Observations & Insight

OCC 2016 Cleared Contract Volume Fifth Highest Ever
OCC, the world’s largest equity derivatives clearing organization, today announced 2016 total cleared contract volume reached 4,167,747,777 contracts, a one percent decrease from the 2015 volume of 4,210,542,258 contracts. The year ended with 337,076,118 cleared contracts in December, a three percent decrease from December 2015. OCC also reported record-breaking volume for cleared futures, with 104,523,581 cleared contracts in 2016; a 56 percent increase from 2015.

December Marketshare via OCC

(Click for larger image)

Lead Stories

Dash and LiquidPoint to Merge to Create Dash Financial Technologies
Dash Financial announced today that Dash and Convergex have signed a definitive agreement to merge Dash and LiquidPoint (Convergex’s Options Trading and Technology business), creating a leading financial technology company in the options and equities markets. Dash Financial is a leading institutional trading technology, execution and analytics provider devoted to bringing unfettered transparency and superior performance to the U.S. options and equities markets. LiquidPoint is a leader in advanced options technology and routing services with deep penetration into the sell-side and exchange communities.

****SD: Or as Business Insider says, “A big deal in the options trading business just went down”

Volatility To Return In A Big Way This Year
Boris Schlossberg – ETF Daily News
Equity markets open 2017 in a sea of complacency. The VIX is bobbing near its 52-week lows and stock investors are convinced that it’s the 1980s all over again. It may very well be Ronald Reagan redux, as deregulation and a strong dollar create fresh investment flows into the U.S. and as both the Dow and the S&P hit fresh record highs. But history rarely repeats itself that neatly. And as the great Wall Street sage Robert Farrell once said: “When all the experts and forecasts agree — something else is going to happen.”

7 New Year’s Resolutions for the Options Investor
Steven M. Sears – Barron’s
At the start of a new trading year, it is important to recommit to some basic investing principles. This simple act of making a list of resolutions helps to keep one on the straight and narrow path of disciplined investing. This exercise is no less important this year, with investors broadly optimistic in anticipation that President-elect Donald J. Trump will lower corporate taxes and thus increase earnings. Like so many others, I regularly seek counsel from Michael Schwartz, the dean of Wall Street’s options strategists. He was present at the creation of the options market in 1973 and has since successfully navigated enough market cycles to have seen it all and done it all.

20 Volatility Indexes in 2016: BPVIX Rose 277% Pre-Brexit, and On Election Night VIX Futures Rose 55%
Matt Moran – VIX Views
Dozens of worldwide volatility indexes can serve as valuable tools for investors who wish to gauge intraday and long-term sentiment changes related to a variety of asset classes. In addition, investors take long and short positions in futures and options on key volatility indexes.

Clients Want Hedge Funds but Not Their Big Bets
Laurence Fletcher – WSJ
An increase in market volatility should be providing hedge funds with their best moneymaking opportunities in months. The only problem is some of their investors are preventing them from capitalizing. Many of the biggest funds now cater mainly to large, conservative investors such as pension funds and college endowments.

****SD: “It’s not you, it’s me.”

Structured Equity Derivatives Pricing: The Conflict Of Interest
Market Mogul
Structured products are tailored to meet specific risk/reward ratio requirements for clients which are not possible through standard market securities such as standard shares or bonds. Structured equity derivatives often provide exposure to different underlying assets such as shares, a basket of stocks, and indices while incorporating features such as caps on profits and multipliers to achieve the specific reward/risk ratios.

Exchanges and Clearing

CME Group Reached Record Average Daily Volume of 15.6 Million Contracts in 2016, up 12 Percent from 2015
CME Group
Five of CME Group’s top ten daily volume days occurred within 2016, with three of those during the fourth quarter. CME Group fourth-quarter 2016 ADV reached a 16.3 million contracts, up 24 percent from fourth-quarter 2015, while December 2016 ADV reached 15 million contracts, up 15 percent compared with December last year. Full-year 2016 options volume averaged a record 3.1 million contracts per day, up 14 percent versus 2016, with electronic options averaging a record 1.7 million contracts per day, up 21 percent over the same period last year. Open interest at the end of December was 103 million contracts, up 13 percent from year-end 2015, and daily open interest reached an all-time high of 122.6 million contracts on December 15, 2016.

****SD: CME’s monthly options reviews can be found here.

HKEX to Offer RMB Currency Options
Hong Kong Exchanges and Clearing Limited (HKEX) plans to offer Renminbi (RMB) Currency Options and is aiming to roll out a US dollar/Offshore RMB (USD/CNH) contract in the first quarter of this year, subject to market readiness.

Nasdaq Extended Life Priority Order Attribute under Rule 4703
Comment Letter
IMC Chicago, LLC d/b/a IMC Financial Markets (“IMC”) appreciates the opportunity to submit this letter in response to the proposal by the Nasdaq Stock Market, LLC (“Nasdaq”) to introduce a new priority for displayed orders, the Extended Life Priority Order Attribute (“ELO”) (the “Proposal”). IMC is a proprietary trading firm and registered market maker, engaged in providing liquidity in nearly every listed equities and derivatives market in the U.S. As a member of FIA’s Principal Traders Group (“FIA PTG”), we write in support of FIA PTG’s comment letter regarding the above-referenced filing.

****SD: Let’s just say plenty of folks aren’t fans. Themis Trading had a blog about the ELO at the end of November – see here. If Nasdaq were simply trying to introduce the Electric Light Orchestra I bet there would be far less debate.

The Big Interview: Lee Olesky
Hayley McDowell – The Trade
The TRADE speaks to chief executive officer at Tradeweb, Lee Olesky, about the firm’s expansion across asset classes and its shift in strategy to make markets more electronic.

