Bank regulators to revise capital rules for trading risk; The Growing Influence of Asia In Derivatives Trading

Mar 23, 2018

Observations & Insight

Congressional CFTC Budget Decision Lacks Vision and Reason
John Lothian – JLN

A reasonable person could see that the U.S. Commodity Futures Trading Commission needs an increase in its budget to address the growing responsibility it has acquired over US markets in recent years and the dramatic development and investment in fintech and cryptomarkets.

A reasonable person, Democrat or Republican, would vote for the modest increase the CFTC requested unless they suffer from a chronic case of market myopia.

But alas, the budget passed by the U.S. House of Representatives cuts the CFTC’s funding by $1 million to $249 million, and reason was not what ruled the day. The adjective that comes to my mind to describe this is shortsighted.

For the rest of the column, click HERE.


Responding to Trump, China Plans New Tariffs on U.S. Goods
Chris Buckley and Sui-Lee Wee – NY Times
China announced Friday that it planned to impose tariffs on $3 billion worth of American-produced fruit, pork, wine, seamless steel pipes and more than 100 other goods, hitting back at the United States hours after President Trump proposed tariffs on about $60 billion worth of Chinese-made products.

****SD: Reuters has China urges U.S. away from ‘brink’ as Trump picks trade weapons and Bloomberg has From Boeing to Soybeans, China Has a Long Retaliation List

Lead Stories

Bank regulators to revise capital rules for trading risk
Huw Jones – Reuters
Global regulators plan to revise rules determining the minimum amount of capital banks must set aside to cover risk from trading stocks, bonds, derivatives and currencies.

The Growing Influence of Asia In Derivatives Trading
Christopher Fix – CME Group
Asian markets have become increasingly important not only for investors from the continent, but also those from around the world. The need for seamless round-the-clock trading has come into sharper focus as global event risks occur with their impact on markets reverberating almost instantaneously throughout our increasingly interconnected world. With futures as a compelling hedging instrument, we have continued to see trading volumes growing in Asia, and more significantly, during Asia trading hours from not just Asia-based but also global participants.

There’s been a historic amount of earthshaking stock-market volatility this year
Ryan Vlastelica – MarketWatch
Volatility has been extremely, well, volatile this year.
The Cboe Volatility Index VIX has seen multiple days with extremely sharp moves so far in 2018, including on Thursday, when it jumped 30.7% to 23.35.
According to data from the WSJ Market Data Group, the so-called “fear index” has experienced six sessions this year that saw a jumped of least 20%, along with one day that saw a 20% drop. Notably, volatility more than doubled on Feb. 5, amid the start of a steep selloff in the U.S. stock market spurred by inflation concerns.

****SD: WSJ here. It’s been uttered elsewhere – could we stop quoting VIX moves in percentage terms?

TradeStation Turns to Selfies, Haircuts to Promote Its Brand
Donna Fuscaldo – Investopedia
TradeStation is in rebranding mode, aiming to reach a whole new group of active traders, and it is using selfies and haircuts to promote those efforts. As part of the company’s overhaul of its trading platform, the discount brokerage is rolling out a pop-up event at New York City’s new transportation and entertainment hub Oculus.

****SD: Clearly trying to cater to the Baby Boomer generation – hah!

Exchanges and Clearing

OCC News March 2018
The latest from OCC News – featuring a note from OCC’s Office of the CEO, a Q&A for the upcoming Options Industry Conference, and more.

Cboe outlook just fine despite VIX-related angst, analysts say
Minghe Hu – Medill Reports Chicago
As inverse-VIX trading dried up during the stock market’s 10-percent correction in February, shares of VIX originator Cboe Global Markets Inc. plummeted a startling 18 percent. But, buoyed by reassuring words from Cboe’s chief executive officer, the high-flying stock partially recovered and the exchange’s outlook remains solid for 2018 in the eyes of analysts.

How Nasdaq C.E.O. Adena Friedman Beat the Odds on Wall Street
David Gelles – NY Times
It can be notoriously difficult for women to thrive on Wall Street. Adena Friedman says that hasn’t been the case for her.
Ms. Friedman, the chief executive of Nasdaq, grew up around finance, and knew from an early age that she wanted to work in the industry. Joining Nasdaq in 1993, Ms. Friedman rose through the ranks, serving as head of corporate strategy and ultimately taking over as chief financial officer in 2009. She left to become the C.F.O. of the Carlyle Group, a major private equity firm, but returned to Nasdaq, becoming chief executive last year.

MCX to launch crude, zinc options
The Hindu BusinessLine
MCX, the country’s largest commodity exchange, has sought capital and commodity market regulator SEBI’s approval to launch options trading in crude, zinc, copper and silver.

OCC continues to clear industry path
Brian Bollen –
The Options and Clearing Corporation (OCC) “achieved a number of key milestones” in 2017, including a total cleared volume of over 4.3 billion contracts, according to the latest OCC News.

