Observations & Insight

Options exchanges resume routing to CBOE after connectivity issue
Saqib Iqbal Ahmed – Reuters
Several U.S. options exchanges, including those run by Nasdaq Inc (NDAQ.O) and the New York Stock Exchange, declared “self-help” alerts against CBOE Holdings Inc’s (CBOE.O) CBOE Options Exchange for a short time on Monday, signaling problems processing trades.

****SD: While the CBOE alert yesterday said that “as of 9:08 a.m. CT, connectivity was re-established” all of the issues weren’t settled ’til around a quarter to 11 a.m. CT. When self-help is invoked against such a sizable entity as the CBOE… Let’s just say plenty of folks lost some money yesterday. This represents a bumpy open to CBOE’s new life post-Bats acquisition.

Lead Stories

FASB Proposal Looks to Trim ‘Hedge Accounting’ Requirements
Tatyana Shumsky – WSJ
One of the most Byzantine areas of corporate accounting is about to get simpler. The Financial Accounting Standards Board is putting the finishing touches on new rules governing how companies report their hedging activities, such as using futures and options to insulate profits from currency or interest-rate swings. Current rules allow companies to delay recording the economic impact of a hedge on their income statement until the same period as the transaction involved is completed. This typically results in less volatile earnings quarter to quarter.

Rule volatility as Brexit countdown unsettles sterling
Patrick Graham – Reuters
While banks warn Britain’s European Union divorce could drive the pound below $1.20, their option traders have cut the cost of insuring against further falls in the two years it has left inside the bloc. A company wanting to insure its revenues or financial investments against further falls in the currency could pay 4.8 percent on Tuesday, back to late 2015 levels, for “put” options that start generating a profit if sterling falls to $1.20.

Asia Volatility Rises as Stocks Fall After U.S. Health-Care Flop
Livia Yap – Bloomberg
Gauges measuring expected stock swings in Asia climbed as shares across the region slid following a U.S. lead after the defeat of the bill to repeal and replace Obamacare on Friday.

Trump trade: state of play in charts
Robin Wigglesworth – Financial Times
Investors sense a possible inflection point in the “Trump trade” that has dominated markets since the US election.

Funds historically bearish ahead of Friday’s USDA planting data
Karen Braun – Reuters
Speculators may head into Friday’s U.S. planting intentions with the most bearish overall attitude toward Chicago-traded grains and oilseeds since the CFTC revised the format of its Commitments of Traders report – which measures the money flows in and out of the commodities market – a decade ago.

Keeping Perspective: Glass Half-Full Scenarios Not Hard To Find
JJ Kinahan – The Ticker Tape
An eight-day losing streak for the Dow Jones Industrial Average ($DJI) doesn’t necessarily mean the sky is falling, though sometimes there’s a tendency to think that way.

OTCGH Represents 51 Percent Of Total Natural Gas Options Market Share On March 24
OTC Global Holdings (OTCGH) announced that on March 24, 2017, EOX Holdings LLC (including trades negotiated on the EOXLive platform) brokered 51 percent of the total natural gas options market share, including 63 percent of CME’s natural gas options market volume for the day. The total volume brokered by OTCGH on this day was 98,000 lots and included 87,000 CME lots.


Axioma names Jacqueline Gaillard as managing director, people and talent
Axioma, a leading provider of enterprise market risk and portfolio management solutions, today announced the appointment of Jacqueline Gaillard as Managing Director, People & Talent.
Gaillard was previously Senior Vice President, Human Resources and Talent Management at International Securities Exchange (ISE), the first all-electronic U.S. options exchange.

Regulation & Enforcement

SEC’s Piwowar Wants Exchange Fee Pilot Enacted
John D’Antona Jr. – Traders News
Cha ching no more? The exchanges might be losing or seeing a critical source of revenue trimmed, if the Securities and Exchange Commission’s acting head has something to say about it. Michael Piwowar, has said that he wants to more closely examine the fees that exchanges charge brokers when they execute trades and that a pilot program is on order.

FINRA and Exchanges Charge Lek Securities and CEO Samuel F. Lek with Aiding and Abetting Securities Fraud
Business Wire
The Financial Industry Regulatory Authority, along with the New York Stock Exchange; NYSE Arca; NYSE MKT; the four Bats Exchanges, Bats BZX, Bats BYX, Bats EDGA, and Bats EDGX; Nasdaq; Nasdaq BX; and the International Securities Exchange, today announced that they have commenced disciplinary proceedings against Lek Securities Corporation and its Chief Executive Officer, Samuel F. Lek, for aiding and abetting manipulative trading by one of its customers. Together, the complaints allege that Lek Securities and Lek aided and abetted extensive manipulative trading in a customer account known as “Avalon” from October 2010 through June 2015, which impacted both equities and options markets.

****SD: MarketWatch on the development here.

Mnuchin Asked to Review Process for Too-Big-to-Fail Label
Elizabeth Dexheimer – Bloomberg
Key Senate Republicans urged the Trump administration to rethink the process for labeling firms whose failure could threaten the financial system, arguing it has led to substantial regulatory costs.

