Observations & Insight

More Turnover At The Top: Garry Jones Out At LME
Jim Kharouf, JLN

Garry Jones is out as CEO of the London Metal Exchange, perhaps marking a new path for the metals bourse.

From a personal perspective, Jones is among the CEO set with deep knowledge of the derivatives and exchange space, with stints at NYSE LIFFE/NYSE Euronext, ICAP and BrokerTec. His insight into the derivatives space was usually thoughtful and on target. He inherited an exchange that was due for major changes and he implemented them. Switching the LME from its prior member-owned culture to one that dovetailed into the Hong Kong Exchanges & Clearing model was no small feat. Dealing with physical warehousing issues, implementing a new trading platform and trying to make LME a more Eastern-facing exchange into the Chinese market was a full plate.

LME still has challenges to deal with. All exchanges do. Jones will be succeeded in the interim by Matthew Chamberlain. Jones looks to be on board for the next 11 months as an advisor.

We wish Garry the best of luck going forward.

On another note, the former exchange leader panel at Boca is looking like a good one.


London Metal Exchange CEO resigns after a difficult year
Pratima Desai and Michelle Price – Reuters
Lower trading volumes and a lack of strategy created a crisis that led to the resignation of London Metal Exchange Chief Executive Garry Jones after three years at the helm of the world’s largest and oldest metals market, metal industry sources say.

****SD: One of many stories on the move. Funny thing – I was actually reading this Reuters story, LME’s pitch for share of gold market faces bumpy ride, right when I heard Jones was leaving.

Lead Stories

Bitcoin Options Firm LedgerX Crosses Key Launch Hurdle
Michael del Castillo – CoinDesk
The wait is almost over for LedgerX, a New York-based bitcoin swaps startup with a board boasting a who’s who of financial sector bigwigs. After two years of building, the firm that had already raised $1.5m from Google Ventures, Lightspeed Venture Partners and others, says it is now ready to push for its final approval from the US regulator, the Commodity Futures Trading Commission (CFTC). If granted, LedgerX would be able to launch a federally regulated bitcoin options exchange and the first clearing house to list and clear fully collateralized, physically settled bitcoin options for the institutional market.

****SD: As a market and as an asset, I wonder about bitcoin — doesn’t seem like participation is big enough yet for a next level takeoff in trading. I think a lot of people just aren’t educated enough on cryptocurrency to feel comfortable in the space. Totally anecdotal, but I was at a conference (quite a few technologists there, mind you) and the audience was asked if they do/did trade/own bitcoin. Only a handful of people raised their hands.

The Volatility Bubbling Just Below The Surface
Peter Tchir – Forbes
As the big VIX linked ETFs and ETNs attract inflows (TVIX, UVXY and VXX all have record amounts of shares outstanding) it is worth examining the world of VIX and whether these funds can act as good hedges.

****SD: Bloomberg has Investors Are Piling Into a Note Betting on Stock Swings: Chart and on Friday morning MarketWatch had Investors buy up volatility ETFs going into the Trump era.

Why the Popularity of WTI Options Has Risen Alongside Volatility in Crude Oil Prices
Ellen Chang – TheStreet
The popularity of WTI options has risen as volatility in crude oil prices has increased, providing an opportunity for institutional traders to hedge their risk. The average daily volume in WTI options reached an all-time high in November of 241,544 contracts, beating January’s record of 235,611, said the CME Group, a Chicago-based derivatives marketplace.

****SD: Don’t need to say ‘why,’ the answer is right there – volatility.

Feds: Connecticut investor swindled millions from Chicagoans
Chicago Sun Times
An investment manager from Connecticut who previously worked as director of the Chicago Board Options Exchange has been charged with bilking $13 million over about 17 years from dozens of people, including victims from the Chicago area. Alvin Wilkinson; a 58-year-old man from Sharon, Connecticut; faces three counts of mail fraud and one of wire fraud , according to a federal indictment released Thursday.

****SD: Wilkinson was already hit with a $21m fine in 2016.

Binary Options: Where it really belongs
Andrew Saks-McLeod – FinanceFeeds
Ever since its establishment, FinanceFeeds has maintained that binary options is not a financial markets product. It was founded by, and is operated by affiliate lead marketers and gambling site owners, and has absolutely no connection whatsoever to electronic trading.

****SD: Much more on the state of binary options in our ‘Regulation’ section as EUROPOL is holding an unprecedented summit on how to enforce regulation on the industry.

