Observations & Insight

OCC Moves Continue
Spencer Doar – JLN

The plan was for a Post-April Fool’s Day humorous bits and pieces for options, but then actual news just kept cropping up, so look for it tomorrow. What could be more important than pithy comments about the weird options-related search results? The fact that the rotation at the OCC continues! (And my mind is definitely on rotations as MLB is back.)

Today, OCC announced that John P. Davidson agreed to become President and COO of the organization starting May 8. Davidson was on the OCC’s board of directors from 2002 to 2006 and his 30+ year tenure in the industry encompasses time at Citigroup, Morgan Stanley and two stops at the CME. Given the pattern of recent hires at OCC, the presence of CME Group on Davidson’s curriculum vitae is far from a surprise.

Here’s the real rub — this comes right on the heels of this morning’s announcement from DTCC that it hired former OCC President and COO Mike McClain to be managing director and general manager of equity clearing. McClain’s last day at OCC was March 22 and the official storyline was he was leaving for personal/family reasons.

There’s a nugget buried in the seventh paragraph of the OCC release about Davidson — OCC Chairman and CEO Craig Donohue also announced that current SVP and chief audit executive Adi Agrawal was appointed chief business transformation officer.

Regarding the former CME angle, Davidson is far from the only one. James Pribel came over to OCC last year — he was formerly CME’s treasurer. Agrawal, Scot Warren and Joe Adamczyk joined OCC in 2015 from CME Group. When John Fennell was promoted, Dale Michaels joined OCC as EVP, financial risk management, after some 20 years at CME. David Prosperi also joined the OCC in 2015 and reps a stint at CME on his resume. Then, obviously, there is Donohue. I’ll apologize in advance for those with direct CME ties whom I forgot.

It’s not a secret that the OCC is and has been undergoing a cultural transformation since being designated as a systemically important financial market utility (SIFMU) and the departure of longtime leader Wayne Luthringshausen. But after all of these changes, longtime OCCers must be wondering about their chances for upward mobility.

Two other bits of news. First, in case you missed the release last Friday, The Order Machine is going the way of the dodo. Also, today marks the first day of trading for CME’s Monday weekly options on the S&P 500 and E-mini S&P 500.


Lead Stories

Davidson Joins OCC as President and Chief Operating Officer
Press Release – OCC
OCC, the world?s largest equity derivatives clearing organization, today announced that John P. Davidson, a long-time senior executive with more than 35 years of experience in the global financial services industry, has agreed to join the organization as President and Chief Operating Officer, effective May 8th. Davidson will report to OCC Chairman and CEO Craig Donohue, and he replaces Michael McClain, Chief Operating Officer, who left OCC on March 31st for personal reasons.

DTCC names Michael McClain GM, equity clearing
The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, today announced that Michael McClain has joined the firm as a Managing Director and General Manager of Equity Clearing.

The Least Volatile Quarter On Record Since the 1960s
Crystal Kim – Barron’s
The first quarter of this year was among the least volatile quarters in some 50 years.
Volatility is so low investors are shorting the iPath S&P 500 VIX Short-Term Futures ETN (VXX) to go long the contango, according to S3 Partners. “In a time when VIX volatility is at record low levels, traders are feeling no trepidation taking short positions in the “fear index,” writes Ihor Dusaniwsky, head of research at S3. From 2016 through 2017, short sellers have made $690 million, a 76% return.

’50 Cent’ Trader Has Been Hoarding VIX Call Options Since December
Jayson Derrick – Benzinga
The Volatility Index, also known as the “fear index,” tends to do as its nickname suggests and move higher in an environment where investors are less bullish.
According to a CNBC report, a trader has been hoarding call options on the Volatility Index since December. These call options will likely yield a return for the investor when the index moves higher. But since December, the trader, likely a large institutional firm, has lost $75 million so far out of a total $90 million investment.

Brexit Begins a New Long-Term Normal for the Markets
Vikram Rangala – Nadex Binary Options
This week, British Prime Minister Theresa May sent a short, polite letter to the EU president initiating a two-year negotiation to separate. In the short term, investors and traders may not notice much change, but the new normal will bring a new tone to many markets.

