Observations & Insight

Odds & Ends
Jim Kharouf, JLN

A busy day around Chicago yesterday. FIA held its Washington update lunch, where FIA President and CEO Walt Lukken told the audience that the pendulum on regulation is shifting back. He is hopeful that the new administration will adopt its recommendations for: smart regulation, open access to global markets and a focus on innovation from regulators.

How this all comes about is still to be determined. We will have more from Walt soon on all three topics. Later in the day, I checked out the new trading platform from tastytrade at the Apple store on Michigan Avenue. If that sentence seems odd in many ways, well, that’s how Tom Sosnoff rolls. It’s impressive technology and a new take on retail trading. It’s also interesting that Apple, not generally thought of as a force in financial markets, is making a push into this sector, with the help of Ray McKenzie. The man can sell.

Speaking of selling, we’re trying to sign up as many students and young professionals as we can for our MarketsWiki Education event in Stockholm on March 1. We have a great speaker line up. You can sign up here

Finally, we will be putting out our annual reader survey next week. Please help us out as we try to learn more about you and what you would like to see in our publications and websites.
We’re off, as many of you are, on Monday. See you on Tuesday.

****SD: Shameless plug for our piece on tastyworks when it rolled out — The tasty nation adds an entree, tastyworks: Tom Sosnoff and the tastytrade crew are “going to murder passive investing”

Lead Stories

CBOE Holdings’ Acquisition of Bats Global Markets Expected to Close February 28
Transaction Has Received Final Remaining European Regulatory Approval; Three Bats Directors to Join CBOE Holdings Board; Election Deadline for Bats Stockholders Set for February 24
CBOE Holdings, Inc. and Bats Global Markets, Inc. announced today that the companies expect to complete CBOE Holdings’ acquisition of Bats Global Markets on February 28, 2017. Earlier this month, CBOE Holdings received its final remaining regulatory approval from the United Kingdom’s Financial Conduct Authority (FCA), meaning that all U.S. and European regulatory clearances and approvals relating to the transaction have been received. Completion of the transaction remains subject to customary closing conditions.

****SD: *golf applause*

Where Should The VIX Really Be?
Seeking Alpha
Well, when it comes to mispriced political risk, no disconnect has been more talked about than the discrepancy between the now ubiquitous economic policy uncertainty index and the VIX.

****SD: It’s February in Chicago and somehow the high today is 63 degrees with not a cloud in the sky. I’d say the VIX should be outside grilling.

Catalyst Capital Says Don’t Blame Us for Stock Market Swings
Dani Burger – Bloomberg
Volatility fund, down 13.5% in 2016, exited losing call trades; Short gamma runs into trouble as S&P 500 rises seven days
Catalyst Capital Advisors LLC, the $5.8 billion fund firm whose travails briefly transfixed Wall Street this week, says it’s not the reason for recent swings in U.S. stocks.

****SD: Big guys are a little late to the party on this story. The more options-y takes come from ZeroHedge here (from Wednesday) here and here. WSJ on Catalyst here. Matt Levine gives Catalyst a look in his daily roundup as well — I recommend it. As for the veracity of claims regarding the effect of the fund’s actions, it all sounds a bit overplayed (maybe a little bit of the “market searching for a storyline” sort of thing going on). The “misclassification” story below is a different angle though.

Misclassified fund draws huge assets, then falters
John Waggoner – InvestmentNews
The Catalyst Hedged Futures Strategy Fund (HFXIX) was up 6.2% last year, head and shoulders above the average managed futures fund, which fell 2.8%. Performance like that caught investors’ eyes. The fund’s assets soared from $1.2 billion in 2015 to $2.2 billion at the end of 2016. Just one problem: It wasn’t a managed futures fund.

Wall Street’s ‘fear index’ is on track for the biggest two-day jump since Trump’s election
Mark DeCambre – MarketWatch
Don’t look now, but Wall Street fear is quietly creeping higher. On Thursday, the level of a measure of volatility—sometimes described as the “fear index”—in the S&P 500 was on track to mark its largest two-day climb, more than 19% at its peak at 12.86, since Nov. 3, when the CBOE Volatility Index VIX jumped nearly 19% over a two-session period, just ahead of the election.

****SD: If this move is a “jump” then the next real black swan sort of event will be Olympic trampoline gymnastics. From Financial Times’ Alphaville – This is nuts, when’s the tantrum?

CBOE SKEW Index Rises to 141.41, with Increased Demand for Portfolio Protection
VIX Views
Today the CBOE SKEW Index rose to 141.41, its highest level this month, and its 25th highest value since January 1990. With U.S. stock market indexes recently hitting all-time highs, there is quite a bit investor uncertainty about the markets and there is high demand for protection from large market declines.

****SD: “42” is the answer to the ultimate question of life, the universe, and everything, according to Douglas Adams. There are no “42”s here.

The stock market is winning so much, investors are thinking Nasdaq 6,000
Mark DeCambre – MarketWatch
Wall Street stocks are winning—big league. But investors don’t appear to be hitting an exhaustion point, with the Nasdaq Composite Index mounting so steady and so low-key an ascent into the stratosphere that Nasdaq 6,000 is legitimately on the table.

****SD: Valley girl says, “Shut up,” accompanied by hair flick/eye roll. Bloomberg has Stock Investors’ Breathtaking Complacency

Exchanges and Clearing

FIA – Default in a Day
Douglas Monieson – Medium
Tickets to see the smash Broadway musical “Hamilton” may be the hottest ticket in Chicago, but for one day the FIA gave that show a run for its money as a seemingly beyond-capacity crowd packed the auditorium at the Chicago Federal Reserve Bank for a day-long program entitled “Default in a Day.” And while the event lacked the singing and dancing seen in “Hamilton,” the stars of the show and the importance of history were two of the big draws for “Default in a Day,” just as they are for the musical.

