Observations & Insight

Firms of the Future: Regulation, Technology and Finding Your Niche
Jim Kharouf – JLN
In this special report on the state of the futures industry, John Lothian News spoke with several key FCM and proprietary trading firm executives to discuss today’s challenges and opportunities in their respective markets. This off-the-record meeting covers everything from the current market landscape to the challenges of regulation to technology and the future of our industry. Click here to see what executives had to say in this dynamic and shareable report.

Lead Stories

Fund buyers divided as index ‘mega deals’ look set to dry up
Dave Baxter – FT Adviser
Analysts have heralded the “last of the mega deals” among index providers, a move which could open the door to renewed competition in the space and perhaps finally cut costs for wealth managers and other users. This year has been marked by major deals in the space, including the “merger of equals” between the London Stock Exchange Group (LSE) and Deutsche Boerse, which is expected to complete in the first half of 2017. This was followed by September’s announcement that Bats Global Markets, which entered the UK market by launching an index series to rival FTSE in the summer, was to be bought by the Chicago Board Options Exchange.
/goo.gl/oS6vC8

A Closer Look at the VIX and Volatility ETFs
Max Chen – ETF Trends
The CBOE Volatility Index, or VIX, is a popular measure of stock market volatility. However, investors should understand the differences between the VIX and VIX futures-backed exchange traded funds. On the recent webcast (available on-demand), Capitalizing on Rising U.S. Equity Volatility with VIX Futures ETFs, Matt Moran, Vice President of the Chicago Board Options Exchange, said that the VIX measures the market’s expectations of 30-day volatility implicit in the prices of near-term S&P 500 options, or SPX options with more than 23 days and less than 37 days to expiration to provide a 30-calendar day volatility measure. Potential investors should also note that the VIX index itself is not investable.
/goo.gl/9lEJ78

BNP Paribas committed to derivatives
Julie Aelbrecht – Futures & Options World
BNP moved its derivatives services onto a Fidessa-run platform
Banking giant BNP Paribas has said it is committed to the derivatives space for the long term, after it consolidated its global listed derivatives services onto a platform hosted by Fidessa. “This move is a key indication of our commitment to the listed and cleared derivatives space. We feel that listed derivatives are going to be very important going forward and the announcement today demonstrates that we intend to be there for the long term,” Kieron Smith, global head of derivatives execution and clearing at BNP Paribas told FOW.
/goo.gl/lBYx1q

****SD: Also see BNP Paribas Deploys Managed Service for Listed Derivatives from Financial Technology Forum

Broken Indicators Mean It’s Growing Harder to Spot Troubles in the Market
Luke Kawa and Andrea Wong – Bloomberg
It’s not hard to see the potential flash points on the horizon — the U.S. presidential election; Deutsche Bank AG’s mounting legal charges; the day central banks stop buying bonds. Yet when it comes to gauging risks in the world’s financial markets, these days investors are flying more or less blind.
bloom.bg/2ekEeaU

Understanding Commodities: Price Certainty Vs. Supply Certainty
Kevin T. Higgins – Food Processing
Business people in general and finance professionals in particular hate uncertainty, whether it’s the uncertainty of raw materials availability or their cost. For many, managing that uncertainty is essential for a good night’s sleep. For organizations large enough to play in the futures markets, there’s a broad assortment of commodity contracts they can enter into as a hedge against price increases.
/goo.gl/1E3K5h

****SD: How often do you get to read a relevant story from the trade publication for food and beverage manufacturers? Nice (sort of) outside perspective from end-users.

Hedge Fund Launches Dwindle to 16-Year Low as Returns Lag: Chart
Suzy Waite and Nathaniel E. Baker – Bloomberg
Hedge fund startups, which were surging a decade ago, have fallen off a cliff in 2016 and are heading for their worst year since 2000, according to Eurekahedge.
bit.ly/2ekBlqN

Yuan Halts Eight-Day Retreat as Data Signal Economy Steadying
Bloomberg
The yuan halted this year’s longest run of losses as data showed the nation’s economy is stabilizing. The onshore exchange rate climbed 0.07 percent to 6.7370 a dollar as of 5:58 p.m. in Shanghai, ending an eight-day run of declines that saw it weaken to a six-year low. The offshore rate gained 0.05 percent, while the currency declined for a fourth day against a trade-weighted index.
bloom.bg/2ekygXP

Investment Implications Of The U.S. Elections
Ross Hambrick – Financial Advisor Magazine
Game theory is a set of principles for scrutinizing the strategic interactions of multiple agents, such as the parties involved in the upcoming U.S. elections. Many investors agree that geopolitical events can have a large impact on markets and currencies, but few have a formal way of accounting for geopolitics—other than avoiding affected markets altogether.
/goo.gl/b52O0R

Meet The Team
OptionsHouse
Welcome to our new “Meet the Team” blog series, where we’ll spotlight the individuals at OptionsHouse who work behind the scenes to provide an outstanding customer experience. First up is our dedicated Customer Service team. We know you take your trading seriously, and deserve the best support possible. This is why, in addition to our award-winning platform, we have assembled a service team that works tirelessly to provide assistance, when needed, at every step of the trading process.
bit.ly/2ekDhzv

Exchanges

Foreign Listed Stock Index Futures and Options Approvals Chart: October 17,2016
The National Law Review
Attached please find the updated Foreign Listed Stock Index Futures and Options Approvals Chart, current as of October 17, 2016. All prior versions are superseded and should be discarded. Please note the following developments since we last distributed the Approvals Chart.
/goo.gl/LUV0QR

