Observations & Insight

Are we seeing the end of Wall Street and the beginning of a new one?
Jim Kharouf – JLN

Silicon Valley icon, investor and entrepreneur Vinod Khosla told an audience last week at the Commonwealth Club of California that technological disruption is coming to most of the top industries in the United States. And while he didn’t mention Wall Street, he could have.

“Citibank won’t solve financial inclusion, Square will if anybody does it,” he said. “Volkswagen and GM won’t solve transportation. Whether it’s Waymo or somebody else who does it, it will be a technology driven, non-institutional, ‘let’s break the rules,’ radical kind of approach. This non-institutional way of doing things, though less predictable, is much more fun and exciting.”

Read the rest here.


OCC Supports Charitable Organizations for Families at Risk
As part of its efforts to support the communities where its colleagues live and work, OCC, the world’s largest equity derivatives clearing organization, is pleased to provide financial support to its designated 2017 charitable organizations through OCC’s offices in Chicago and Dallas.

****SD: Multiple speakers at our MarketsWiki Education summer events over the years have talked about the importance of charity and volunteerism, especially in an industry such as ours (I’m referring to markets, not journalism, fyi). For those who don’t make a point to include charity in their life, consider this: the National Institute of Health conducted a study which showed donating money activates pleasure centers in the brain. So, even if it’s for a selfish reason, help out!

Speaking of charity, tickets are on sale for A Leg To Stand On‘s annual Rocktoberfest events in Chicago on October 5 and New York on October 26. If you’ve never been, it’s a great event where folks from the industry strut their musical stuff, all for a great cause.


Tales from the Crypt: What do Augur, Golem and Gnosis have in common?
Spencer Doar – JLN
They’re all cryptocurrencies. Though if you thought, “They’re all words that could appear in folklore,” you’d also be correct.
In light of LedgerX getting approval from the CFTC to clear options on cryptocurrencies Monday, I thought it prudent to give you a snippet of the larger picture. (More stories regarding LedgerX follow.)

****SD: In case you missed my recap of all things related to cryptocurrencies and LedgerX yesterday.

Lead Stories

Britain’s opposition Labour alarms bankers with Robin Hood tax
Andrew MacAskill, Anjuli Davies and William James – Reuters
Britain’s left-wing opposition party has held a series of meetings with top finance executives, setting out how it would levy taxes on one of the world’s biggest financial trading centers if it snatched power from Prime Minister Theresa May.

****SD: Crikey. As if Brexit wasn’t a big enough hurdle for the City, now this (“options instruments” fall under the proposed tax umbrella). For some context, less than two weeks ago, this was a headline in Bloomberg – Brexit Puts Financial-Trade Tax on Ice as Banks Start Moving.

Whether you call it a Tobin Tax, a financial transaction tax, a stamp duty or a Robin Hood tax, research has shown that after Sweden implemented one in 1984, 50 percent of the nation’s equity trading had moved to London by 1991. I’m unsure of the historical derivatives context, but let’s just say if this comes to fruition, I highly doubt there will be any positive effects on liquidity.

For more, see Reuters’ – Factbox: How will the UK Labour Party’s ‘Robin Hood’ plan to tax bond and derivative trading work?

As VIX Plumbs Depths of Torpor, Betting on Its Future Gets Brisk
Elena Popina and Lu Wang – Bloomberg
Options volume on the volatility index at highest for any July; Traders spar as stock market turbulence falls to a record
Falling asleep as the CBOE Volatility Index signals ever-expanding dormancy in the equity market? Options traders aren’t.

****SD: Related from ETF Daily News – Volatility Won’t Stay This Low Forever

EU prop firm capital crunch could hit market liquidity
Philip Alexander – Risk.net
Proprietary trading firms claim they will be put out of business if they become subject to bank-style regulatory capital rules in Europe from the start of January 2018 – a prospect that is also worrying some large exchanges, where non-bank traders are important liquidity providers.