****SD: Update on another OCC line of business.

Introducing a new client type: Eurex “Specified Client”
Eurex Group
Within our capital asset protection options, Eurex Clearing offer customers a variety of client types to accommodate risk appetite and individual capital requirements. Clients, here a client of a Clearing Member, can be either undisclosed or disclosed (i.e. known) to Eurex Clearing. Depending on the client type, varying levels of position segregation and asset protection can be achieved. In response to client demand, Eurex Clearing has introduced a new, simpler, client type.

TMX unveils cryptocurrency brokerage
Canadian exchange operator TMX Group is setting up a subsidiary that will run a cryptocurrency brokerage service focused on Bitcoin and Ether.
Shorcan Digital Currency Network (Shorcan DCN) is set to launch in the second quarter, tapping into the brokerage expertise of Shorcan Brokers, which TMX acquired in 2006.

Cboe Global Markets becomes listing exchange in Japan for U.S. equities
Valentina Kirilova – LeapRate

CME Group Announces University of Texas Rio Grande Valley Wins 15th Annual Trading Challenge
CME Group


What senior traders really do when they quietly disappear: become “consultants”
Dan Butcher – efinancialcareers
It’s not easy moving on from a trading job in an investment bank. Not everyone can work on the buy-side, let alone in a hedge fund. Not everyone can make a living working in fintech. Plenty of former traders disappear. Plenty of others become “consultants” or lie low, sometimes for years.

Regulation & Enforcement

Rep. Davidson introduces bill to reduce regulations on derivatives transactions
Dave Kovaleski – FRN
Legislation to put U.S. companies on equal footing with European counterparts when trading derivatives was approved by the House Financial Services Committee this week.
The Derivatives Fairness Act (H.R. 5323) amends the Dodd-Frank Wall Street Reform and Consumer Protection Act to exempt non-cleared derivatives transactions with end-users from the Credit Valuation Adjustment capital charge. It would add a new section to Dodd-Frank Act, section 177 entitled “Credit Valuation Adjustment.”

SEC Proposes Equity Market Study: Beginning of the End for the Maker-Taker Model?
Annette Nazareth, Lanny Schwartz, Zachary Zweihorn, Meghan King and Nancy Lee – FinReg
In the first major trading and markets initiative under SEC Chairman Jay Clayton, on March 14, 2018, the SEC proposed to establish a transaction fee pilot program to study the effects of maker-taker fee structures. A pilot study was initially recommended by the SEC’s Equity Market Structure Advisory Committee in 2016, and the Treasury Department also expressed support for such an initiative in last year’s report on capital markets regulation (see our previous blog post). The outcome of this study could lead to further regulation or even elimination of these fee arrangements.

Industry Starts Next Round of CAT Dialog
Rob Daly – Traders News
After 14 months without official engagement with the buy and sell sides, the CAT NMS Operating Committee has opened a new channel of engagement for the industry with the recent launch of its Industry Member Technical Specification Working Group.

Fed’s Quarles seeks derivatives industry data on leverage ratio impact
Neil Rowland – MLex FS Core
Randal Quarles, the US Federal Reserve’s regulatory chief, has asked the derivatives sector for data to support its argument that a bank capital requirement is drying up liquidity at clearing firms and increasing systemic risk, an industry executive said.

Supreme Court rules on synchronized trading case
India Business Law Journal
The Supreme Court in a landmark judgement ruled on whether synchronized/reversal trades executed in the futures and options segment of the stock exchange violate the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations).

Sebi tweaks risk management norms for commodity derivatives segment
Business Standard News
Members of clearing corporations in commodity derivatives segment need to have a minimum liquid networth of Rs 50 lakh, Sebi said today.


I Am a Helpless Sinner
Euan Sinclair – Highly Evolved Vol
I don’t really think I’m much more of a sinner than anyone else. I used that title to see what kind of bot generated comments I get. My posts on cheating brought out religious bots, legal bots and marriage counselor bots.
But this new idea is also a “cheat trade”:I believe there is sufficient evidence that it works but I haven’t tested it.

Currency Traders Shouldn’t Dismiss the Dollar’s Chances Just Yet
Vassilis Karamanis – Bloomberg
Consensus sees further losses, yet upside risks may emerge; Market pricing may reflect undue bearishness on FOMC, Trump
Analysts and traders looking for the dollar to remain under pressure throughout the year could be in for a surprise.

****SD: “Analysis of the volatility-term structure in euro-dollar and dollar-yen, which together have an almost 50 percent weighting in the Bloomberg Dollar Spot Index, shows options traders see double the chance that the greenback trades 3 percent lower than higher versus its major peers by the end of the year.”


Want to Be a High-Frequency Trader? Here’s Your Chance
Alexander Osipovich – WSJ
Luke Merrick, a senior at the University of Virginia, sings in the glee club and recently spent a summer in Japan. His latest hobby? High-frequency trading.

Tencent Derivatives Go Wild as Bearish Options Surge 34,900%
Kana Nishizawa – Bloomberg
Tencent Holdings Ltd.’s biggest two-day slump since 2011 has taken Hong Kong’s derivatives market by surprise, handing a windfall to traders who placed long-shot wagers on a selloff.

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