Observations & Insight

OCC Capital Management Strategy
…On February 13, 2019, the SEC disapproved OCC’s Capital Plan, which was implemented in 2015 to maintain financial resources sufficient for OCC to continue providing critical services in the event of general business losses. That disapproval does not affect OCC’s financial resources available to protect against a clearing member default, which are sized to cover the simultaneous default of OCC’s two largest clearing members in extreme but plausible conditions. Clearly, capitalization sufficient to withstand general business losses is a critical component of OCC’s role as a Systemically Important Financial Market Utility (“SIFMU”) to reduce systemic risk, increase market transparency, and provide capital and operational efficiencies for the users of the U.S. exchange-listed options and futures industries.

***SD: This is a copy of the letter OCC sent to clearing members at the end of May.

Lead Stories

BGC aims to boost European equity options trading with new platform; New York-based interdealer broker teams up with trio of high-frequency traders
Philip Stafford – FT (SUBSCRIPTION)
BGC Partners has teamed up with three electronic market makers to create a marketplace to boost flagging liquidity in Europe’s equity options market.
****JB: Press release – BGC Partners, Inc. introduces Fenics Global Options, an electronic trading platform for exchange listed futures and options in collaboration with industry leading liquidity providers Optiver, IMC and Maven Securities. Bloomberg has BGC Invites Rival Brokers to New Electronic Platform for Options
****SD: The only firm I was not familiar with was Maven but that’s because it’s a London outfit. According to their website its memberships are primarily to European exchanges plus ICE and CME. You can get an idea of some of its strategies from its career opportunities page.

Exclusive: Deutsche Bank’s problem derivatives cloud recovery – sources
Matt Scuffham – Reuters
Deutsche Bank AG’s (DBKGn.DE) turnaround strategy rests in large part on shedding 288 billion euros of unwanted assets. Three bank insiders said it will take years, tying up capital that could have generated income of 500 million euros ($557 million) a year.

****SD: Also see the WSJ and Bloomberg.

London forex trading turnover surges to record high
Olga Cotaga – Reuters
Britain’s daily foreign exchange turnover rose to a record high in April, the Bank of England said on Tuesday, as investors concerned about central bank policy U-turns sought to protect their portfolios.
The BoE’s semi-annual survey, which showed daily average FX turnover in Britain jumped 12% to $2.86 trillion in the six months to April, underlined the rude health of London’s foreign exchange industry despite worries about the impact of Britain’s departure from the European Union.

Rising Star Q&A: Lauren Rauch, Chicago Trading Company
Lauren Rauch, Head of Index Options Trading at Chicago Trading Company, was recognized as a Rising Star at Markets Media’s 2017 Women in Finance Awards. Markets Media recently caught up with Lauren to hear about what she’s been up to since, as well as her thoughts on the advancement of women in finance generally.

From Fitbits to Rokus, Hedge Funds Mine Data for Consumer Habits
Hema Parmar – Bloomberg (SUBSCRIPTION)
When it comes to gaining that elusive trading edge, data is fast becoming the new frontier whether it comes from Fitbits, Rokus and Teslas or employment websites like Glassdoor.com. That’s why some of the world’s biggest hedge funds, from Steve Cohen’s Point72 Asset Management to Ken Griffin’s Citadel, have been snapping up large swaths of alternative data. Many are paying big money for it. “There is not one major hedge fund or asset manager that doesn’t have data initiatives underway or that are not using alternative data in some way,” said Michael Marrale, chief executive officer of M Science, a firm that provides data and analytics to hedge funds.

New York Fed Has a Black Swan Hunter With a `Flair for Darkness’
Craig Torres – Bloomberg (SUBSCRIPTION)
Margaret McConnell often tells Federal Reserve officials that they should be a lot more confused than they let on. That’s her job.
She’s head of the Applied Critical Thinking unit, a little-known enclave of the New York Fed with a big mandate: to poke holes in the most basic assumptions that central bankers make — which can lead to big policy mistakes when they’re wrong.

****SD: “Duck season!” “Wabbit season!” … “Black swan season?”

Saxo Bank Gets Green Light to Take Over Dutch Broker BinckBank
Aziz Abdel-Qader- Finance Magnates
Saxo Bank won the permissions of the Dutch and pan-European regulators to acquire BinckBank, a Netherlands-based online broker, for EUR424 million ($472 million). The Danish investment service providers said in a joint statement that they obtained “all regulatory clearances” required to close the deal, recommending all shareholders to tender their shares into the offer.


