The Gazillion-Dollar Standoff Over Two High-Frequency Trading Towers

Mar 11, 2019

Observations & Insight

New York’s New West Coast Digs
Spencer Doar – JLN

NYSE is set to have new digs in San Francisco when its NYSE West facility opens Monday, March 11.

Obviously, New York is the area most thought of when it comes to all things Buttonwood, but, through the 2006 acquisition of Archipelago Holdings, which had purchased the Pacific Exchange, NYSE can trace its roots on the West Coast back to the formation of the San Francisco Stock and Bond Exchange in 1882.

NYSE West will be a new home for NYSE’s Arca options trading floor, but much like NYSE’s renovations to its 11 Wall Street location in New York, NYSE wants the new West Coast space to be a home, and listing lure, for companies on the other side of the country.

“Staying in downtown San Francisco was important – we wanted to maintain that anchor,” Ivan Brown, NYSE’s head of options, said. “From a listings point of view, continuing to have a stronger presence on the West Coast is important.”

NYSE Arca’s floor operation, in ballpark terms, accounts for a quarter to a third of NYSE’s options volumes on a given day, so investing in that business was important, according to Brown.

This is not a new SRO, just a new facility for NYSE. (Recall that BOX Options had to go through extensive regulatory rigmarole to get a brand new options floor open last year.)


The Spread – Wild West – 3/8

A judge’s comparison of FX options trading to the Wild West, MIAX’s news-making tear, and a little bit of Simon and Garfunkel await viewers of this week’s episode of “The Spread.”

Watch the video and see the stories referenced here »

Lead Stories

The Gazillion-Dollar Standoff Over Two High-Frequency Trading Towers; The hunt for a millionth-of-a-second advantage in the town best known for Wayne’s World is getting heated.
Nick Baker and Bryan Gruley – Bloomberg (SUBSCRIPTION)
In a weedy field 35 miles west of Chicago squats a tidy red-brick building with a peaked roof, about the size of a one-car garage. Against the eastern wall, reaching just above the roofline, are poles equipped with small dish antennas that send microwave signals to and gather them from financial markets on the East Coast. At the same time, the site communicates via subterranean cable with an enormous steel-and-glass building across the street. That fortress is home to CME Group Inc., a $63 billion exchange where some of the world’s most vital financial products trade, including derivatives on oil, gold, U.S. Treasuries, and the S&P 500. If you want to be a serious player in global markets, you have little choice but to stash your trading machines here.

SEC’s Clayton: Plan for volatile markets if there’s a hard Brexit
Francine McKenna – MarketWatch
Securities and Exchange Commission Chairman Jay Clayton warned an audience of international bankers in Washington on Monday, “If we have a hard Brexit, there will be friction, there will be price volatility, there will be problems.”
Clayton told the bankers, and their lawyers and consultants gathered for the annual meeting of the Institute of International Bankers, “Brexit is already here.”

London’s Finance Industry Has Decided: Brexit Is Already a Reality
Max Colchester and Patricia Kowsmann – WSJ
There is one certainty in Brexit: London’s pre-eminent role in global finance has been diminished.
On Tuesday, the U.K. Parliament is scheduled to vote on a last-ditch effort to strike a deal on the country’s exit from the European Union. Talks were deadlocked Monday, but many politicians warned that Prime Minister Theresa May could face another humiliating defeat for her latest plan.

Morgan Stanley Says Market Is Overpricing Goldilocks Scenario
Joanna Ossinger – Bloomberg (SUBSCRIPTION)
It’s possible that global economic growth will stabilize while inflationary pressure remains absent and the top central banks stay on hold for the next 24 months. But that scenario is being overpriced by the markets, according to Morgan Stanley.

Expect More Volatility in China Equities Short-Term, Says JPMorgan’s Leung – Bloomberg
Bloomberg (VIDEO)
Lilian Leung, greater China equities portfolio manager at JPMorgan Asset Management, discusses the selloff in the Chinese markets and her outlook for the economy. She speaks on “Bloomberg Markets: China Open.”

Exchanges and Clearing

U.S. Options Industry Options Industry Conference Lifetime Contribution Award Recipients Announced!
The 2019 Lifetime Contribution Award recipients will be honored at this year’s Options Industry Conference, to be held May 1-3, 2019 in Miami, Florida. The award and the Crowd of Fame were created by the U.S. options exchanges and the Options Industry Council (OIC), an industry resource managed by OCC, to recognize a more expansive group of leaders and establish a place for the industry to honor their contributions. The recipients of the Lifetime Contribution Award will be inducted into the Options Industry Conference’s 2019’s newly-formed “Crowd of Fame”, along with all previous Sullivan Award winners.

Cboe Europe Receives Authorisation to Operate Netherlands Venue
Cboe Europe, the largest stock exchange by value traded in Europe and a division of Cboe Global Markets (Cboe: CBOE), today announced that Cboe Europe B.V., its new subsidiary based in Amsterdam, has received authorisation from the Dutch Ministry of Finance. Cboe Europe B.V. is now authorised to operate a Regulated Market (RM), Multilateral Trading Facility (MTF) and Approved Publication Arrangement (APA), which will be regulated by the Dutch Authority for the Financial Markets (AFM).

