Cboe’s Equitec Hearing Decision; HFT Trading Fight Escalates as New Tower Blooms; Volcker Revamp

Apr 26, 2019

Lead Stories

Hearing Decision – Equitec Proprietary Markets, LLC Hearing Decision
Cboe
…Based on the foregoing, the Board finds that Regulation has proven by a preponderance of the evidence that, from November 30, 2011 through April 8, 2015 Equitec violated the Market Access Rule and Exchange Rule 4.2 by failing to establish a reasonable credit or capital threshold that limits the overall financial exposure of both Equitec and its customer s by taking into account both pending and executed orders.
bit.ly/2GHIZGq

****SD: TL;DR – The $50k fine and censure stands.

High-Frequency Trading Fight Escalates as a New Tower Blooms
Nick Baker and Kevin Miller – Bloomberg (SUBSCRIPTION)
The tower generated controversy when it was just an idea, before a single metal pole went up in a mostly empty plot in suburban Chicago. It became a reality within the past two months and now looms about a thousand feet from what’s arguably the most important financial market in the world.
The 195-foot structure belongs to Scientel Solutions LLC. The company’s neighbor, CyrusOne Inc., was so enraged by the plan that it sought to block the tower in January 2018 by suing Scientel and the city of Aurora, Illinois, which had approved the project. That case is still going on, but to some degree it’s moot: Construction wrapped up this month, and the tower is blooming with antennas.
/bloom.bg/2GEUyhi

Wall Street Nears a Big Win in the Latest Revamp of Volcker Rule
Jesse Hamilton and Benjamin Bain – Bloomberg (SUBSCRIPTION)
In a win for Wall Street banks, the latest effort to overhaul the post-crisis Volcker Rule is moving toward a narrower and clearer definition of what types of trades are prohibited, said people familiar with the matter.
/bloom.bg/2GA54GO

****SD: “In recent discussions, regulators have weighed dumping the accounting measure and relying more heavily on something known as the market-risk capital prong, the people said. That method, which is already in Volcker, prohibits trades involving financial instruments that are generally held for sale in the short term. The change would probably be appealing to banks because it’s based on rules they already have to follow.”

Rally Killer Resurfaces as Stocks and Volatility Gain in Tandem
Luke Kawa – Bloomberg (SUBSCRIPTION)
Volatility markets may be flashing a warning to U.S. stocks.
As the S&P 500 reclaims fresh record highs, the Cboe Volatility Index has crept up, with the five-session correlation between the two strengthening to levels not seen since the middle of 2018.
/bloom.bg/2GvgECM

****SD: Don’t you love when correlations get wonky?

Are Trading Volumes And Volatility Set To Spike As April Turns To May?
Matt Bartolini – Financial Advisor Magazine
U.S. equities’ nearly 17 percent gain year-to-date has occurred against a 12 percent decline in trading volumes compared with the first four months of last year and a 7 percent decline compared with all of 2018.[1] This underscores why many are referring to the current environment as a “low participation rally.” But given that 63 percent of S&P 500 firms will have reported first quarter earnings by May 3[2] and a Federal Reserve (Fed) meeting scheduled for May 1, trading volumes are likely to get a boost as the calendar flips from April to May.
bit.ly/2GyQwHk

Market participants up in arms against exclusion of stocks from derivatives
Jayshree P. Upadhyay – LiveMint
In the largest such exclusion drive in the recent past, the National Stock Exchange, late on Monday, said derivatives trading will not be allowed in 34 stocks after their existing monthly contracts expire on June 28.
“Out of a universe of 1900 stocks only 159 will trade in derivatives. This will reduce liquidity and volumes. What will be left to trade if this continues,” said a mid-sized proprietary trader.
bit.ly/2GAHBoN

Dead calm in currency markets unnerves investors
Eva Szalay – Financial Times (SUBSCRIPTION)
Corporate treasurers tend to like nothing more than a stable exchange rate, allowing them to budget and plan with a measure of confidence. But for Wall Street strategists and traders who earn a living from market movements, extreme calm can be unsettling.
And extreme calm is what they have. Major exchange rates are stuck in their deepest slumber for years, prompting comparisons to the unnaturally tranquil period before the 2008 financial crisis — along with plenty of hand-wringing over when activity might return.
/on.ft.com/2UWfjPz

Exchanges and Clearing

OCC Named Best Clearing House by Markets Media
OCC
OCC, the world’s largest equity derivatives clearing organization, today said it was named Best Clearing House by Markets Media. The award was presented to OCC on April 24 in New York as part of the publication’s 6th Annual Markets Choice Awards.
bit.ly/2JrmBki

SGX, NSE agree on way forward for Nifty dispute, Companies & Markets
Business Times
The Singapore Exchange (SGX) and India’s National Stock Exchange (NSE), two of Asia’s largest trading venues, have agreed on a way forward in the dispute involving the latter’s Nifty index futures contract.
bit.ly/2GvfIOM

