Deutsche Boerse puts brakes on HFT; Judge tosses Barclays trader’s FX options front-running case

Mar 5, 2019

Observations & Insight

Brace yourself. It may be time for a financial transaction tax
Jim Kharouf – John Lothian News
In the past few weeks the financial transaction tax (FTT) has been suggested and floated everywhere from Chicago’s mayoral election campaign to candidates for the new presidential election. The search for new tax revenues often mentions Wall Street and LaSalle Street, and this time we may see a tax come into the securities and derivatives markets. And why not? Most voters carry a dim view of Wall Street, and financial markets will likely take a further beating in the run up to the 2020 US presidential election.

****SD: And as if on cue, see CNBC’s Rep. Peter DeFazio and House Democrats are reintroducing a financial services tax with Alexandria Ocasio-Cortez as a co-sponsor.


FIA Announces 2019 Hall Of Fame Inductees
FIA announced today the induction of 13 members into the FIA Futures Hall of Fame. This year’s class joins 144 other honorees in the Hall of Fame, which was established in 2005 on FIA’s 50th anniversary. The new members will be honored at an awards ceremony during the 44th annual International Futures Industry Conference in Boca Raton, Fla.

****SD: In alphabetical order: Magnus Böcker (posthumous), Robert T. Cox (posthumous), Paul Davies, Mitch R. Fulscher, Anthony George Gero, Phupinder S. Gill, Christopher K. Hehmeyer, Garry Jones, Bonnie Litt, Andreas Preuss, Michael Spencer, Lee B. Stern, and Kim Taylor.

Lead Stories

German market puts brakes on high-frequency traders
AFP via France24
German stock market operator Deutsche Boerse plans to slow down some kinds of high-frequency trading by 1,000 times in a pilot project designed to reduce “aggressive” behaviour, it told AFP Tuesday. Trading in German and French share options on its Eurex platform will face a speed limit in a six-month test from June 3, the group said.

The test will probe the effects of “parking” orders some traders place using high-powered computers with delays as low as one millionth of a second.

Judge Tosses Case Against Barclays Trader in Latest Stumble for Prosecutors
Aruna Viswanatha – WSJ (SUBSCRIPTION)
A federal judge dismissed without sending to the jury a case against a former senior Barclays PLC trader accused of illegally trading in anticipation of a major client deal, highlighting the problems prosecutors have faced in efforts to hold individuals liable for allegations of corporate misconduct.

****SD: A previous Bloomberg article on the case had this quote from a former federal prosecutor: “The argument is ‘these are sophisticated parties who understand the nature of the transactions, the nature of the business, and what may appear to be improper conduct in this particular context isn’t necessarily so. Sometimes that’s a valid defense.'” It appears the “Just because it LOOKS bad, doesn’t mean it is illegal” defense worked. Other sources: Bloomberg, the Financial Times and Reuters.

Consolidated Audit Trail: Those Messy Data Linkages
Chris Kentouris – FinOps
US brokerage operations managers are quickly turning their attention to how they will meet the cumbersome requirements for data linkages now that the Financial Industry Regulatory Authority (FINRA) has been stepped in at the eleventh hour to operate the new consolidated audit trail (CAT).

****SD: This really gets into the nuts and bolts of why things will be so difficult.

Miami Equities Exchange Gets Tepid Response
Rob Daly – MarketsMedia
After years of discussing the possible launch of a US equities exchange, the parent company of the Miami Options Exchange plans to dive into the crowded market sometime in early next year, reported the Wall Street Journal on March 4.
The industry’s reaction to the news of a potential thirteenth, or possible fourteenth or fifteenth exchange depending on the actions of the Long-Term Exchange and the Members Exchange, has been mixed.

Advertising & Volume
Talton Capital Management
It is well known that investors have limited attention. Every day they have to consider an enormous number of potential investments and it is just too much to take in. But there hasn’t been much research showing how traders and investors react when they are reminded of particular firms (reactions to earnings announcements have been very well studied but that is a situation where people are watching the news on their own and don’t need an external reminder). But now a recent study has shown that even a very quick attention grabbing prod can produce a surprisingly large effect.

Her Story: Bea Ringold
Cboe Blog
Bea Ringold got her start at Cboe as a price reporter in 1981, much to the surprise of friends and family. “People would see traders and trading floors on the news and say, ‘You work there?! You actually do that?!’ It was a big thing back in the day. The floor was so crowded we hardly had elbow room,” Bea says.
Packed in with the floor’s many characters, Bea soon rose through the ranks, working as a quote reporter and then a quote relief operator.

Hedge funds carry on buying oil despite Trump intervention
John Kemp – Reuters
Hedge funds continued to boost their bullish position in crude and fuels last week despite a call from U.S. President Donald Trump for OPEC to “relax and take it easy”.
Hedge funds and other money managers were net buyers of an extra 16 million barrels of Brent crude futures and options in the week to Feb. 26, according to ICE Futures Europe.

Funds dig deeper into bear territory as CBOT selling persists
Karen Braun – Reuters
Speculators drastically ramped up their rate of selling in Chicago-traded corn, wheat and soybean futures during mid-February, though prices have skidded even further since then as the general market pessimism lingers into March.