The ‘extraordinary calm’ in markets… is cause for worry
Nicholas Spiro – South China Morning Post
Wall Street’s so-called ‘fear gauge’, or Volatility Index, currently stands at just 12.3 points, close to the record low of below 10 touched before the global financial crisis.

VIX Broke Out Above Its Long Term Resistance At 13.45
Anthony M. Cherniawski – Investing.com
VIX broke out above its Long-term resistance at 13.45 again to create a potential inverted Head & Shoulders formation. A buy signal has been made above its Intermediate-term resistance at 11.65. A breakout above the neckline suggests that the Ending Diagonal formation may also be at risk of a breach. An actual change in long-term trend may occur above the top trendline of the 15-month long Ending Diagonal formation at 19.00.

Markets Fiddle While The World Burns
Hersh Shefrin – Forbes
Although stocks have continued their irrationally exuberant highs, and the VIX has stayed low, the news these days is worrisome. We know the expression about Nero fiddling while Rome burned. Is the market fiddling, and if so, is it playing Saint-Saëns’ Danse Macabre?

Exchanges and Clearing

Euronext to move derivatives clearing business from LSE to ICE
Philip Stafford – Financial Times
Euronext on Monday put pressure on the London Stock Exchange Group to reopen talks over the sale of the LSE’s French clearing house by unveiling plans to move its derivatives and commodities business from the unit to rival Intercontinental Exchange.

OCC Cleared Contract Volume up Nine Percent in March
Press Release via Business Wire
OCC, the world’s largest equity derivatives clearing organization, announced today that total cleared contract volume in March reached 386,877,373 contracts, a nine percent increase from March 2016. This was the highest level of options volume cleared in March by OCC in the last five years. OCC’s year-to-date volume is down one percent with 1,058,670,212 cleared contracts in the first quarter of 2017, compared to 1,064,617,055 contracts in the first quarter of 2016.

Bats Europe Expands BXTR to Offer Buy-Side Trade Reporting Services
Press Release – CBOE
Bats Europe, a CBOE Holdings, Inc. company and the region’s largest equities exchange operator, today announced it has expanded its trade reporting facility, BXTR, to offer a new service that enables buy-side firms to meet their trade reporting obligations under MiFID II. The new service, an assisted reporting model, allows buy-side firms to enable their brokers to submit trade reports on their behalf using the broker’s existing connectivity to Bats Europe.
Recognising the new MiFID II reporting obligations will present buy-side firms with a range of operational, technical, financial and regulatory challenges, Bats’ new buy-side trade reporting service requires no technical or operational changes to buy-side systems for APA connectivity since it uses their broker’s existing connectivity to Bats Europe. The new service, which is offered under a simple, inexpensive license, allows buy-side firms to meet their MiFID II reporting obligations in a straightforward, cost-effective manner.

MIAX Options and MIAX PEARL Holiday Schedule – Good Friday 2017
Press Release – MIAX
Please be advised the MIAX Exchanges will be closed on Friday, April 14, 2017 in observance of Good Friday. Weekly Options Expiration for the week ending Friday, April 14, 2017 will take place on Thursday, April 13, 2017.

Regulation & Enforcement

Volcker Rule Scrutinized
Rob Daly – Marketsmedia
Without proof of the rule’s success, representatives from industry associations, academia, and think tanks testified before the Subcommittee on Capital Markets, Securities, and Investments of the House Financial Services Committee that the controversial Volcker Rule should be tweaked, if not replaced entirely.

Ex-Citi traders fined $550k for spoofing US treasury future markets
Hayley McDowell – The Trade
Two former traders at Citigroup in the US have been fined a combined $550,000 and a six-month ban from trading for spoofing treasury futures markets.
Stephen Gola and Jonathan Brims engaged in spoofing activity – bidding or offering with the intent to cancel before execution – more than 1,000 times in various CME US treasury futures products.


Wall St. stock pickers shift to machines
Adam Shell – USA Today
Wall Street’s shift from man to machine is moving deeper into the realm of stock picking, a profession once viewed as more art than science.
But powerful computers that can crunch data cheaper and faster than humans are spurring the nation’s biggest money management firm to rely more on machines to help pick winning stocks and build more profitable portfolios. And all at a price investors won’t balk at.

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