Observations & Insight

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End of a Series
We concluded our annual Exchange Leaders Series from FIA Boca yesterday with an interview with Matt Chamberlain, interim CEO at the LME. In all, the series included eight different exchange executives who sat down to speak with us at the conference last month. If you haven’t seen them, they are all included below. Each has their own way of summing up 2016 and what is happening at their respective markets in 2017.

Sprecher Says ICE Ready To Roll Out Data and Analytics To Meet The Demand For More Info
Durkin Says CME Growth Is All About Customers
By Leveraging Bats’ Technology, CBOE’s Tilly Wants To Expand Footprint
Nasdaq’s Friedman on New Tech and Positive Momentum
LSEG’s Hackett on a Clear Path Forward
SGX’s Syn Says Trade Barriers Mean Opportunities for Offshore Exchanges
HKEx’s Lamba Sees Opportunities in China
LME’s Chamberlain Discusses Ambitious Deployment Schedule

Lead Stories

What This Ex-Wall Street Trader Who Went From ‘Zero To $200M’ Is Investing In
Roger Aitken – Forbes
If lightning strikes twice on the financial markets after the last crash you could do worse than listen to an American business maverick who built up a real-estate business in eastern Europe from the 1990’s into the noughties. He’s the man who liquidated his business empire just a week before 2008’s financial crisis and retired at 49. Today Paul Oberschneider, who was born in the Midwestern town of Roselle, Illinois, and grew up in a small rural farming community, is getting back into business from his base in Oxfordshire, England, after turning his life around post his high-flying Wall Street trading days and selling his property empire for an estimated $200 million (m).

****SD: From Chicago options trader to Wall Street party animal to Baltic real estate tycoon. Good read. Here’s a quote about moving to Estonia: “Back then it was very much the ‘Wild East’ and guys were carrying guns around. Everybody seemed to be doing things…like starting banks and insurance companies.” Never before have I been so intrigued as to what omission is represented by the “…” given the previous statement regarding the “Wild East.”

Financial institutions risk 24 percent revenue loss from fintech: PwC
Anna Irrera – Reuters
Large financial institutions across the world could lose 24 percent of their revenues to financial technology companies over the next three to five years, according to a new study by PricewaterhouseCoopers.

****SD: Also see Bloomberg – Big Banks Poised to Scoop Up Fintech Startups, Report Finds. This all plays into acknowledging change and who is quick to notice and who is quick to dismiss. I’ve included Morgan Housel’s “What We Said When the World Changed” report in “Miscellaneous.” Ties in nicely, I think.

Traders Bet the Fed Will Slow Rate Hikes to Shrink Balance Sheet
Craig Torres and Matthew Boesler – Bloomberg
Most Federal Reserve officials agree that they will begin shrinking their super-sized balance sheet later this year. What they don’t want to discuss in detail yet is how that will shape their plans to continue raising the short-term interest rate in 2018.

CAT and President Trump Executive Order 13771
Thomas Jordan – Traders News
On January 30th, President Trump signed Executive Order 13771 (Reducing Regulation and Controlling Regulatory Costs), which requires government agencies to repeal two regulations for each one enacted. Just three months earlier, in November 2016, the Securities & Exchange Commission approved a National Market System Plan which will implement the Consolidated Audit Trail, aka, CAT (a consolidated database of all details involved in every stock transaction in the U.S.). Generally, those Wall Street firms most familiar with CAT do not expect Trump’s Executive Order to derail CAT (SEC Rule 613) since it was formally adopted in July 2013 and is technically not subject to Executive Order 13771.

****SD: We do know Trump likes a good audit to explain his actions, so it makes sense he wouldn’t have an issue with the CAT.

Euro Erases Draghi-Fueled Drop as Cross-Price Action Supports
Vassilis Karamanis – Bloomberg
The euro steadied after dropping to the lowest since mid-March following dovish remarks from Mario Draghi and option hedging before the French elections that weighed on the currency.