Exchanges and Clearing

Nasdaq’s CEO just threw her support behind the cloud and said she hopes to eventually move the exchange there
Dan DeFrancesco – Business Insider Prime (SUBSCRIPTION)
New Jersey could soon lose some of its most notorious residents. The Garden State houses data centers where most US equity trading takes place, leading Wall Street firms to buy up space and implement cutting-edge technology in the region.

Intercontinental Exchange Reports February Statistics
Intercontinental Exchange
Intercontinental Exchange, Inc. (NYSE: ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today reported February trading volume and related revenue statistics.

MIAX Exchanges – Daylight Saving Time
Please be advised the MIAX Exchanges (MIAX Options, MIAX PEARL & MIAX Emerald) are scheduled to begin Daylight Saving Time at 2:00 AM on Sunday, March 10, 2019. The MIAX will adjust the system times ahead 1 hour for trading beginning Monday, March 11, 2019.

Regulation & Enforcement

CFTC Announces Whistleblower Award Totaling More Than $2 Million
The Commodity Futures Trading Commission (CFTC) today announced a whistleblower award totaling more than $2 million to be paid to an individual whistleblower. The CFTC granted the whistleblower’s award application for both a CFTC action and a related action brought by another federal regulator. In ordering the award, the CFTC recognizes the contribution of a whistleblower in providing critical information through independent analysis of market data.


Euromoney TRADEDATA Joins FinTech Sandbox as Data Partner to Promote Innovation in Financial Technology and Services
FinTech Sandbox is pleased to announce today a partnership with Euromoney TRADEDATA, a leader in providing trusted reference data solutions to the global future and options industry. Euromoney TRADEDATA will provide data to promising startups selected by FinTech Sandbox for use in the development and testing of a wide range of exciting and transformational products and services.

Technology Is Killing Active Management. Here’s How Tech Can Save It
Larry Tabb – TABB Forum
Technology is changing the nature of investing, intensifying the pressure on active equity managers. But this is not the end of active management. TABB Group founder and research chairman Larry Tabb investigates the challenges and offers a guide to help buy-side managers compete successfully in the age of passive investment. Not surprisingly, the solution starts with technology.


Real Money Hasn’t Jumped on the Bandwagon Yet: Taking Stock
Michael Msika and Jan-Patrick Barnert – Bloomberg (SUBSCRIPTION)
….Turning to derivatives, Morgan Stanley strategists have looked into volatility to assess the odds of a bigger rally and these aren’t a pleasant read. The options-implied probability of the Euro Stoxx 50 making a new 52-week high is about 12 percent, and the analysts see more opportunities to buy volatility than sell it, as trade optimism and a dovish Fed are in the price.

Pound Set for Further Strength If Pundits Are Right on Brexit
Charlotte Ryan – Bloomberg (SUBSCRIPTION)
The pound is outperforming peers this year and as fears of a no-deal Brexit recede, strategists see all signs pointing to more strength.


LIVE Hedging Strategies Workshop: Ways You Can Protect Your Portfolio with Options!
The Options Industry Council (OIC)
Beginning March 30, OIC is hitting the road to kick off our 2019 LIVE Options Workshop Series! Learn from OIC professionals and Industry experts in three back-to-back sessions as we explore and dissect some of the most common and practical hedging strategies. Space is limited, so reserve your spot today. Your portfolio just might thank you for it!

Webinar: Hedging Ideas from Market Experts: How, Why, and When?
The Options Industry Council (OIC)
When it comes to options, market volatility is the great unknown. Protecting investments with options positions can not only be a safe play, but a smart one as well, especially in times of market uncertainty. Join OIC as we welcome industry pros to talk about hedging positions in a volatile market–including how to analyze the market and what red flags should cause us to be concerned. They’ll explain which strategies they use as well the how’s, why’s, and when of hedging. Register today to reserve your spot and be sure not to miss this highly informative and exciting talk!


Shale Companies, Adding Ever More Wells, Threaten Future of U.S. Oil Boom
Christopher M. Matthews, Rebecca Elliott and Bradley Olson – WSJ (SUBSCRIPTION)
Shale companies’ strategy to supercharge oil and gas production by drilling thousands of new wells more closely together is turning out to be a bust. What’s more, the approach is hurting the performance of older existing wells, threatening the U.S. oil boom and forcing the maturing industry to rethink its future.

Holidays in March: Retail Tidings Hint at Better-Than-Expected Shopping Season
JJ Kinahan – The Ticker Tape
First appearances can be deceiving.
A few weeks ago, some might have written off the U.S. holiday shopping season as a bit disappointing based on early earnings results. Since then, however, evidence has grown to counter that theory. The latest came early Tuesday from Target (TGT) and Kohl’s (KSS), even as U.S. stock indices licked their wounds after Monday’s slide.

Vodafone’s $4.5 Billion Happy Meal for Hedge Funds
Chris Hughes, Bloomberg via WaPo
Vodafone Group Plc’s new boss needed some luck. The financing markets appear to be favoring Nick Read as the U.K. mobile phone giant prepares to splash out on buying a huge chunk of John Malone’s European cable empire.
On Tuesday, Read unveiled a 4 billion-euro ($4.5 billion) financing package for the purchase, which should help the company create a converged mobile, broadband and television empire across Europe.

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