Regulation & Enforcement

FINRA details use of fines collected in 2018
Mark Nelson – Jim Hamilton’s World of Securities Regulation
According to a report issued by the Financial Industry Regulatory Authority, Inc., the U.S.’s self-regulatory organization responsible for broker-dealer oversight spent $81.1 million on a variety of capital and strategic initiatives and on investor education and efforts to promote compliance by broker-dealers. The bulk of these funds came from fines imposed by FINRA. Of these funds, just over 81 percent were allocated for capital and strategic purposes, while just under 19 percent were allocated for educational and compliance purposes. FINRA’s first full report on fines was issued pursuant to its Financial Guiding Principles, which it published in January 2018 as part of an effort to improve the transparency of its operations. Previously, FINRA had issued an interim report on fine monies roughly in the time frame that it adopted its Financial Guiding Principles.
bit.ly/2GAu7JG

Technology

‘We can’t do what we did 20 years ago’: AXA’s trading head sees need for AI and predictive analytics due to information overload
Jonathan Watkins – The Trade
The sheer magnitude of trades and markets that buy-side desks are participating in is forcing the need for artificial intelligence (AI) and predictive analytics, according to AXA Investment Managers’ global head of trading.
bit.ly/2UEB5Ci

Strategy

You Could Profit Off a Stock Market Dip With This Options Strategy
Daren Fonda – Barron’s
Stocks have had a great run so far in April. But we could see selling pressure as the month draws to a close. If that happens, investors may be able to profit with a low-risk options strategy.
The S&P 500 has gained 3.6% this month, while the bond market has declined by 0.4%. That may force many balanced funds, including large pension funds, to sell stocks and buy bonds to maintain their required asset mix of equities and fixed income, according to Vinay Viswanathan, derivatives strategist at Macro Risk Advisors.
bit.ly/2GOKpPt

Education

Volatility Products: Analyzing Sensitivity
Sage Anderson – tastytrade blog
Although it may seem hard to believe, the VIX slid beneath 13 right before Tax Day in the USA, and closed April 14th trading at 12 and change. And just before Easter, it was threatening to close with an 11-handle.
So much for all that drama swirling around the “trade war,” it would seem.
Simply stated, the VIX has gotten decimated since those dramatic days in November and December of last year when it seemed like the bottom might finally fall out of what has become the longest bull run in market history.
bit.ly/2GD2H5V

Events

Catch the Entrepreneur Panel at the Options Industry Conference with Matt Amberson
ORATS Blog
Matt Amberson, Principal at Option Research & Technology Services, will join Eric Cott of The Options Industry Council, Ryan Belanger-Saleh of Gatsby Digital, and Tony Zhang of OptionsPlay, on an entrepreneurial panel at the Options Industry Conference.
bit.ly/2GBY9g5

****SD: I’m looking forward to this despite it being at 8 a.m. ET – I think Eric Cott’s “Coffee with Cott” branding leads to the morning scheduling…

Miscellaneous

JPMorgan and Citi FX Hold Up to 80% of eFX Dealing
Finance Magnates
Greenwich Associates has just announced the results of its latest report on the structure of the global foreign exchange market. The company published select excerpts that shed light on the most convincing trends in the space including eFX growth.
bit.ly/2GBVH9n

Isle of Wight’s Vix Lowthion selected as Green MEP candidate
Isle of Wight News from OnTheWight
Vix Lowthion of the Isle of Wight Green Party has announced her selection as one of the top candidates for the next South East Green Party MEPs in the European Parliament elections, set to take place in May.
bit.ly/2GB6Zeg

****SD: This has zero to do with options. But I couldn’t help but chuckle to see there is a woman named “Vix Lowthion” in the UK!

Libor’s Looming Demise Is a Mammoth Financial Engineering Task
Benjamin Purvis and Alex Harris – Bloomberg (SUBSCRIPTION)
The end is coming for Libor and financial markets need to get ready.
That’s the view of Morgan Stanley’s Tom Wipf. He heads the Federal Reserve’s Alternative Reference Rates Committee, which on Thursday released recommendations for language to enable contracts linked to the beleaguered London interbank offered rate to work even if the benchmark disappears. Darrell Duffie, a finance professor at Stanford University, has also underscored the risks involved with shifting away from a set of benchmarks that underpin some $200 trillion in dollar-denominated instruments.
/bloom.bg/2GAsP1i

Why new stock market record highs worry some Wall Street experts
Akin Oyedele – Business Insider Prime (SUBSCRIPTION)
The stock market is enjoying its best start to a year since 1987. But according to several strategists, the rally is carrying symptoms of a sharp reversal — one they expect to soon follow.
Thanks to the Federal Reserve’s change of tune, investors turned around the correction that ensued late last year, confident the central bank would not allow high interest rates to choke the economy.
bit.ly/2Gz9Kww

Microsoft closes just short of $1 trillion despite ‘boringly excellent quarter’
Emily Bary – MarketWatch
Microsoft Corp. isn’t quite ready to join Apple Inc. yet, as the company ended Thursday’s session with a market value just shy of trillion-dollar status.
/on.mktw.net/2GEsIlf

****JB:It seems now a company can’t have a merely “excellent” quarter but needs to make it an exciting one, too. Isn’t coming within a whisker of $1 trillion exciting?

John Lothian Newsletter

So you want to know what’s happening in the financial markets?

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Newsletters

Pin It on Pinterest

Share This Story