Cboe to buy Virtu’s MATCHNow dark pool to expand into Canada; Sundial Says Extreme Options Sentiment Is Awful Omen for Stocks

May 19, 2020

Observations & Insight

Chess Obermeier – MarketsWiki Education Open Outcry Traders History Project

Chess Obermeier started working for his cousin, Charles Obermeier, at the Cboe, and was able to purchase his first membership by his 21st birthday. He eventually made his way to the CBOT in 1984, where he traded grain up until 2016. During his time on the floor, Chess met his future wife Maureen, who was also working on the floor at the time. The rest is history. Check out part 2 with Maureen Obermeier tomorrow.

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Lead Stories

Cboe to buy Virtu’s MATCHNow dark pool to expand into Canada
John McCrank – Reuters
Exchange operator Cboe Global Markets said on Tuesday it is buying Canada’s largest “dark pool” stock trading platform, MATCHNow, from Virtu Financial for an undisclosed amount to expand its geographical footprint. Uncertainty over the COVID-19 pandemic has led to a flurry of trading over the past few months and the volatility has benefited exchange operators like Cboe, the third-largest U.S. stock exchange operator by volume, which early this month reported record first-quarter revenue.

****JB: Also, see press release below in “Exchanges.”

Sundial Says Extreme Options Sentiment Is Awful Omen for Stocks
Joanna Ossinger – Bloomberg
Small options traders are bullish to a point that signals trouble for U.S. equities, according to Sundial Capital Research Inc.
“Last week, the smallest of options traders, those with trades for 10 contracts or fewer at a time, opened a new record of net bullish positions,” Sundial President Jason Goepfert wrote in a note Tuesday.

Swaptions compensation method divides market
Rebekah Tunstead – Risk.net (subscription required)
Swaptions users are struggling to agree a method for compensating investors that lose out from the upcoming change in swap discount rate at clearing houses. Market participants in the US and Europe broadly agree that a compensation mechanism is needed, but divisions still remain within each jurisdiction over how it would work in practice.

Exchanges and Clearing

Futures exchange wins new partner for June 1 launch; The Small Exchange, which is targeting retail traders, has landed Interactive Brokers as a partner.
Lynne Marek – Crain’s Chicago Business
Chicago futures exchange startup Small Exchange, which aims to lure retail traders, has landed support from a big partner, Interactive Brokers Group, which will smooth the way for drawing customers to a June 1 launch. Small Exchange CEO Donnie Roberts said the new exchange recently got the green light from clearing house Options Clearing Corp. and successfully completed testing to open the new exchange for trading on three inaugural contracts next month.

Nasdaq Increases Market Shares Within Norwegian Derivatives
Nasdaq market leaders within single stock options, growing position within index futures; New product initiatives will support further growth
Nasdaq (Nasdaq: NDAQ) today announced new statistics for trading in Norwegian Equity Derivatives, showing a 53 percent market share for single stock options. To further strengthen the client value for equity derivative trading, Nasdaq plans to additional product initiatives in the near future.

Cboe Global Markets Agrees to Acquire Leading Canadian ATS MATCHNow
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, today announced it has entered into a definitive agreement to acquire MATCHNow, the largest equities alternative trading system (ATS) in Canada, from Virtu Financial, Inc. Upon successful completion of this acquisition, Cboe will gain a foothold in a key capital market new to the company, while expanding the geographic presence and diversifying the product capabilities of its North American equities business. Ownership of MATCHNow is also expected to provide Cboe with a strategic pathway to build towards a comprehensive equities platform for the Canadian markets and potentially establish a significant presence in the region.

Has The NYSE Floor Closure Affected Its Market Share?
SIFMA – Traders Magazine
“The global pandemic COVID-19 has caused extreme shocks to our economy and financial markets. A symbol of these unprecedented times, on March 23, the New York Stock Exchange closed its physical floor and moved to fully electronic trading. Ken Bentsen, SIFMA president and CEO, sat down with Ellen Greene, SIFMA’s Managing Director of Equity and Options Market Structure and Katie Kolchin, CFA and Director of SIFMA Research, walk us through an analysis by SIFMA Insights to find out whether the closure of NYSE’s physical floor has impacted its market share.

Miami International Holdings Welcomes Seasoned Industry Finance Executive Lance Emmons
Miami International Holdings
Miami International Holdings, Inc. (MIH), the parent holding company of the MIAX Options, MIAX PEARL and MIAX Emerald options exchanges (the MIAX Exchange Group), today announced that Lance Emmons has joined MIH as Executive Vice President, Chief Financial Officer. As CFO, Emmons will lead MIH’s financial strategy, planning and operations, including financial analysis and risks, operations optimization, strengthened revenue growth, and organizational leadership and development, among other duties.


Quants Warn Trading Costs May Rise on Reopening Volatility
Gregor Stuart Hunter – Bloomberg
Quantitative investors and strategists say a reopening in economies across the globe could trigger renewed volatility in financial markets, increasing trading costs and weighing on portfolio returns.
Anchorage, Alaska-based McKinley Capital Management is worried that a fresh bout of turbulence may emerge during the summer as economies reopen and companies resume issuing guidance. Bid-ask spreads could widen as a result.

Why Mimicking Hedge Funds’ Holdings Is Unusually Risky
Carleton English – Barron’s
Investors looking to mimic their favorite hedge funds may find themselves at a loss this quarter.
Investment managers with assets exceeding $100 million are required to disclose their long holdings 45 days after the quarter closes with the Securities and Exchange Commission. Traders often scour the filings, known as Form 13F, hoping to get insight into how Wall Street’s so-called smart money is positioned so they can piggyback off those trades.

Cost of betting on euro downside vs dollar falls in option markets
Sujata Rao – Reuters
The cost of betting on euro downside against the dollar in currency derivatives markets fell on Tuesday to the lowest since mid-March, after a Franco-German proposal for a recovery fund and joint debt boosted the single currency.


Vertical Spreads (Webinar)
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Behind the Market Structure: Edward Tilly – Chairman, President and CEO, Cboe Global Markets
Join Kevin McPartland, Managing Director, from Greenwich Associates and Edward Tilly, Chairman, President and CEO, Cboe Global Markets for an interactive discussion on the past, present and future of Cboe and the role it plays in defining markets around the world.

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