Barclays trader goes to trial over FX options front-running; Corn long liquidated; Bonds and stocks a buy

Feb 20, 2019

Lead Stories

Barclays Trader Goes to Trial Over Criminal Front-Running Claims
Joel Rosenblatt – Bloomberg (SUBSCRIPTION)
Prosecutors are ‘trying to create a crime,’ lawyer argues; Bogucki vowed, failed to keep $8 billion unwind quiet: U.S.
The criminal trial of a Barclays Plc foreign exchange trader over a complicated $8 billion transaction may hinge upon the context and perceived meaning of conversations, instant chats and emails — ranging from the ordinary to the profane — among his cohort.

****SD: Hey, look! Cable options are in the news and it’s got nothing to do with Brexit! The actions of Bogucki regarding the ($7.9 billion!) FX options position look bad, but as a former federal prosecutor says in the piece: “[The argument is] these are sophisticated parties who understand the nature of the transactions, the nature of the business, and what may appear to be improper conduct in this particular context isn’t necessarily so. Sometimes that’s a valid defense.”

Funds sold entire CBOT corn long undetected during U.S. government shutdown
Karen Braun – Reuters
Within the span of six weeks, commodity funds dumped bullish bets in Chicago-traded corn futures and options without the market’s knowledge.
Market participants were under the impression that speculators closed out January relatively optimistic toward the grains. However, data from the U.S. Commodity Futures Trading Commission (CFTC) confirmed otherwise on Tuesday.

****SD: Assuming there are no more government interruptions, the Commitment of Traders reports won’t be back to usual until March 8.

Investors are buying both stocks and bonds at the same time and the Federal Reserve is to blame
Patti Domm – CNBC
The rally in stocks and the slide in bond yields are both a response to a Fed that has changed its tune and adopted very easy policies on interest rates and its balance sheet.

****SD: The WSJ has How Long Will Fed’s Rate Pause Last? Minutes Could Yield Clues and Bloomberg has Fed Minutes to Shed Light on Biggest Policy Reversal in Years. Just take a look at CME’s FedWatch tool to see how much expectations regarding rates have changed. (Also, as a nice accompaniment, at the very end of the CNBC story is a chart of BAML’s MOVE index through the start of 2019.)

Options and Taxes
Euan Sinclair – Talton Capital Management
Despite being a very important part of investing, not much has been written about taxation and options. This is probably because not much can be written. The first paper to write about options and taxes was by Myron Scholes in 1975, “Taxes and the Pricing of Options”.

MIAX Options Regulatory: Options On The SPIKES Index
On October 12, 2018, the Securities and Exchange Commission approved the Exchange’s proposal to list and trade on the Exchange options on the SPIKES Index, a new index that measures expected 30-day volatility of the SPDR S&P 500 ETF Trust. The listing and trading of options on SPIKES commenced on February 19, 2019. Options on SPIKES will be cash-settled, and will have European-style exercise provisions. The Index is calculated using published real-time prices of SPY options.

****SD: Trading launched yesterday – there are a ton of regulatory circulars and updates from MIAX in our exchange section related to SPIKES.

Why Pound Traders Should Stop Obsessing Over Brexit Day
Vassilis Karamanis – Bloomberg (SUBSCRIPTION)
Investors in the pound may be ignoring the here and now by being too fixated on the March 29 exit deadline from the European Union.
While they are rushing to buy options that help guard against wide swings in the currency around the departure date, they are scarcely prepared for volatility before the end of the first quarter. That means they are at risk of having to pay more for protection later or take a hit on profits, should any early political developments fuel outsized sterling fluctuations.