Monthly Report: Innovative products help manage volatility through 2016
In 2016, Eurex, Europe’s largest derivatives exchange, saw increasing demand for its highly liquid benchmark product range as well as strong growth in a number of new product segments.

Euronext Announces Volumes for December 2016
Business Wire
Euronext (Paris:ENX) (Amsterdam:ENX) (Brussels:ENX), the leading pan-European exchange in the Eurozone, today announced trading volumes for December 2016.

Resurgent rates trading boosts exchanges
Luke Jeffs – FOW
CME and Eurex saw strong interest rate derivatives trading volume late last year
A timely surge in interest rate futures trading at the end of last year drove CME and Eurex into positive territory for 2016 while equity derivatives markets had a mixed year, according to new data. CME, the world’s largest international exchange, reported total 2016 volumes up 12% on the previous year to 3.94 billion lots, driven largely by an increase in interest rate futures trading, particularly at the end of the year.

European exchanges end 2016 with difficult December
Hayley McDowell – The Trade
Exchanges across Europe have suffered a difficult December 2016, amid lower trading volumes and transaction values compared to the same period in 2015.

Regulation & Enforcement

Basel Committee delays meeting on capital requirements proposals
Today the Group of Central Bank Governors and Heads of Supervision (GHOS) of the Basel Committee on Banking Supervision announced a delay in their planned January meeting to review the latest package of proposals on capital requirements.

CFTC Chairman Timothy Massad Announces Resignation as Chairman
Chairman Timothy G. Massad today said he has tendered to President Obama his resignation as Chairman of the U.S. Commodity Futures Trading Commission, effective on January 20, 2017.

Exclusive: Wall Street lawyer Jay Clayton emerges as Trump’s top SEC choice
Svea Herbst-Bayliss and Steve Holland – Reuters
Wall Street lawyer Jay Clayton, who has worked on high-profile initial public offerings such as Alibaba Group, is a leading candidate to head the U.S. Securities and Exchange Commission in the Trump administration, two sources familiar with the matter said on Tuesday.

Aren’t You Glad You Asked? ESMA’S Latest Q&As
George Bollenbacher, Capital Markets Advisors – TabbForum
ESMA latest set of questions and answers on the implementation of MiFID II and MiFIR is directed as much at the EU national regulators as at investment firms. As always, what ESMA answers and what it doesn’t are both enlightening. George Bollenbacher, Capital Markets Advisors, looks at the more interesting Q&As, from best ex to unbundling.

****SD: Due to childhood, I see “Aren’t you glad” and immediately want an orange and a banana.

United States: IOSCO Reports On Risks Of Over-The-Counter Leveraged Products
Nihal S. Patel, Cadwalader, Wickersham & Taft LLP – Mondaq
After surveying members of its Committee for Regulation of Market Intermediaries, IOSCO described risks to retail investors relating to marketing and selling complex over-the-counter (“OTC”) leveraged products. In a “Final Report on the IOSCO Survey of Retail OTC Leveraged Products,” IOSCO focused on (i) rolling-spot foreign exchange (“forex”) contracts, (ii) contracts for differences (“CFDs”), and (iii) binary options.

Arbitrage Funds now can take higher exposure in F&O market
In a fresh development, SEBI has relaxed the trading restrictions in the derivatives markets for mutual funds. Previously, mutual funds were allowed only to take Rs 150 crore exposure per Future and Options (F&O) scrip in the derivatives market, which has now gone up to Rs 300 crore per scrip as compared to the earlier period.

S.E.C.’s In-House Judges Face Supreme Court Scrutiny
Peter J. Henning – NY Times
Sometimes an obscure provision of the Constitution becomes the focal point of a significant controversy that requires the Supreme Court to straighten things out.


Higher Returns and Lower Volatility for BXMD and PUT Indexes Over 30.5 Years
Matt Moran CBOE Options Hub
Investors now have access to price histories for several CBOE benchmark indexes that date back 30.5 years. The first two charts below show that since mid-1986 both the CBOE S&P 500 30-Delta BuyWrite Index (BXMDSM) and CBOE S&P 500 PutWrite Index (PUTSM) had higher returns than the S&P 500 Index, 30-Year Treasury Bond Index (Citi), MSCI EAFE Index, and S&P GSCI Index.


Wedbush Securities Welcomes Arthur Bass as Managing Director, Fixed Income Financing, Futures, and Rates
Wedbush Securities is pleased to announce the appointment of Arthur Bass as Managing Director, Fixed Income Financing, Futures, and Rates. In this role Arthur will focus on the further development of the Futures and Options, and fixed income businesses. Arthur is based in New York, NY and reports to Managing Director, Fixed Income Financing, Futures, and Rates, Scott Skyrm.


China Goes on $26 Trillion Commodity Binge as Shortages Seen
Alfred Cang – Bloomberg
Commodity futures turnover, aggregate volume rise for 5th year; Intervention by Chinese regulators curbed trading frenzy
Chinese investors traded a record volume of commodity futures last year as speculators poured in and out of the market on bets that shortages are looming.

30 Under 30 Finance 2017: The Top Young Traders, Bankers And Dealmakers
Antoine Gara, Corinne Jurney and Nathan Vardi – Forbes
From the rise of quantitative trading driven by data to new financial technologies and start-ups, the Wall Street landscape is shifting. The faces of change on Wall Street can be found on this year’s 30 Under 30 Finance list.

America’s Roster of Public Companies Is Shrinking Before Our Eyes
Maureen Farrell – WSJ
Executives at LoanCore Capital LLC were plotting an initial public offering in 2015 for a portfolio company that manages commercial real-estate credit. Just before the IPO was to launch, the stock market fell sharply. LoanCore pulled the plug.

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