FlexTrade Certifies with IHS Markit thinkFolio
Business Wire
FlexTrade (@FlexTrade), the global leader in cross-asset execution and order management systems, today announced FlexTRADER, the award-winning broker-neutral EMS, has extended its integration with thinkFolio, IHS Markit’s cross-asset investment management platform.

Build and Buy? For Financial Trading Systems, It’s No Longer Just a Binary Question
Ollie Cadman Global Head of Product Management & Business Operations, Vela
For years, strategic discussions concerning financial trading technology have centred on one burning question: build or buy. Depending on the nature of a firm, its market position, its customer base, its culture and ethos and its core competencies, there inevitably would be a range of pros and cons on both sides of the divide. In theory, firms just needed to add them all up and see which side had the most pros, the fewest cons and ultimately delivered the best ROI.

CaaB hooks into Equinix data centers across the globe
Data Center News
Equinix will soon power more data centers across Hong Kong, Toronto, New York, Amsterdam and Frankfurt, as cloud company Cloud as a Business (CaaB) joins Equinix. CaaB provides a top-tier global VMware cloud infrastructure network with 13 data centers across four continents. Now Equinix hosts five of those data centers, providing more location choice for MSPs.


Stocks Are Pricey, Buy Emerging-Market Bonds, Analyst Says
Daren Fonda – Barron’s
It may not pay to fight the Fed. But that shouldn’t stop investors from getting defensive in U.S. equities and playing offense elsewhere, such as emerging-market bonds, according to Deutsche Bank.
In a note out this week, Deutsche’s chief strategist, Binky Chadha, points out that it is unusual for “risk assets” such as stocks and junk bonds to rally in advance of a monetary-easing cycle. Stocks historically have fallen double-digits before the Fed eased, he notes, while emerging-market equities, along with high-yield bonds, also have posted sharp declines.


Carl Icahn Is Right to Be Furious About Warren Buffett’s Sweet Occidental Petroleum Deal
Andrew Bary – Barron’s
In a letter Monday blasting Occidental Petroleum ‘s management and board, Icahn, the billionaire activist investor and Occidental shareholder, asserted that Warren Buffett took Occidental CEO Vicki Hollub “to the cleaners” when Occidental (ticker: OXY) agreed to issue $10 billion of preferred stock to Berkshire Hathaway (BRK.A) in late April. That preferred carries an 8% dividend yield, and Berkshire also got valuable warrants on Occidental stock.

Disruptive ETFs Face an ESG Disruption Themselves
Nir Kaissar – Bloomberg (SUBSCRIPTION)
A new generation of online financial advisers allow investors to bypass funds and customize portfolios to match their environmental, social or governance-related goals.

The World’s Central Banks Are Debating Whether to Change Their Strategies
Rene Vollgraaff, Craig Torres and Tracy Withers – Bloomberg (SUBSCRIPTION)
Struggling to hit their targets for inflation, central banks around the world are debating whether they need to alter what they’re aiming for. From the Federal Reserve to the European Central Bank, officials are studying their current strategies and whether they need to be changed to revive inflation as it keeps undershooting the levels deemed to represent price stability.

****SD: The FT has Investors keep eyes peeled on central bank rate moves.

Shanghai’s Funhouse-Mirror Nasdaq Shows What’s Wrong With Chinese Markets
China wants its own Nasdaq to stop domestic tech stars from fleeing to list abroad. But its latest effort looks no more likely to be successful than the previous attempt.
The Shanghai Stock Exchange’s Science and Technology Innovation Board—inexplicably acronymed STAR—is the successor to Shenzhen’s ChiNext index. In its decade of existence, ChiNext has failed to foster tech superstars like Hong Kong-listed Tencent and New York-listed Alibaba.
The new platform is already falling prey to the wild swings common in Chinese markets, limiting its ability to provide a stable source of investment capital.

MarketAxess slides as earnings miss expectations
Philip Stafford – Financial Times (SUBSCRIPTION)
Shares in MarketAxess, the US corporate bond trading venue, dropped as much as 9 per cent in New York after it missed analysts’ expectations for its second-quarter earnings. The US group, which has a market capitalisation of more than $12bn, reported a 17.3 per cent rise in revenues to $125.5m for the three months to June 30, compared to a year earlier.

****SD: Recall that Chris Concannon joined MarketAxess after departing Cboe in January.

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