****SD: Oh, hey, look. Cable options are in the news because of Brexit…

Lowball Prices on Stock Options Could Be Silicon Valley’s Juiciest Perk
Jean Eaglesham, Telis Demos and Coulter Jones – WSJ (SUBSCRIPTION)
Silicon Valley startups are often eager to tout their soaring values. But they are far more pessimistic when they hand out stock before going public—a sleight of hand that creates a hidden future windfall for employees while potentially lowering their

****SD: I was under the impression juice bars were the juiciest perk.

Exchanges and Clearing

MIAX Options: Removal Of Settlement Auction Only (SAO) Orders From Certain Exchange Risk Protections
MIAX Options is amending MIAX Option Rule 519, MIAX Order Monitor, to remove Settlement Auction Only (SAO) Orders from certain risk protections provided by the MIAX Order Monitor and the Risk Protection Monitor, beginning February 19, 2019.

MIAX Options: Change To Exchange Rule 521, Nullification And Adjustment Of Options Transactions Including Obvious Errors, For Transactions Being Used To Calculate The Final Settlement Price Of A Volatility Index
MIAX Options is amending Exchange Rule 521, to adopt a provision specifically related to its volatility index product and the calculation of the final settlement price of a volatility index on the final settlement day.

MIAX Options: Implementation Of Liquidity Exposure Process (LEP) For Over-Sized Orders In Proprietary Products
MIAX Options is implementing a new Liquidity Exposure Process (LEP) for over-sized orders in Proprietary Products. Interest in Proprietary Products that would be posted, managed, or that would trade at a price more aggressive than the order’s protected price will be subject to the LEP for over-sized orders.

Changes To MIAX Option Rules 518, Complex Orders
MIAX Options has made the following changes to Rule 518, Complex Orders: 1) MIAX Options is implementing a Complex Liquidity Exposure Process (cLEP) for complex orders and complex eQuotes that would violate their Complex MIAX Price Collar (“MPC”) price. See MIAX Options Regulatory Circular 2019-10 for further details. 2) The Exchange is eliminating the Defined Time Period which is the time period allowing a single-sided Complex Auction to begin at any time prior to the end of the trading session. Also, the end of the trading session will serve as the end of the Response Time Interval for a single-sided Complex Auction still in progress. See MIAX Options Regulatory Circular 2019-11 for further details.

MIAX Exchanges: Amendment To Exchange Rule 403, Withdrawal Of Approval Of Underlying Securities
The MIAX Exchanges have amended rules which allow the Exchanges to delist an option class if it is open for trading on another national securities exchange, and to not open for trading or restrict securities with open interest to closing transactions, if it is open for trading solely on the Exchange.

Nasdaq PHLX Adopts Rules Pertaining to Authorization to Give Up
Nasdaq Options Regulatory Alert #2019
Effective immediately, PHLX has received SEC approval to adopt PHLX Rule 1037 “Authorization to Give Up”.
PHLX Rule 1037 allows Clearing Members to request the Exchange restrict one or more of their OCC clearing numbers. To request a restriction on their OCC clearing number, a Clearing Member must submit a completed “Clearing Member Restriction Form” to the Exchange’s Membership Department. Once a completed “Clearing Member Restriction Form” is received by the Exchange’s Membership Department, the Exchange requires ninety days before a Restricted OCC Number is effective within the PHLX System.

HKEX to acquire exchange technology business
Hayley McDowell – The Trade
Hong Kong Exchanges & Clearing (HKEX) has confirmed it will acquire a 51% equity stake in Shenzhen-based exchange and regulation technology firm, Ronghui Tongjin Technology.

****SD: Press release here.

Investors still look wary of NSE-SGX connect in GIFT City
Mobis Philipose – Livemint
Since the NSE-SGX dispute began over a year ago, outstanding positions in SGX’s Nifty futures contract have more than halved

Regulation & Enforcement

Nikkei faces hurdles in EU benchmark registration
Blake Evans-Pritchard – (SUBSCRIPTION)
Japan’s leading equity index provider, Nikkei, is struggling to meet new European Union rules on benchmarks, sources say. Its application to register as a third-country benchmark in the EU has made little progress as European authorities scramble to adjust to the UK’s imminent departure from the union.

Sebi fines 2 entities Rs 10 lakh for fraudulent trade in BSE stock options
PTI via MoneyControl
Market watchdog Sebi on Wednesday imposed a total penalty of Rs 10 lakh on two companies for carrying out fraudulent trade in the illiquid stock options segment of BSE. The regulator imposed a fine of Rs 5 lakh each on Teji Mandi Securities and Vikrant International Pvt Ltd, as per an order.

