more for options when they expect prices to be volatile, and you can compute implied volatility from option prices. So the VIX looks at the trading prices of a bunch of out-of-the-money put and call options on the S&P 500 and computes a sort of average implied volatility from them.

****SD: I’d recommend this read simply to get a better view of the intricacies of the VIX — the “manipulation” aspect is a bit click baity. For Levine’s full column, not just the VIX part, go here.

Options Suggest Traders Overconfident About Inflation Forecasts
Luke Kawa- Bloomberg
BofA says low volatility doesn’t remove inflation uncertainty; Cost of putting on inflation strangle is near record lows
The market is far too confident in its ability to forecast inflation, according to Bank of America Merrill Lynch.

****SD: Overconfidence in forecasting abilities? Now, when has that ever gotten us into trouble?

Opec: Brent crude options volatility eases ahead of OPEC decision
Reuters via Times of India
Volatility on short-term Brent crude options has eased in the run-up to the OPEC meeting on May 25 at which the world’s largest producers are widely expected to extend an existing deal to curtail oil supply.

Bunge gives cool response to Glencore approach
Jon Yeomans – The Telegraph
US grains trader Bunge has given a cool response to takeover interest from Glencore, as investors in the Swiss company expressed concern it may have to slash its special dividend to get a deal done. The FTSE 100 mining giant admitted last night it had made an “informal” approach regarding “a possible consensual business combination” with Bunge, but warned that no deal may be forthcoming.

****SD: In my mind, this went from a large scale international commodity shakeup story to simple corporate rumblings with little potential impact…

Bitcoin Price Hits $2,850 in South Korea, Extreme Premium
Joseph Young – CoinTelegraph
Bitcoin price reached $2,850 in South Korea on May 23, due to the rapidly rising demand for Bitcoin and other digital currencies such as Ethereum’s Ether (ETH). While arbitrage opportunities in South Korea always existed since the launch of Korbit, Coinone and Coinhumb, the three leading Bitcoin exchanges in the country, the premium rate rarely went past 10 percent.

****SD: Figured I’d include some bitcoin news because 1) it’s going crazy, 2) this is an interesting arbitrage anecdote and 3) the MIAX/LedgerX developments point to a US bitcoin options exchange in our future.

Exchanges and Clearing

CME chief Terry Duffy recovering from collapsed lung
Lynne Marek – Crain’s Chicago Business
CMEGroup Chairman and CEO Terry Duffy missed the future exchange’s annual meeting in Chicago today because he was home recovering from a collapsed lung. Duffy, 58, who added the CEO title last year, underwent a “procedure” last week after his lung collapsed, said a spokeswoman for the company. He expected to make a full recovery and to return to the office in a couple weeks, she said.

CBOE Holdings’ Exchanges Trading Schedule for Memorial Day Holiday
CBOE Holdings, Inc. (BATS: CBOE | NASDAQ: CBOE) today announced the following trading schedules for Chicago Board Options Exchange (CBOE), C2 Options Exchange (C2), CBOE Futures Exchange (CFE) and Bats U.S. equities and options exchanges in observance of the Memorial Day holiday on May 29.


Tower Trading Group Selects OptionsCity for Trading Software and Risk Management Services
PR Newswire
OptionsCity Software, a global provider of futures and options trading software, announced today that Tower Trading Group, headquartered in London and supporting over 200 active traders, has selected the Metro platform as its preferred platform for options trading and market-making. In addition, the Tower Trading Group risk management team will also leverage Metro’s global risk solution, enabling the team to analyze their real-time P&L and options market risk exposures in realtime, based on accurate pricing models and advanced volatility models implemented across all of the Tower Trading Group options markets including markets with less liquid products. The announcement comes after an extensive review conducted by Tower Trading Group as they expand their trading operations focused on options.

Colt launches Tokyo and Chicago low-latency network routes
Capacity Media
Colt has today announced the launch of newly optimised low-latency network routes linking stock exchanges in Tokyo and the Chicago Mercantile Exchange, which will be available from 23 May 2017.

Saxo Bank Launches Developer Portal Supporting REST, FIX and More
Victor Golovtchenko – Finance Magnates
Saxo Bank is continuing with its plan to create a modern ecosystem for financial services consumers. The company has announced that it is launching a new developer portal that delivers technical documentation, references, samples and tools to its clients.


Stocks Still Need the Trump Touch
Stephen Gandel – Bloomberg
Last week’s Trump market slump seemed to signal that investor sentiment had taken a turn. It now appears it was no more than a speed bump.

****SD: RE: the title – phrasing, guys. Phrasing.


Eurex roadmap tour 2017
Eurex Group
More than 250 participants joined us for our workshops in Frankfurt, London, Zurich und Amsterdam, four of Europe’s key financial centres. Workshop attendees received a comprehensive overview of current developments at Eurex Exchange and Eurex Clearing.

****SD: Links to the presentations from the tour can be found here.


SALT 2017 prompts nervous laughter about Trump from Wall Streeters
Business Insider
One distinct noise dominated the biggest Wall Street conference of 2017. It wasn’t the “Wolf of Wall Street” types screaming at the craps table, or the plink-plink-plink of slot machines as dad-bros clinked scotch-filled glasses over market talk. The noise was nervous laughter, and for what is supposed to be the biggest Wall Street party of the year, it was incredibly weird.

****SD: I’m trying to imagine how awkward the laughter was to merit someone writing the story. Must have been pretty painful.

Moody’s Downgrades China Rating Over Debt Worries
Keith Bradsher – NY Times
China has gone on a spending spree, borrowing money to build cities, create manufacturing giants and nurture financial markets — money that has helped drive the economic powerhouse in recent years. But the debt-fueled binge now threatens to sap the energy of the world’s second largest economy.

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