Exchanges and Clearing

The head of the biggest exchange group in the world on Trump, China and handling $1 quadrillion in trading
Matt Turner – Business Insider
Terrence “Terry” Duffy is a popular man. Upon visiting the CME Group office in New York on January 11 to speak with Duffy, chairman and CEO at the $40 billion exchange group, I had a security guard scope me out. He joked he wasn’t going to let me hurt “my Terry.” “Terry is a good man,” he said, once I’d shown him my ID a couple more times.

BSE IPO: 142 years after taking roots under a banyan, Asia’s oldest stock exchange hits the capital market today
Manu Balachandran – Quartz
India’s largest and Asia’s oldest stock exchange is itself set to debut on the bourses. Today, BSE, earlier known as the Bombay Stock Exchange, will hit the capital market with its initial public offer (IPO)—the first by any Indian stock exchange—looking to raise over Rs1,240 crore. The shares will be sold in the Rs805-806 price band.

****SD: Did you know banyan trees are figs?

BSE IPO: Love it, hate it, can’t ignore it
Ashish Rukhaiyar – The Hindu
While the exchange boasts of a good track record in terms of profit and a cash kitty, there are problem areas that it has sought to address for a while now. Ever since the National Stock Exchange (NSE) came into existence in 1994, it has always been perceived to be one step ahead of its much older rival, BSE, whose origins date all the way back to 1875, making it Asia’s oldest stock exchange.

Deutsche Börse presents blockchain concept for risk free cash transfer
Eurex Group
Deutsche Börse Group has developed a concept for riskless transfer of commercial bank money via an infrastructure based on distributed ledger technology (DLT). By combining blockchain technology with its proven post-trade infrastructure, Deutsche Börse aims to achieve efficiencies while at the same time investigating possible new business opportunities enabled by this technology.

Hong Kong Stock Exchange Considers Blockchain Settlement Upgrades
Stan Higgins – CoinDesk
The Stock Exchange of Hong Kong (SEHK) is looking to blockchain as it begins work on a next-generation transaction settlement system.


Michael Kraines Named Chief Financial Officer of Trading Technologies
Trading Technologies
Trading Technologies International, Inc. (TT) announced today that Michael Kraines has been appointed Chief Financial Officer. Mr. Kraines will be responsible for finance, planning, strategy and business development.

Regulation & Enforcement

Are you a binary options salesman “just doing a job”?
Andrew Saks-McLeod – FinanceFeeds
As EUROPOL holds an international summit on how to enforce the law onto binary options firms, it is worth asking whether working as an employee in that particular industry sector is really worthwhile, or whether it constitutes being an accomplice to what is being considered by international regulators and police departments as fraudulent

FBI, EU fraud authorities hold emergency summit on binary options fraud
Simona Weinglass – The Times of Israel
Unprecedented session at The Hague comes as Israeli police still largely fail to act against multi-billion dollar plague of criminality that has flourished from Israel for almost a decade.


Caveat Emptor: Verifying Execution Pricing Is Up to the Buy Side
Patrick Flannery, MayStreet – TABB Forum
The complex portfolios of algorithms that broker-dealers use are designed to beat the competition in offering clients best execution. But what happens if those strategies are not favorable to all trades all the time? Asset managers have a right to expect that proprietary strategies are working as promised; but with easy access to big, rich data, they have an obligation to verify.

High-frequency trading masts criticised by planners
Hannah Murphy – FT
Towers taller than London’s Shard attract ire ahead of Dover council decision this week
US high-?frequency traders aiming to build radio towers taller than the Shard in a tiny village in the English countryside have been criticised by local planning officials ahead of a crucial council meeting next week.


Playing the Uncertainty That’s Trump
Steven M. Sears – Barron’s
Donald Trump’s “Make America Great Again” slogan is destined to become either one of the world’s great rallying cries, or a brutal irony. If he delivers on major policies like lowering corporate taxes, and smoothing the kinks out of Obamacare, the nation may celebrate a billionaire who, as Kipling once wrote, walks with kings without losing the common touch. But if his actions fail to match his rhetoric, the campaign catchphrase will be viciously used against Trump and his administration by his many critics. Even now, his election has inspired protests not seen since the 1960s when the Vietnam War divided the nation.

Merrill Lynch’s 2017 Asset Performance Outlook (BAC)
Adam Hayes – Investopedia
Bank of America Merrill Lynch (BAC) has issued its annual global investment strategy report for the year ahead. This year’s report, entitled “2017: Peak Returns, Big Rotations” speaks to a number of trends coming to an end including peak liquidity, peak inequality, peak globalization, peak deflation, trough volatility, peak passive and a transforming world in the context of post-Brexit and Trump.