Index Futures Set to Further Pry Open Chinese Markets
Saumya Vaishampayan – WSJ
Global investors could soon have an easier way to make bets on or against China’s stock market, with Hong Kong’s exchange planning to offer futures trading tied to mainland shares.

CME Group Makes Global Equity Benchmarks More Accessible to Active Traders with Launch of Micro E-mini Futures
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced it plans to make equity index futures trading more accessible to active traders through the launch of Micro E-mini futures on the S&P 500, Nasdaq-100, Russell 2000 and Dow Jones Industrial Average indexes.
The new Micro E-mini contracts will be one-tenth the size of CME Group’s existing E-mini futures on the respective equity indexes. They will be available for trading in May 2019.

Moscow Exchange adds new equity futures and options
The Moscow Exchange (MOEX) announced the launch of deliverable futures for the common shares of Polyus and Magnitogorsk Iron and Steel Works (MMK) including options trading on stock futures.

Regulation & Enforcement

CFTC Issues Enforcement Guidance to Encourage Self Reporting of FCPA Violations
On March 6, 2019, the Commodity Futures Trading Commission (“CFTC”) published an Enforcement Advisory describing the circumstances in which companies that self-report violations of the Foreign Corrupt Practices Act (“FCPA”) to the CFTC may achieve a resolution without a civil monetary penalty. The CFTC’s approach largely mirrors the approach taken by the lead agencies on anti-corruption enforcement, the U.S. Department of Justice (“DOJ”) and U.S. Securities and Exchange Commission (“SEC”).


Dash Names Venu Palaparthi Chief Compliance Officer and Head of Regulatory Affairs
Globe Newswire
Dash Financial Technologies, the industry’s leading capital markets technology and execution provider, today announced the addition of Venu Palaparthi as Chief Compliance Officer and Head of Regulatory Affairs. In this role, Mr. Palaparthi will be responsible for Dash’s compliance strategy, including the direction of internal regulatory policies and compliance with government regulations.


Funds speed toward record short bets in CBOT grains
Karen Braun – Reuters
Speculators continued their aggressive sell-off in Chicago-traded grain futures into the first week of March, and they likely increased those bearish positions by the end of last week. In the four weeks ended March 5, hedge funds and other money managers sold 286,707 grain futures and options contracts, including CBOT corn and wheat, and Kansas City and Minneapolis wheat.

Stock market trading recommendations for higher volatility
Akin Oyedele – Business Insider
Stock-market volatility is good for investors on several fronts.
Sure, it can wipe out several years of gains in a few minutes at its worst. But it also creates tactical opportunities for traders to profit from sharp moves in either direction.
When it comes to the latter, there’s virtually no better way to capitalize on big market moves than the options market, according to Julian Emanuel, the chief equity and derivatives strategist at BTIG.

Stocks and the Danger of Saying “This Time is Different”
Todd Salamone – Schaeffer’s Investment Research
Last week’s market action is a perfect example of why it is dangerous to say “this time is different” when analyzing the markets. This is especially true after the S&P 500 Index (SPX – 2,743.07) entered last week around the 2,800 area, which is where sellers emerged in a big way multiple times in 2018. Yes, the SPX was on more firm footing from a technical perspective relative to the fourth-quarter 2018 failures at 2,800. And there were no visible changes in the Fed’s outlook over the course of last week, one that is more dovish and thus a tailwind for market participants relative to 2018.

Stocks Haven’t Done This Since Trump Was Elected
Andrea Kramer – Schaeffer’s Investment Research
The Dow Jones Industrial Average (DJI), S&P 500 Index (SPX), and Nasdaq Composite (IXIC) last week dropped every single session, marking the first time the indexes suffered a simultaneous five-day losing streak since November 2016, just before the presidential election. Below, we take a look at how the stock market barometers have fared after sinking in unison — which also happened right around the March 2009 bottom — and what Wall Street might expect in the next few months.

Most Bearish Euro Bets Since 2016 Could Mark Low for Currency
Anooja Debnath – Bloomberg
The build-up of market bets against the euro might signal the prospect of a tentative recovery for the struggling currency.
Hedge funds and other speculators increased bearish positions on the euro to the most since December 2016, the latest data from the Commodity Futures Trading Commission show. With net shorts at 78,166 contracts in the week through March 5, it might be time to reassess whether this could translate into more losses or if most of the negatives are already in the price, according to Valentin Marinov, the head of currency strategy at Credit Agricole SA.

Rand Bears in Ascendance as Risks Rise From Moody’s to Poll
Colleen Goko – Bloomberg
Never mind that the rand is starting the week on a positive note, bearish signals are stacking up.
Hedging in the options and futures markets point to rand weakness, and foreign investors are voting with their wallets, selling South African bonds at a rate not seen since November. The stock market is also seeing sustained outflows as a credit-rating review by Moody’s Investors Service approaches and political uncertainty increases ahead of an election scheduled for May.


Britain’s luxury sector warns of $8.9 billion loss from no-deal Brexit
Britain’s luxury sector, including names such as fashion house Burberry and car maker Bentley, could lose up to 6.8 billion pounds ($8.9 billion) in exports a year if the world’s fifth largest economy crashes out of the European Union without a deal, research commissioned by the sector indicated.

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