SGX sets court date for Baltic takeover
Julie Aelbrecht – Futures & Options World
SGX reports net profit of $84 million for Q1 FY2017
Singapore Exchange said on Tuesday that a court hearing to sanction the proposed acquisition of the Baltic Exchange has been fixed for November 7. The news follows the approval of the acquisition by the Financial Conduct Authority in October. The exchanges said they expect the transaction to be completed by the end of November this year.
/goo.gl/Ekr3fJ

Regulation & Enforcement

Germany Will Not Ban Binary Options Trading, for Now
Invezz
Belgium, The Netherlands and France have already taken steps to ban high risk derivatives trading by retail investors or restrict their advertisement. What does the future hold for European retail traders?
/goo.gl/WpVsXH

Merrill Lynch fined $2.8 million by FINRA for reporting tech errors
The Trade
The Financial Industry Regualtory Authority (FINRA) has fined Bank of America Merrill Lynch $2.8 million for violating systematic reporting, record keeping and supervisory rules.
bit.ly/2ekA0jC

****SD: I haven’t heard this particular line before: “Merrill lynch neither admitted nor denied the charges, but agreed with the investigation’s findings.” Hmmm..

CFTC regulator warns attorneys about whistleblower ‘abuses’ – Finance News
Lynne Marek – Crain’s Chicago Business
Attorneys for Igor Oystacher and his Chicago-based 3Red Trading firm are getting attention from regulators they’re battling in court, but not in a good way.
Rosemary Hollinger, deputy director in Chicago for the Commodity Futures Trading Commission’s enforcement division, reminded lawyers attending a securities and commodities enforcement panel last week that it’s not just employers who can illegally chill whistleblowers. It’s defense counsel, too, she said specifically referring to filings by attorneys in the Oystacher case playing out in federal court in Chicago.
bit.ly/2ekCpee

Japan to tighten regulations on high-frequency traders
Taiga Uranaka and Takahiko Wada – Reuters
Japan plans to tighten regulations on high-frequency trading (HFT), whose growing presence in the Tokyo Stock Exchange has raised concerns such trades could destabilise the market and put retail investors at a disadvantage.
reut.rs/2ekBkTR

SEC Rewrites Reporting Rules for Mutual Funds, ETFs
FTF News
The SEC is issuing sweeping rules and amendments, including making firms show more about their fund derivatives holdings.
bit.ly/2ekyk9Z

Technology

CME Group collaborates with TickSmith to provide customer-friendly access to historical data
Press Release
CME Group, the world’s leading and most diverse derivatives marketplace, and TickSmith, a leader in Big Data applications for Capital Markets, today announced an initiative to improve access to CME Group’s historical data by implementing TickVault to power CME DataMine.
bit.ly/2ekzmTh

Technology Can’t Fully Replace Human Judgement and Intuition
Bruce Fador – Traders News
Technology now comprises a big part of today’s trading landscape, perhaps most of it. Beyond just automating what used be to manual tasks, technology has encroached well into the “thinking” parts of a trader’s job. The key question for firms is where to draw the line. How much of the human touch should they outsource to machines?
bit.ly/2eky0I5

****SD: Maybe technology can’t replace us now, but I watch movies…

Neurensic Releases SCORE, The Trading Industry’s First Cloud-Based, AI-Powered Surveillance Solution
Neurensic
Neurensic, a regtech artificial intelligence (AI) startup headquartered in Chicago, today announced the release of its new SCORE surveillance platform. SCORE is the trading industry’s first compliance solution powered by a cloud-based machine learning architecture that is capable of identifying complex patterns of trading behavior at a vast scale, across multiple markets in near real time. The firm has experienced significant customer traction through its recently completed beta release, in which it provided surveillance technology for regulators, proprietary trading firms and futures commission merchants. These relationships have led to recent engagements with larger institutional customers, including broker-dealers and global banks.
bit.ly/2ekwaHb

Strategy

Sideways Markets are Binary Opportunities
Vikram Rangala – Nadex Binary Options
The headline on Bloomberg of Monday morning’s stock market activity was “U.S. stocks fluctuate on earnings reports before Fed Fischer.” Fluctuating markets might show uncertainty or mixed opinions among the bulk of investors, but it doesn’t mean you need to be hesitant to trade. Binary options give you an edge in fluctuating or sideways markets.
bit.ly/2ekAVRo

Miscellaneous

Companies That Violate Rules Grant More Worker Options, Study Says – CFO Journal.
Richard Teitelbaum – WSJ
Companies that violate financial reporting rules are far more generous than their peers when granting stock options to rank and file employees, possibly reflecting an attempt to discourage whistleblowing, according to a new study. By giving employees a monetary incentive to keep quiet, they will do just that, according to Shivaram Rajgopal, a co-author of the study. “It’s a straightforward story,” said Mr. Rajgopal, a professor of accounting and auditing at Columbia Business School. “Companies compensate you for not speaking up.”
on.wsj.com/2ekwTZ0

Blockchain Could Slash Oil Industry Costs by 30%, says Chief of Commodities Trading Giant
Samburaj Das – CryptoCoinNews
The chief executive of Swiss-based Mercuria, one of the world’s largest commodity traders, sees blockchain adoption among the oil and gas industry within 2017. The head of Swiss-based Mercuria was speaking at the recent Reuters Commodities Summit, where he revealed just how big the commodities industry is on blockchain, a Reuters report revealed.
/goo.gl/dK9DXc

I Won $104 Million for Blowing the Whistle on My Company—But Somehow I Was the Only One Who Went to Jail
Mel Magazine
Bradley C. Birkenfeld, 51, blew the whistle on the Swiss bank UBS for helping Americans avoid paying taxes, leading to about $15 billion in recovered tax money, fines and penalties. He spent two and a half years in prison, but he later was awarded $104 million by the I.R.S. for his role in exposing the scheme.
/goo.gl/ceP3tO

****SD: $41.6 million per year of prison… Would you feel compensated for the time?

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