More Volatility Is Coming For Small-Caps (And That’s Good)
Co-CIO Francis Gannon examines increased volatility among small-cap and large-cap stocks and explains why we would welcome higher levels. When good things are happening in the stock market, investors can be forgiven for forgetting about volatility.

With Market Volatility Up, Why Is the Benchmark VIX ETF Down?
Brian O’Connell – TheStreet
It hasn’t exactly been a banner 12 months for the iPath S&P 500 VIX ST Futures ETN (VXX) . The benchmark stock market volatility fund is down over 68% on a year-to-year basis and has fallen 17% since the beginning of January.

New President’s Policies Eyed, But Busy Earnings Week Also In Spotlight
JJ Kinahan – The Ticker Tape
Now that Donald Trump is officially our 45th president, we enter the new week with many market participants pondering, “What’s next?” But even as Trump settles into his first week at the White House, earnings could stay in the headlines. Approximately 20% of S&P 500 companies are reporting over the next five days.

Inflation, growth in the cards: 2017 outlook
The year 2017 appears to be a period of changes. In addition to Donald Trump becoming President after the biggest upset in U.S. political history, new currents are flowing in the stock market and global economy. Today’s outlook will review these trends.

The incredible option trade that has worked for 10 straight years CBOE Volatility Index
In all my life as a trader and an option market maker on NYSE ARCA and CBOE (remotely), the CBOE Volatility Index (INDEXCBOE:VIX), or really, the VXX is one of the most interesting instruments I have ever encountered. It’s a bet on contango (or backwardation depending on your position) in the VIX and it has been just unimaginably consistent. The thing just goes down all the time… sort of.

Why We’re Revisiting Our Pre-Brexit Hedging Advice
Todd Salamone – Schaeffer’s Research
With the S&P 500 Index (SPX – 2,271.31) and SPDR S&P 500 ETF Trust (SPY – 226.74) around all-time highs, the media continues to make references to the “Trump rally.” The Trump rally lasted a little more than a month, which is about the time that has passed since the Dec. 13-14 Federal Open Market Committee (FOMC) meeting. Since this event, and as pointed out in this space during the past few weeks, the price action might be best described as the “Fed stall.” With basketball season now in high gear, an analogy would be the team that holds the ball before halftime to take the last shot. Much like the score doesn’t change, neither have the major stock market indexes, since the Fed meeting.


Weekend Review of Russell 2000 Options and Volatility – 1/17
CBOE Options Hub
Large cap stocks ruled the week last week, at least in relative terms as the Russell 1000 (RUI) only gave up 0.18% while the Russell 2000 (RUT) was down 1.47%. Without checking I’m pretty sure that’s the biggest large cap out performance since the election.

Weekend Review of Volatility Indexes and ETPs – 1/17
CBOE Options Hub
The four volatility indexes based on S&P 500 option pricing were mixed on a week over week basis. VXST and VIX rose while VXV and VXMT dropped slightly. The result was a slight week over week twist in the curve below.

Weekend Review of VIX Futures and Options – 1/17
CBOE Options Hub
The S&P 500 dropped a bit and VIX rose some last week. For all the fear and uncertainty that has been in the air around the beginning of the Trump era in Washington DC, the markets have remained calm and not done a whole lot in the past few weeks.


OIC 2017 Conference Registration Pricing, Policies and Payments
Options Industry Conference
May 10-12; Scottsdale, AZ


Wall Street Questions If Trump Can Turn His Promises Into Policy
Julie Verhage – Bloomberg
It’s a lot easier to say you’ll do something in Washington than to actually get it done.

****SD: Cutting 75 percent of regulation (as he said he’d do) does sound like a really difficult promise to keep.

New Schroders income fund to target 5% yield
David Brenchley – Interactive Investor
Schroders plans to launch a US version of its popular Money Observer Rated Fund, Schroder Income Maximiser, targeting a yield of 5% – far higher than investors are able to get elsewhere. Schroders says it will launch the fund, which will charge investors around 0.4 to 0.5%, between March and April 2017, subject to regulatory approval. It will combine a passive underlying vehicle that will track the S&P 500 index with call options written on the top 200 of those stocks. The call options, which give the fund the right to buy shares in companies at a specified price within a specified future date, are expected to deliver 4% of its planned yield.

Lloyds bank accounts targeted in huge cybercrime attack
Patrick Collinson – The Guardian
Lloyds Banking Group suffered 48-hour online attack this month as cybercriminals attempted to block access to 20m UK accounts.

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