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Coinbase Purchases FairX; NinjaTrader Acquires Tradovate; UBS Faces Legal Battles - THE SPREAD – January 14, 2022 | John Lothian News

Coinbase Purchases FairX; NinjaTrader Acquires Tradovate; UBS Faces Legal Battles – THE SPREAD – January 14, 2022

Alex Perry’s Optionstopia 

“Alex Perry’s Optionstopia” takes a look at this week’s options news highlights: Coinbase Purchases FairX; NinjaTrader Acquires Tradovate; UBS Faces Legal Battles

Options News Script

This is Alex with John Lothian News, and this is your recap of options news from the week. Here’s some of the week’s top stories, starting with:

1–Coinbase Buys FairX to Launch Crypto Derivatives

Nikhilesh De – Coindesk

/yhoo.it/33eMcfK

This week was a big one for Fintech, as it was announced that the crypto trading platform Coinbase is buying the CFTC-regulated derivatives exchange FairX. Coinbase said in its blog that the acquisition is a “…key stepping stone on Coinbase’s path to offer crypto derivatives to retail and institutional customers in the US.” Seeking Alpha reported that the move was in an effort to “bring regulated crypto derivatives to the market, initially through FairX’s existing partner ecosystem.” Given that there aren’t many exchanges that allow bitcoin and ether futures trading for investors, the news site Coindesk believes that the purchase of FairX could be a smart move. 

2–NinjaTrader Acquires Tradovate

NinjaTrader Acquires Tradovate; Acquisition of Cloud-Based Trading Infrastructure Further Strengthens Leadership Position in Retail Futures Industry

Tradovate

/bit.ly/33pGpUk

NinjaTrader Acquires Tradovate, a press release from Tradovate. The acquisition creates “a formidable retail futures broker with combined trading volume in 2021 of around 100 million futures contracts” according to LeapRate. 

And the acquisitions keep on coming, with the retail trading software developer and broker NinjaTrader acquiring the futures brokerage firm Tradovate for a price tag of $115 million. Ninja Trader was founded in 2003 and now serves over half a million traders, while Tradovate provides a cloud-based futures trading platform. According to a Tradovate news release, the acquisition creates  “…one of the most formidable retail futures brokers with combined trading volume in 2021 of approximately 100 million futures contracts.” NinjaTrader CEO Martin Franchi commented that the company’s move to purchase Tradovate will meet the growing demand for innovative products and services while also  making the platform more easily accessible

3– UBS Sued Over YES Options Strategy

Andrew Welsch – Barron’s

/bit.ly/3Gn8nyx

In other news, UBS is facing some legal woes. The Swiss investment bank has about $4.8 billion in assets, and some people want a slice of that billion-dollar pie. As reported by Barrons, investor Christian Dumontet is suing UBS over the company’s Yield Enhancement Strategy, or YES Options strategy. Dating back to 2015, the YES Strategy offered a specific type of options strategy where, according to investorlawyers.com, there would be “diversification along with stable, incremental returns through low yield.”

But some are saying that the expectations did not match the reality. In fact, according to Barron’s, Dumontet – along with 1,500 others- invested about $ 5.7 billion into the YES strategy. So what does UBS have to say about all this? Barron’s reported that while 

they haven’t yet issued a legal response to the lawsuit, a UBS representative said the YES strategy is for experienced investors with a “…long, successful track record.” They go on to say that “UBS disclosed all relevant risks to investors.”

4– CME Group Achieves Record International Average Daily Volume of 5.5 Million Contracts in 2021

CME Group

/bit.ly/3zNFMzX

[CME] The Chicago Mercantile Exchange or CME Group has set international records, this week announcing an average daily volume (or ADV) of 5.5 million contracts in 2021. This was up 4% from 2020, with an overall global ADV of 19.6 million contracts throughout 2021.  The world’s largest financial derivatives exchange noted that between growth in interest rate products and high volumes in Europe and Asia, that is what really pushed the CME to achieve this record.

5–Robinhood Announces Employees Can Permanently Work From Home

Robinhood Tells Employees They Can Work From Home Permanently; Retail-trading platform wants to become ‘a remote first company’ as many employers reconsider when they should return to the office

Joseph De Avila – WSJ

/on.wsj.com/3FqBI9Y

Working from home has become a way of life for many of us, and Robinhood is allowing most of its employees to do it…indefinitely. Employees of the trading app are saying goodbye to the physical workspace, and hello to what Robinhood calls, “a remote first company”. While many other companies plan to eventually return to the workplace, Robinhood says that going fully remote offers more flexibility to its employees. But the company’s performance over the past year could indicate a different reason. The company is currently priced around $15 a share, which is quite the difference from last year’s peak of around $70 per share in August. The price has been on a steady decline ever since, which could be a sign that the retail options trading platform could now be a potential takeover target.

