Observations & Insight

Liquidity Providers Unduly Penalized By Capital Rules: CTC’s Crutchfield

What’s a market maker to do when it can’t warehouse risk?

The options industry has a problem with bank capital rules. In this JLN video, Steve Crutchfield, head of market structure with CTC, discusses the burdens placed on market makers due to rules that are out of touch with the stated goals of post-crisis reforms, as well as structural issues within options markets.

There are only three major banks with a significant footprint in clearing for options market making firms. Those banks’ ability to conduct clearing business is under pressure from unduly restrictive capital rules that do not reflect the realities of the business ó namely, that this is a risk-based industry and the rules are not risk based. The net impact is liquidity providers face an “artificial cap” on liquidity they can provide and the amount of open interest they can hold on their books.

Read the rest and watch the video »

Lead Stories

China’s Big Derivatives Push Aims at Global Pricing Power
Bloomberg News
China buys more raw materials than any nation, but that doesn’t mean it always gets the best prices. So the government is altering domestic commodity exchanges to bring in more foreign investors and expand the country’s influence on global markets.

OCC News – May 2017
Featuring a note from our CEO Craig Donohue, a Q&A with our Chief Compliance Officer, and more

Euronext expects London to lose euro clearing after Brexit
Huw Jones – Reuters
The European Union is expected to propose that clearing of euro denominated securities should be moved from London to the continent after Brexit, Euronext (ENX.PA) chief executive Stephane Boujnah said on Friday.

****SD: The FT has Brussels to back euro clearing relocation after Brexit, warns Euronext

SEC Charges Fake Filer With Manipulating Fitbit Stock
The Securities and Exchange Commission today filed fraud charges against a Virginia-based mechanical engineer accused of scheming to manipulate the price of Fitbit stock by making a phony regulatory filing. According to the SEC’s complaint, Robert W. Murray purchased Fitbit call options just minutes before a fake tender offer that he orchestrated was filed on the SEC’s EDGAR system purporting that a company named ABM Capital LTD sought to acquire Fitbit’s outstanding shares at a substantial premium. Fitbit’s stock price temporarily spiked when the tender offer became publicly available on Nov. 10, 2016, and Murray sold all of his options for a profit of approximately $3,100.

****SD: All that for three grand…

Trump Aside, It May Be Time for Markets to Worry About North Korea
Narae Kim – Bloomberg
The market ‘should care more’ about the danger – Citigroup; Buy ‘way out of the money’ dollar-won options to hedge – BOTM
Investors may be glued to the latest political turmoil in Washington, but there’s a long-present danger that’s now looming larger for some analysts: North Korea.

Exchanges and Clearing

CBOE Holdings Announces 2017 Annual Meeting Results
CBOE Holdings, Inc. announced the shareholder voting results from its 2017 Annual Meeting held today.

Euronext publishes first quarter 2017 results
Today Euronext announced its results for the first quarter 2017.


Mizuho names Tassan-Solet head of derivatives trading
Philip Scipio – Reuters
Mizuho Americas hired Massimo Tassan-Solet as head of derivatives trading, where he will lead the bank’s US derivative trading activities including rates and foreign exchange.

Meet the men behind the small broker making big hires from hedge funds and investment banks
Paul Clarke – efinancialcareers
Hedge funds have always been desirable destinations for investment banks’ traders seeking a big pay day, and all the more so after Brexit. But a move to the buy-side doesn’t always work out. For John Ruskin, co-founder of agency execution and clearing platform Coex Partners and the former global head of financial futures and options at SocGen-owned brokerage Newedge, now is the perfect time to pick up disaffected traders and portfolio managers who quit banking only to find hedge funds weren’t the promised land after all.

Regulation & Enforcement

Consider Smart Tax Moves Now That Work With Possible Reform
Robert Green – Forbes
Republicans are pushing forward with their bold tax reform agenda despite drama from the White House, promising massive tax cuts and simplification, paid for with closing tax expenditures and related economic growth. Many traders and small business owners feel like a deer caught in headlights. They are anxious to make smart moves for 2017 tax planning based on current law and are uncertain if tax reform changes will enhance or undermine their maneuvers.

****SD: Just what everybody wants to consider after tax season: tax season. (But it is a big deal for options.)


AI to improve performance of execution for buy-side; FinTech experts debated the role of FinTech on buy-side trading desks at event hosted by Liquidnet Labs.
Hayley McDowell – The Trade
Artificial intelligence (AI) is set to revolutionise the way buy-side trading desks operate, according to a panel of FinTech experts.


Credit And Volatility Signal That Financial Conditions Are Very Overheated
Jared Dillian – Seeking Alpha
We have all the classic warning signs of a big stock market top. All of investing is a push/pull between being early and being right. Actually, my money is just waiting for a better opportunity.


Oil: OPEC Output Cuts vs. Rising U.S. Rig Count
Erik Norland – CME Group
Saudi Arabia, the top exporter among oil producers grouped under the Organization of Petroleum Exporting Countries (OPEC), and Russia announced on May 15 that they favored extending production cuts for an additional nine months into 2018, rallying oil prices. The celebrations, however, might be short-lived.

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