Special Tax Treatment for Traders
Brian Lund – The Ticker Tape
If you’re a trader you take calculated and managed risks in an attempt to make money … or at least outperform your chosen benchmark. You might even do it for a living. Well, the IRS has special tax rules—rules that you not only need to be aware of, but that might even benefit you financially depending on your level of trading activity. First, though, let’s get a baseline on how the IRS treats stock transactions for typical investors.


HFT as an insight into where fintech is going
Izabella Kaminska – Financial Times
Markets are cyclical, Darwinian and subject to diminishing returns. Nothing new in that observation. But people do seem to forget it all the time. Case in point: high-frequency trading (HFT). Circa 2009-2010, algorithmic trading techniques were considered a veritable goldmine for those who knew and understood how to deploy them against dumb human competitors.

Global Spend On Financial Market Data & News Topped $27 Billion In 2016 According To Latest Burton-Taylor Report – Bloomberg Revenue Grew, But Terminal Users Shrank For Second Time In History – S&P Global Companies Dominated Performance
Spend on market data, analysis and news has topped USD$27 billion for the first time according to Burton-Taylor International Consulting’s latest report published today. The findings show a 3.45% increase in global spend for financial information last year, reaching USD$27.48 billion.

****SD: Crikey.

OFR unveils plans to establish common language for instruments
Hayley McDowell – The Trade
The Office of Financial Research (OFR) has unveiled plans to develop a common language for financial instruments in the US to support reference data. In a recently released report, OFR described current reference data as being complex, incomplete and incompatible, which is hindering interoperability across service providers and users.

Investment Association pursues reporting framework
Hayley McDowell – The Trade
The Investment Association has launched a consultation on a new standardised transaction costs reporting framework to benefit the buy-side.


Tapping Diversification Through International ETFs
Sage Anderson – tastytrade blog
If you are feeling comfortable with your current approach, but are looking for additional diversification in your portfolio, you might consider international exchange-traded funds (ETFs). This slice of the ETF world is comprised of securities that are exposed to a particular region of the world, or a group of international companies with a similar profile.

EQDerivatives: “Opportunities Remain As European Elections Drive VSTOXX Flow”
Eurex Group
The uncertainty surrounding populist parties across Europe has been creeping into equity markets over the last few months, with elevated levels spotted in the term structure of the Euro Stoxx 50 Volatility Index, as investors position around the upcoming elections. Although levels in the VSTOXX have subsided following Prime Minister Mark Rutte’s victory in the Dutch election, opportunities still remain as the French election grows nearer. Georgia Reynolds reports on flow and positioning trends in Europe’s benchmark volatility index.

Volatility Is Back
Brandon Dempster – Seeking Alpha
With policy uncertainty leaving traders stranded in bullish positions, the decline in equities the past few days have allowed the VIX to surge. This is still lower than the last spike we received, which was when the gauge crossed 20 during the election. The strategy remains to be short VIX when spikes occur, as an elevation is unlikely until investor expectations change towards more certainty.

Markets Require Leadership to Rise
Bob Lang – CBOE
I think the title might seem rather elementary, but nothing in market analysis is really too complex. When the market is rising with great breadth and broad participation it tends to be longer-lasting and stable. Recall that post-election we witnessed some amazing rally days, market breadth very strong and equally strong turnover. That basics – a market rallying on higher volume and participation can lead to higher prices.

Paul Tudor Jones Grows Bearish on U.S. and Emerging Stock Markets
Paul Tudor Jones (Trades, Portfolio)’ Tudor Investment Corp. disclosed an equity portfolio valued at some $3.88 billion at the end of the reporting quarter ending Dec. 31, 2016 and a top 10 concentration of 44.65%. The equity portfolio is mainly invested in ETF and options (40%), financial services (14%), consumer cyclical (12%) and industrials (9%) stocks. The filing revealed that at the end of December, the fund had added 417 new positions to its equity portfolio, added 430 existing positions and sold out 462 positions.


5 Questions with Michael Melissinos
Brian Mehta – Trade Talk, Trading Technologies
After graduating from Seton Hall University with a degree in accounting, Michael Melissinos began his research into systematic trend-following while working as a junior analyst at Bear Stearns and J.P. Morgan. Both the Bear Stearns collapse and the subsequent financial crisis motivated him to challenge the traditional investing approach and try to develop something better. In 2011, four partners contributed a total of $300,000 to help Michael launch his fund management career.

The History of High Frequency Trading (infographic)
TABB Forum
In 1602, Amsterdam Stock Exchange, the world’s first stock market, formally began trading in securities.

****SD: I missed this cool visual last week. While I know about the Rothchilds and their place in trading lore, I (somehow) did not know that Nathan used carrier pigeons to arbitrage prices by delivering information faster than his competitors. Here’s a FT story about that legacy.

Nigel Farage’s ‘Bad Boys of Brexit’ look toward ‘Calexit’
Kelly McLaughlin – Daily Mail Online
The ‘Bad Boys of Brexit’ who led the campaign to break Britain away from the European Union have taken on a new exit challenge: splitting California into two states.

****SD: Oh come on.

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