Observations & Insight

Trigger pulled! A collection of UK news

Not only was Brexit “triggered” since our last newsletter, the European Commission put the final nail in the proposed LSE-Deutsche Boerse merger.

There’s a ton out there on the two subjects. I’ve cobbled together an array of stories about the two events so you can pick and choose. For a one stop shop, check out The Guardian as it has a live updates page that covers both the failed merger and Brexit proceedings.

LSE-Deutsche Boerse stories

Brexit stories

As a digestif, here are some comments from Steve Grob on a few challenges that Brexit poses for financial markets – Comment From Steve Grob, Director Of Strategy At Fidessa On Article 50 And Financial Markets Impact.

The most intriguing to me was: “At the heart of the Brexit and financial markets issue, is the passporting or right of free passage for products and services into Europe. If this becomes a pawn that is sacrificed in the bigger political negotiations over fishing rights, car tariffs or whatever, then the UK might be tempted to start unpicking some of the ‘sillier’ Mifid rules, such as the restrictions on dark pool trading. This, then, would enable the UK to create a more benign, and therefore more attractive, regulatory environment for participants in financial markets.”


Lead Stories

CBOE Holdings Announces First Stages of Technology Integration Plan
CBOE Holdings, Inc. today announced that the CBOE Futures Exchange will be the first of the CBOE Holdings exchanges to migrate onto the Bats technology platform, with an expected switch-over on Sunday, February 25, 2018. The migration of the C2 and CBOE options exchanges will follow, with those dates to be announced later.

MiFID unbundling and best ex set to have global impact
John Bakie – The Trade
US firms must ensure they are aware of incoming European rules on research unbundling and best execution so they can adapt to global shifts in the way the sell- and buy-side will do business, an audience in New York was told last night.

Fed’s Evans says he supports one or two more rate hikes this year
One of the Federal Reserve’s most consistent supporters of low interest rates on Wednesday said he is with the majority of his colleagues in supporting further rate hikes this year, given progress on the U.S. central bank’s goals of full employment and stable inflation.

****SD: CME’s FedWatch tool pegs the chance of a .25 bps hike in May at 95.7 percent.

Themis Trading Blog
Back in June of 2014, then CFTC Chairman Tim Massad announced the hiring of Aitan Goelman as the CFTC’s a new enforcement director. Mr. Goelman was previously a US Attorney in the Southern District of New York and appeared to be a great choice since he would be tough on enforcement.

Inside the Recent Role of Volatility in Gold
Meera Shawn – Market Realist
The volatility index may finally stop being stagnant and move upward, now that the fiasco surrounding the Republican attempt to repeal and replace President Obama’s Affordable Care Act reached a head on Friday, March 24. The volatility index (VXZ), CBOE Volatility Index (VIX) has been trading close to 12% for the past few months. As shown in the chart below, gold and volatility are often seen moving in tandem, but the two can also deviate from each other, which is what we’ve seen most recently. Despite the falling volatility in markets, gold (SGOL) and silver (SIVR) have seen price upswings of 8.2% and 10.6%, respectively.

Exchanges and Clearing

MIAX Options – Postponed Activation Of Complex Market Orders And MIAX Price Collars (MPC) For Complex Orders and Complex eQuotes
MIAX Options has postponed the activation of Complex Market Order Functionality and MIAX Price Collars (MPC) for Complex Orders and Complex eQuotes as previously announced in the March 21, 2017 Alert. MIAX will publish an Alert with the new activation date once available.

****SD: Better safe than sorry.

OCC Declares Clearing Member Refund and Dividend for 2016
OCC, the world’s largest equity derivatives clearing organization, today announced the declaration of a refund and dividend under its approved capital plan. The refund of approximately $46.6 million to clearing members and the dividend of approximately $25.6 million to Stockholder Exchanges will be paid sometime in the third quarter of 2017.

Dalian exchange to launch soybean meal options
Julie Aelbrecht – Futures & Options World
The Zhengzhou Commodity exchange is launching white sugar options in April
The Dalian Commodity Exchange is to launch soybean meal options on Friday, the first Chinese agricultural options contracts. The Dalian Commodity Exchange will be launching soybean meal options on March 31 after receiving approval from the Chinese regulator, the exchange said in a statement. The exchange already offers futures on soybeans, soybean meal and soybean oil.

Dalian Commodity Exchange Interprets Issues Related To Supervision Of Unusual Transactions Of Options On Soybean Meal Futures
Press Release
In order to further clarify the requirements for supervision over the unusual transactions of the options on soybean meal futures and make the members and investors have a more clear-cut understanding of related rules, on March 24, Dalian Commodity Exchange (DCE) issued the “Interpretations on Issues Related to Supervision of Unusual Transactions of Options on Futures” (the Interpretations for short) on the member service system in a bid to interpret the “Regulatory Standards and Disposal Procedures Related to the ‘Measures of Dalian Commodity Exchange for Management of Unusual Transactions (for Trial Implementation)'”.