****SD: More great news on the back of our Lead story…

We Know VIX is Low
Russell Rhoads – CBOE Options Hub
Regardless of how you state it, VIX is low. [Yesterday] VIX got as low as 9.04 which is the second lowest intraday low on record. The lowest print for VIX came on December 27, 1993 with a low of 8.89. I could waste a thousand more words describing how low VIX is relative to history, but instead of doing that I’d like to dive a bit into what it means.

****SD: Reuters has BUZZ-Won’t take much movement for docile VIX to become bucking bronco and CNBC has Here’s what happened the last time the VIX traded this low.

Limits of analysis on commitments of traders
John Kemp – Reuters
Futures and options markets play an increasingly important role in pricing crude oil but little is known about the identity and behaviour of market participants or their impact on prices.
The only comprehensive information on traders’ positions regularly available comes from the commitments of traders (COT) reports issued weekly by regulators and exchanges.

****SD: Did you know that 1995 marked the inclusion of options positions in the report?

Market hype triggers ‘new major warning’ sign for stocks
With a fresh round of record-breaking highs in the stock market has come a surge in investor optimism, and that eventually could create problems.
Bullishness in the most recent Investors Intelligence survey hit 60.2 percent, the highest level since late-February. The survey comes from editors of market newsletters and thus provides a snapshot of what professional investors are thinking.

Exchanges and Clearing

CME Group to Develop Derivatives on Broad Treasuries Repo Financing Rate
Following the Alternative Reference Rate Committee’s (ARRC) recent recommendation that the broad Treasuries repo financing rate should serve as the reference rate in certain new U.S. dollar derivatives and other financial instruments, CME Group, the world’s leading and most diverse derivatives marketplace, today announced that it will develop futures and options on the new benchmark.

****SD: Good luck explaining this one to your next door neighbor. Reuters – CME to offer repo-backed futures and options

Eurex says EU euro clearing plans don’t go far enough
Huw Jones – Reuters
European Union plans to supervise euro-denominated clearing in London after Brexit don’t give the bloc’s regulators enough power to intervene in a crisis, Germany’s stock exchange said on Tuesday.

****SD: Meanwhile, in the US – Bailout obsession holds back US CCP resolution regime from Risk.net.

Nasdaq (NDAQ) 2nd Quarter Profit Surges More Than Twofold
Shares of Nasdaq (NDAQ) are up slightly in Wednesday’s pre-market session after the exchange operator reported second quarter fiscal 2017 earnings results that beat Wall Street expectations on both the top and bottom lines.

****SD: The effect of the ISE acquisition – “[ISE and CXC] contributed to some $34 million positive revenue impact during the quarter.”

Nasdaq to acquire UK market surveillance startup
Anna Irrera – Reuters
Nasdaq Inc has agreed to acquire Sybenetix, a London-based startup that uses artificial intelligence to help compliance officers at asset management firms analyze the behavior of their traders in order to prevent market abuse.

****SD: Reuters’ Anna Irrera spoke at our MarketsWiki Education event in New York about the state of the fintech industry. Thanks again to Reuters for hosting us in their Times Square HQ.

European derivatives exchanges update tech ahead of MiFID II
Joe Parsons – The Trade
Euronext and Eurex are planning to update the technology used to support electronic trading ahead of the incoming MiFID II regulation in January.

****SD: At the FOW/JLN Trading Chicago event, I heard very positive reviews of Eurex’s customer outreach and support regarding MiFID II implementation.

Regulation & Enforcement

MiFID II and Algorithmic Trading: What You Need to Know Now
Andrew Gibbins – Trading Technologies
As the planet’s rotation de-accelerates on its axis due to tidal forces between it and the moon, equating to the longevity of a day lengthening by 1.4 milliseconds every hundred years, both our appetites and dependencies to accelerate efficiencies via algorithms will inevitably draw greater scrutiny.

Special Report: U.S. Advocacy Update
Last week, FIA board members and staff conducted a variety of meetings with policymakers in Washington, D.C. This effort is part of a larger strategic plan to engage in proactive advocacy in the post-election political climate. We began by requesting a comprehensive review of all financial reform regulation in January. In May, we submitted a whitepaper to the Treasury Department on the pathway to smarter regulation. During our meetings, we made solid strides in educating policymakers on these issues and advancing our priorities.