CFTC’s Division of Market Oversight Announces Mel Gunewardena as Deputy Director of the Market Intelligence Branch and the Agency’s Chief Market Intelligence Officer
CFTC Press Release
The Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (DMO) announced today that Mel Gunewardena has been named Deputy Director of the Market Intelligence Branch (MIB) and CFTC’s Chief Market Intelligence Officer.


Straits Financial Group Signs with Eventus Systems for Expanded Services, Bringing New Regulatory Compliance Capabilities to Singapore Headquarters
Eventus Systems, Inc., a leading global trade surveillance and market risk platform provider, announced today that Singapore-based Straits Financial Group Pte Ltd – which became a client in May 2018 for its U.S. subsidiary, Straits Financial LLC – has just expanded the relationship by signing on to the Validus trade surveillance and risk management platform for its Singapore headquarters. Straits Financial Group is the brokering division of the CWT Group, a leading global provider of integrated commodity services.

BigTech Poses a Greater Threat to Financial Institutions Than FinTech
Mayra Rodriguez Valladares, MRV Associates – TABB Forum
Competition from large, established technology companies (BigTech) and financial technology (FinTech) start-ups could put pressure on the profitability of financial institutions and lead them to take on more risks to protect their margins. As part of its ongoing monitoring of BigTech’s and FinTech’s influence on financial institutions, the Financial Stability Board (FSB) recently published “FinTech and market structure in financial services: Market developments and potential financial stability implications.”

****SD: It’s not a coincidence that there are more and more AWS/Google types at conferences…

Goldman Sachs Veterans Raise $3 Million to Fight Crypto Manipulation
Yogita Khatri – Coindesk
A U.S.-based crypto surveillance startup led by former Goldman Sachs fintech engineers has just raised $3 million in seed funding.
Solidus Labs, provider of a machine learning and artificial intelligence-powered trade surveillance platform for digital assets, announced the news on Wednesday, saying that the funding was led by early-stage investment firm Hanaco Ventures. VC firm Global Founders Capital and Wall Street veterans David Krell and Norman Sorensen also participated.


Cboe Global Markets to Present at the Citi Conference on Wednesday, February 27
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, announced today that Ed Tilly, Chairman, President and CEO, will present at the Citi Asset Managers, Broker Dealers and Exchanges Conference on Wednesday, February 27, at 8:00 a.m. (Eastern Time).


VIX Shows Markets in ‘Wait and See Mode’ for Now, Curnutt Says (VIDEO)
In “Single Best Chart,” Dean Curnutt, chief executive officer at Macro Risk Advisors, examines moves in the VIX Index over the past year. He speaks with Bloomberg’s Tom Keene on “Bloomberg Surveillance.”

Budget Gives Rand Traders the Same Shakes as ANC Conference
Colleen Gokok – Bloomberg (SUBSCRIPTION)
….The rand’s overnight implied volatility versus the dollar has surged to levels last seen in December 2017. The measure, based on options to buy or sell the currency, suggests investors are bracing for big price swings, depending on the outcome of Wednesday’s budget.

Hedge Funds Coming Off Record Short Could Boost This Gold Rally
Eddie van der Walt – Bloomberg (SUBSCRIPTION)
Metal soars to highest since April on global growth fears; “Reverse snowball effect” attracting funds, Marex’s Govett
Gold’s rally could have further to run if hedge fund managers ramp up bullish bets after last year’s extended big short.

City stock exchanges stage final Brexit war games
Samuel Agini – Financial News London (SUBSCRIPTION)
London’s main stock exchanges are conducting their final tests before moving billions of euros in share trading to the European Union ahead of Brexit.Aquis Exchange, Cboe Europe and London Stock Exchange-owned Turquoise are rushing to ensure banks and fund managers can buy and sell EU27 stocks in the event a no-deal Brexit makes dealing across borders difficult.

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