****SD: Also see One-month euro/dollar vol surges month before French run-off

Happy Meals and Glass-Steagall
Matt Levine – Bloomberg
How do you raise money, if you’re a public company? Well, you can borrow it, from banks or the bond market. This can be hard, though, if for instance you are an unrated tech company that is losing money: You may not have the cash flow or collateral to support a loan. So instead you can raise equity by selling stock. But this can be hard too, if for instance you went public at $24 per share less than three years ago and are now trading at $8.43. Stock investors have lost a lot of money with you, and are not going to be jazzed to give you more.

****SD: A few options-esque tidbits in Levine’s Money Stuff today.

Exchanges and Clearing

Brexit shouldn’t affect where clearing houses are, top US watchdog declares
London Evening Standard
America’s Commodity and Futures Trading Commission boss Sharon Bowen said it doesn’t matter where derivatives clearing houses are based — an implicit rebuke to EU policymakers who are trying to restrict euro derivatives clearing in the UK after Brexit is achieved.

CBOE Holdings Reports March 2017 Trading Volume
Futures ADV at CBOE Futures Exchange Up 50% from March 2016; Options ADV at CBOE Holdings’ Four Exchanges Up 20% from March 2016

Miami International Holdings, Inc. Reports March 2017 Trading Activity for MIAX Options and MIAX PEARL
Miami International Holdings, Inc. today reported the March 2017 trading activity for its two fully electronic options exchanges MIAX Options and MIAX PEARL (together, the MIAX Exchange Group). The MIAX Exchange Group collectively executed over 20 million contracts in March 2017 for a combined average daily volume (ADV) of 873,788 contracts, representing a total U.S. equity options market share of 6.10%

Data Clash Heats Up Between Banks and New York Stock Exchange
Alexander Osipovich – WSJ
Several of the biggest firms on Wall Street are balking at a contract that the New York Stock Exchange is requiring them to sign to keep trading on its markets, people familiar with the dispute said. J.P. Morgan Chase JPM & Co. and Goldman Sachs Group Inc. are among the firms concerned about the contract, said one of those people, who has been involved in industry discussions about the issue. Citigroup Inc. and electronic trader KCG Holdings Inc. also have objections to it, according to other people briefed on the dispute.

Singapore Exchange Regulation appoints Tan Cheng Han chairman
Singapore Exchange (SGX) has established Singapore Exchange Regulation Pte. Ltd. (SGX RegCo) as an independent regulatory subsidiary of SGX. SGX RegCo is appointing Professor Tan Cheng Han as chairman and will commence operations in the third quarter of 2017.

TMX Group Consolidated Trading Statistics
TMX Group Limited today announced March 2017 trading statistics for its marketplaces – Toronto Stock Exchange, TSX Venture Exchange, TSX Alpha Exchange (Alpha), Montréal Exchange (MX) and NGX.

****SD: TMX also launched a prototype for a blockchain-based shareholder voting system.

ICE sees strong March as Asian markets slow
Merle Crichton – Futures & Options World
Deutsche Boerse’s energy segment and Nasdaq’s Nordic markets were up.
The Intercontinental Exchange has become the latest major derivatives hub to report strong trading volumes for March as Europe did well and Asia’s markets struggled. The US exchange giant has reported a 30% increase in futures and options trading for last month to an average daily volume of 6.65 million contracts, up from 5.12 million in the same month last year.


An MIT graduate at 19, Neurensic’s founder uses AI to shut down bad trading algorithms
Andreas Rekdal – Built In Chicago
Many startup founders cut their entrepreneurial teeth at an early age, but David Widerhorn’s first company was a far cry from your run-of-the-mill lemonade stand operation. At age 12, he was was running a computer hardware testing business with seven employees alongside his high school coursework. Widerhorn shut down that business at 15, when he went off to study at the Massachusetts Institute of Technology, from which he graduated at 19. Widerhorn then spent some time as a high-frequency trader before starting a consultancy that built trading software for more than 100 trading firms around the globe.