U.S. Labor Department’s fiduciary rule slammed by SEC commissioner
Sarah N. Lynch – Reuters
A Republican regulator at the U.S. Securities and Exchange Commission urged the Labor Department on Tuesday to scrap its fiduciary rule, which aims to reduce conflicts of interest when brokers offer retirement advice, saying it was misguided.

It’s Not How Much Banks Make But How They Make It
Nir Kaissar – Bloomberg
Ever since the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted in 2010 to avert a repeat of the 2008 financial crisis, endless debates have taken place about whether the law and its accompanying regulations are too hard on financial firms.

Binary Options lawsuits piling up, this time against IT Binary Options, Oren Laurent and IGMD
Israel business newspaper Globes is reporting that a number of lawsuits have been recently filed in Israel against several Binary Options brokers, and their owners. The suits are being filed by former clients of the brokers, claiming in different forms that they were cheated out of their funds by the brokers.


Thomson Reuters concludes integration of REDI’s EMS
Hayley McDowell – The Trade
Thomson Reuters has completed the integration of REDI’s execution management system (EMS) with its Eikon and Elektron services.

****SD: You have to have REDI if you’re going to get set and go.

Vela completes Object Trading acquisition
Vela Trading Technologies LLC (Vela), a global leader in high performance trading, market data, and analytics technology, today announced it has completed the acquisition of Object Trading, a global provider of a fully-managed Direct Market Access (DMA) platform, pre-trade risk controls, and analytics applications.

****SD: Vela’s fidget spinners were a winner with the interns as far as giveaways go.


Options traders bullish on Facebook ahead of second-quarter results
Saqib Iqbal Ahmed – Reuters
As Facebook Inc (FB.O) geared up to report second-quarter results on Wednesday, traders in the options market are exhibiting a greater degree of bullishness in more than a year, options data showed.

****SD: Seems like a “why not” sort of deal with some of these top tech names.

Watch Out For Volatility Tourism And The End Of The Summer Calm
Vineer Bhansali – Forbes
In what used to be a hidden gem for derivatives wonks and institutional managers of money, we are now seeing a similar kind of surging investment tourism. It follows a strategy of “selling the noise”, or selling options – via derivatives contracts or packaged products. The end goal is to pocket the premium income.

****SD: I really like the phrase “volatility tourism.” Think I’ll pocket that one for later.

CBOE Morning Call 7/26/2017
Russell Rhoads – CBOE Blog
Today there will be lots of talk about the FOMC, but the chances of anything truly unexpected coming this afternoon are very low. This week, I have heard about a dozen people state that when we get an FOMC announcement the stock market goes up. I was wondering if part of yesterday’s strength could be attributed to that mindset. Remember when everyone is like minded, it may be time to go the other way.

Complacency, but not where you expect it
Steve Brice – Business Times
A recurring theme among some market observers is how complacent equity investors are today. A statistic often used as evidence is the US S&P 500 market-implied volatility, or VIX, index. When this is low, it usually signals that investors are sanguine about the outlook for stocks. Therefore, some use the VIX index as a contrarian indicator to hedge their downside risk. Thus, when the VIX index fell below 10 during a few trading sessions in May for the first time since 2007, some thought it was flashing a warning sign for equity investors.
If only life were so simple – if we could all rely on just one indicator to determine the outlook for global equities! As one would expect, the truth is far more complex.


Q&A: How A Chicago Teacher Is Finding New Ways to Teach Economics
CME Openmarkets
Economics and business skills are increasingly stressed at the high school level. Sales, business and finance were among the roles CEOs reported having difficulty filling with a diverse workforce in a recent Business Roundtable survey. The same survey noted that K-12 education was a key part of the solution in filling the skills gap.

****SD: In case you missed Jim’s column about education yesterday, check out What Education Does: How The Financial Industry Can Shape Young Minds And Our Industry’s Future

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