That’s all for now over here, but tune in for this week’s edition of John’s Take. Also, be sure to check out this week’s “Options Term of the Week,” as Tom Jarck explains “VSPIKES”.

THIS HAS BEEN ALEX PERRY FOR JLN. THANKS, AND WE’LL SEE YOU NEXT TIME. 

JOHN’s take

Futures exchanges as “hot commodities” is the theme of ”John’s Take”

The (little) Exchange is the Hot Commodity

Futures exchanges are hot commodities, to borrow a line from investor Jim Rogers. I have always said our futures markets were the “World’s Best Markets.” So there is that too.

This week, as Alex Perry reported, Coinbase bought FairX, a JLN sponsor. The deal is expected to close in late March.

All the way back on December 1, 2021, Crypto.com announced it was buying Nadex and the Small Exchange from the IG Group.

Then in October, Cboe joined the party and bought Eris Digital Holdings, LLC, known as ErisX, which operates a U.S. based digital asset spot market, a regulated futures exchange and a regulated clearing house.  

On August 31, 2021, FTX.US, the fast-growing crypto currency exchange founded by Sam Bankman-Fried, the only man besides Facebook’s Mark Zuckerberg to get so rich before the age of 30, bought LedgerX LLC, a Commodity Futures Trading Commission (CFTC)-regulated digital currency futures & options exchange and clearinghouse.

Just over two years ago, in December of 2020, this run on futures exchanges started when Miami International Holdings, Inc, the parent company of the MIAX Exchange Group, closed the deal buying the Minneapolis Grain Exchange. 

What all of these deals have in common is plans to leverage these existing exchanges and clearing houses in some cases for greater opportunities than the stand alone exchange could ever hope to develop. Some are crypto exchanges trying to break into traditional derivatives trading and maybe get a little whiff more of legitimacy to help attract institutions to their game. 

Others are traditional players trying to hedge their bets by offering something in the crypto world in case this bubble turns out to be really a mylar balloon with staying power. 

MIAX, who started it, so far seems content to offer innovative traditional derivatives products, assuming that is not too much of an oxymoron. 

There is also the small contracts angle, as Nadex, Small Exchange and FairX all offer smaller sized contracts popular with retail traders today. 

I decided to take a look at the CFTC website to see who is left to buy. The page you want to look at is the Trading Organizations – Designated Contract Markets page.  

There are four different statuses of exchanges: Pending, Designated, Vacated and Dormant. Designated means the exchange has an active license. That does not mean it is trading, though, or maybe not much. The Bitnomial Exchange trades bitcoin futures. It has open interest of 9 contracts and volume today was 10.

The Cantor Exchange LP is gearing up to trade once again and this time it is not movie receipts, which were outlawed by Dodd-Frank. Its markets are “currently unavailable,” its website says.

Some of the pending exchanges are new crypto enterprises trying to get registered, like Gemini Titan, LLC.

There is the new designated exchange, Kalshi, which has former CFTC Commissioner Brian Quintenz on its board. 

There is the Los Angeles Grain Exchange, designed in 1922 and vacated in 1953 with its last trade in 1945. 

And there is a dormant exchange, the Merchants Exchange, that was once the Merchants Exchange of St. Louis. Its history goes all the way back to 1836. If there were one dormant exchange I would want to see come to life in this current run on small exchanges, it would be the Merchants Exchange with its long history. 

But for now, it looks like we are going to have to go back to having to file with the CFTC for new exchanges, as we are mostly out of existing, designated ones to buy. This means instead no more buying past the time delay friction brought to regulators by your competitors. That means no more buying someone else’s hard regulatory filing work. That means no more buying someone else’s good reputation. Now new exchanges are going to have to earn good reputations the old fashioned way. Actually, this is the way it ought to be.

Term of the Week

Tom Jarck of MIAX explains “VSPIKES”

Sponsors

The Spread

SPREAD SEGMENTS

Options Discovery

John’s Take

Term Of The Week

PAST SPREAD EPISODES

The Spread: Options Discovery Episode 4: Institutional and retail options trading; interview with Chen Liang of Odds.Trade

The Spread: Options Discovery Episode 4: Institutional and retail options trading; interview with Chen Liang of Odds.Trade

OPTIONS DISCOVERY: In this episode of Options Discovery, Alex Teng goes over institutional vs. retail options trading and the advantages and disadvantages for both. He also interviews Chen Liang, the co-founder of Odds.Trade, who talks about generating insight from data models and how he developed tools designed for entry level retail traders.

A SPREAD INTERVIEW: The full interview with Chen Liang, the co-founder of Odds.Trade

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