OCC Appoints Two New Members to Board of Directors
OCC, the world’s largest equity derivatives clearing organization, today announced that Andrej Bolkovic, CEO of ABN AMRO Clearing Chicago LLC, and Jamil Nazarali, Head of Execution Services at Citadel Securities, have joined the board of directors as Member Directors. Bolkovic was appointed to fill a vacancy for a term ending in 2017 created by the departure of John Ruth, and also was nominated for election this year. Nazarali was appointed to fill a vacancy created by the departure of George S. Fischer with a term ending in 2018.

CBOE Holdings Announces Additional Listing on Bats BZX Exchange


IPC launches Global Exchange Reach solution
Automated Trader
IPC, a provider of communications and networking solutions, has announced the launch of Global Exchange Reach, a connectivity solution that enables exchanges, alternative trading systems, multilateral trading facilities, and other liquidity venues located in one part of the world to attract order flow and distribute market data in new geographies.


FlexTrade Appoints Vishal Pandya Chief Operating Officer
FlexTrade Systems, a global leader in multi-asset execution and order management systems, today announced the appointment of Vishal Pandya as Chief Operating Officer (COO). In this newly created position, Pandya will serve as a member of FlexTrade’s executive leadership team and have overall responsibility for the performance and development of the company.

BlackRock Announces Portfolio Manager Changes to BlackRock Enhanced Capital and Income Fund, Inc.
Yahoo Finance
BlackRock Advisors, LLC today announced changes to the portfolio management team of BlackRock Enhanced Capital and Income Fund, Inc. (CII) (the “Fund”). Effective March 29, 2017, the Fund’s portfolio management team consists of Todd Burnside, Kyle McClements, and Christopher Accettella. Biographies for each of the portfolio managers are set forth below.

Regulation & Enforcement

U.S. judge throws out many metals price-fixing claims
Jonathan Stempel – Reuters
A U.S. judge on Tuesday significantly narrowed private litigation accusing several big banks and German chemical giant BASF SE (BASFn.DE) of conspiring to suppress platinum and palladium prices.

The Volcker Rule and Trump’s Core Principles
Kelvin To, Data Boiler Technologies, LLC – TABB Forum
The Treasury Department was asked to review whether existing laws and regulations follow the identified ‘core principles’ of President Trump’s administration. What is at stake regarding the Volcker Rule?

UK financial services firms avoid GBP1.2bn of fines by settling with FCA
Laura Noonan – Financial Times
Banks and financial services firms have collectively been pardoned GBP1.2bn of misconduct fines over the past four years, prompting a call on the government to tighten the rules. Under the current rules, a 30 per cent discount is available to any institution that settles with the Financial Conduct Authority if they settle in “stage one” — the period in which the regulator has formed “sufficient understanding of the nature and gravity of the breach to make a reasonable assessment of the appropriate penalty”.

****S: If you can’t beat ’em, pay ’em.

Do HFT Firms Pilot WWII Bombers?
David Weisberger, Exquam – TABB Forum
Even if de-regulation makes high-frequency trading firms more money, it does not mean de-regulation is the wrong move. Market structure debates should be decided on what is best for investors – and the added complexity, higher infrastructure costs, higher spreads, and difficulty to innovate under the Order Protection Rule mean that it should be eliminated.

SFC to Introduce New Excess Positions: Relevance for Asset Managers
Allen & Overy LLP – JDSupra
?On 21 March 2017, the Securities and Futures Commission (SFC) published its consultation conclusions on proposed changes to the position limit regime in Hong Kong. Expected to come into force on 1 June 2017, the changes include relaxing the existing stock options contracts position limit, raising the ceiling for the existing client facilitation excess position limit six-fold, and more importantly introducing three new excess positions for ETF market makers, index arbitrage activity, and asset managers. This bulletin focuses on the new excess position for asset managers.

Clearinghouse Safety on CFTC Panel’s April Meeting Agenda
Richard Hill – Bloomberg BNA
Clearinghouse safety, the health of derivatives markets and cybersecurity are on the agenda for a CFTC Market Risk Advisory Committee April 25 meeting, the agency said.


Top Carry Trade Isn’t Dead Yet as Traders Stock Up on Rand Bonds
Robert Brand and Srinivasan Sivabalan – Bloomberg
Political crisis may be short-lived, options market suggests; Bond inflows by overseas investors reaches nine-month high
There may be life in the dollar-rand carry trade yet.

****SD: Becomes a burden if you carry too long.

Options Strategy And Tactics: Diagonal Spreads
Tom Armistead – Seeking Alpha
The math behind options pricing and the multiplicity of possible strategies create a daunting amount of complexity. Simple options strategies, when used by investors who have a well-researched directional opinion on the stocks involved, can improve returns and reduce risk. Wall Street doesn’t always provide a level playing field: however, investors who use options can select areas where they are not at a disadvantage. This article discusses LEAPS covered calls, a type of diagonal call spread.

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