Steve Cohen’s Point72 Is Investing In a Bloomberg Terminal Rival
Lucinda Shen – Fortune
Billionaire hedge fund giant Steven Cohen is betting on a startup hoping to topple the ubiquitous $25,000 Bloomberg Terminal nearly every trader, firm, and stock picker on Wall Street uses. As onlookers speculate whether Cohen will return to the street next year, the venture capital arm of Cohen’s family office, Point72 Asset Management, has invested in the Toronto-based fintech company Street Contxt, according to a Wednesday press release.

****SD: Also regarding Cohen: First Pile of Steven Cohen Cash Is Handed Out to Quantopian’s Amateur Coders

Regulation & Enforcement

Buy-side split on MiFID II liquidity impact
Hayley McDowell – The Trade
The buy-side is evenly split in their approaches to increasing, reducing and sustaining the number of liquidity providers they work with as a result of MiFID II, according to a survey.

Cohn Backs Wall Street Split of Lending, Investment Banks
Elizabeth Dexheimer – Bloomberg
In a private meeting with lawmakers, White House economic adviser Gary Cohn said he supports a policy that could radically reshape Wall Street’s biggest firms by separating their consumer-lending businesses from their investment banks, said people with direct knowledge of the matter.

We Meet Again: The Two Ex-Barclays Traders Acquitted at Retrial
Suzi Ring and Jeremy Hodges – Bloomberg
Two former Barclays Plc Libor traders were acquitted following a retrial in a London court of manipulating the interest-rate benchmark following a trial that started in February. A different jury couldn’t reach a decision last year.

The Concept Of The ‘Registration Agent’, Introduced By GLEIF, Allows Firms To Help Their Clients To Access The Network Of Legal Entity Identifier Issuing Organizations
Press Release
The Global Legal Entity Identifier Foundation (GLEIF), the body responsible for ensuring the operational integrity of the Global Legal Entity Identifier (LEI) System, calls on market participants that will have to comply with the forthcoming European Union (EU) revised Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) to obtain an LEI as soon as possible. Failure to obtain an LEI (by the firm or its client) in time will prevent firms from being able to comply with the reporting requirements applicable in the EU as of 3 January 2018.


Spotify Finally Readies an IPO…That’s Not an IPO
Maureen Farrell and Telis Demos – WSJ
Music-streaming service Spotify AB is readying an initial public offering that is expected by year-end. The rub is this: It may not really be an IPO. Spotify is seriously considering a direct listing, in which the company would simply register its shares on a public exchange and let them trade freely, according to people familiar with the matter. The company wouldn’t raise any new money or use underwriters to place new blocks of stock.

Bezos is selling $1 billion of Amazon stock a year to fund rocket venture
Irene Klotz – Reuters
Amazon.com founder Jeff Bezos said on Wednesday he is selling about $1 billion worth of the internet retailer’s stock annually to fund his Blue Origin rocket company, which aims to launch paying passengers on 11-minute space rides starting next year.

****SD: But will the stock continue its own journey to the moon? I see open interest at the 1,000 strike.

What We Said When the World Changed
Morgan Housel – Collaborative Fund
Few things transformed the 20th century like the car and the airplane. Both set the stage for the modern world, completely changing family life, politics, war, culture, business, leisure time, and communication. But we only know how important the car and the plane are with hindsight. We had no idea how big they’d become when they made their first appearance. Innovation is always changing, but psychology is timeless, so understanding how we reacted to the arrival of the car and the plane sheds light how we’re likely to respond to breakthroughs today and tomorrow. This report digs through turn-of-the-century newspapers to show how Americans responded to the early days of the car and the airplane.

Deutsche Bank not thinking about mergers, has other things to do: CEO
Deutsche Bank (DBKGn.DE), which is in the midst of an 8 billion euro ($8.5 billion) capital increase, is currently not thinking about mergers, Chief Executive John Cryan said. “We have other things to do,” Cryan told a banking conference in Berlin on Thursday.

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