****SD: Doug’s blog and the following article are great companions.

CCP Resolution: SCUBA Diving in Murky Waters
George Bollenbacher, Capital Markets Advisors – TABB Forum
What happens if and when one of the large CCPs runs into a major default by one or more of its members? George Bollenbacher, Capital Markets Advisors, takes a deep dive into the risks and regulatory requirements.

ASX’s blockchain may mean job losses
Alice Uribe – Australian Financial Review
Job losses in the back offices of some financial services giants may be the result of the Australian Securities Exchange’s plan to redesign its systems using a “blockchain”, but chief executive Dominic Stevens says the “profound” pay off for the industry will be worth the pain.

****SD: Technology taking jobs?!? I haven’t heard anything about that in the news recently.

Clearing houses saddled with ‘too-big-to-fail’ tag
Philip Stafford – Financial Times
Clearing houses, the market utilities that manage the risk of billions of dollars worth of securities and derivative deals on a daily basis, are posing regulators a new headache.

****SD: Looking for cartoon caption ala The New Yorker – clearing house as a horse being ridden by a regulator holding carrot in front of its nose.

Euronext Appoints Paulo Rodrigues da Silva as CEO of Euronext Lisbon
Business Wire
Euronext (Paris:ENX) (Amsterdam:ENX) (Brussels:ENX) announces that the Supervisory Board has approved unanimously the appointment of Paulo Rodrigues da Silva as CEO of Euronext Lisbon, CEO of Interbolsa and member of the Managing Board of Euronext N.V., pending all relevant shareholder and regulatory approvals.

CBOE Holdings Declares First-Quarter 2017 Dividend
CBOE Holdings, Inc. announced today that its Board of Directors has declared a quarterly cash dividend of $0.25 per share of common stock for the first quarter of 2017. The first-quarter dividend is payable on March 24, 2017, to common stockholders of record as of March 3, 2017.

Electronic Submission of Net Liquid Assets Maintained
PHLX Rule 703(a) requires all Nasdaq PHLX (“PHLX”) members and member organizations to maintain minimum net liquid assets. PHLX members and member organizations for which PHLX is the Designated Examining Authority (“DEA”), currently are required to submit to FINRA daily, in connection with a Regulatory Services Agreement between PHLX and FINRA, the amount of net liquid assets they maintained.

Nasdaq to help NEX spot fraud and market abuse
Samuel Agini – Financial News
NEX Group has chosen Nasdaq to provide the technology to monitor its FX and fixed income trading venues for unsavoury activity such as fraud and market abuse.

****SD: Nasdaq really is a tech company.

Regulation & Enforcement

Convergex CEO Eric Noll: MiFID II – Where Will All The Research Analysts Go?
PR Newswire
MiFID II, an upcoming piece of legislation from European Union regulators, upends the traditional linkage between trading commissions and investment research in ways both the money management and brokerage industries have yet to fully understand.

FIA calls for delay to the Fiduciary Rule applicability date
On February 15, FIA submitted a letter to the Department of Labor (DoL) a delay to the Fiduciary Rule applicability date.

NFA Promotes Carol Wooding to Succeed Thomas Sexton as General Counsel
Finance Magnates
The National Futures Association (NFA), the U.S. premier self-regulatory organization, has seen its latest turnover at a key position, culminating in the promotion of Carol Wooding as its newest Vice President, General Counsel and Secretary. Ms. Wooding succeeds Thomas Sexton, who was promoted in November 2016 to serve as NFA’s President and CEO effective March 1, 2017.

SEBI To Allow Institutional Investors To Trade In Commodities
Sajeet Manghat – Bloomberg
Institutional investors will be allowed to trade in commodities, said outgoing Securities and Exchange Board of India (SEBI) Chairman, UK Sinha who was speaking at the International Commodity Derivatives Conference in Mumbai.

SEBI seeks legal clarity on options trading in commodities
The Hindu Business Line
SEBI Chairman U K Sinha today said the regulator is seeking legal clarity with respect to options trading in commodities which may require amendments to the Securities Contracts Regulations Act (SCRA) and is also in talks with the Ministry of Finance over the issue.


Big Investors also Fear a Gold Slump
Meera Shawn – MarketRealist
Another big name investors may want to watch is Stanley Druckenmiller. Druckenmiller is the former chair and president of Duquesne Capital, which he founded in 1981. He was looking forward to stronger economic growth and a rise in the interest rate in November 2016, so he exited gold.

Earnings Week of 2/21
CBOE Options Hub
As always the data below is based on the last three years of earnings results unless the ticker is in italics. The columns show the biggest rally, biggest drop, average move, and what the stock did last quarter in reaction to earnings. Finally, double check the earnings dates as not all were confirmed.


TransVix, DAT partner to develop Trucking Futures Exchange
TransVix and DAT Solutions announced the formation of their exclusive strategic alliance to create the “first and only” Trucking Futures Exchange which will list and trade contracts based on trucking line haul rates. The TransVix Exchange will list contracts that are financially settled using DAT’s data for major freight lanes in the U.S.

****SD: I would not have stumbled across this if not for “Vix” being in the company’s name, but I’m glad I did see it. Another that crops up frequently: Vix is a line of women’s swimwear.

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