Observations & Insight

Phupinder Gill is Leaving the CME Group?
By John J. Lothian

Phupinder Gill is retiring at the end of the year, the CME announced. That is the cover story. What the real story is will be more difficult to discover, but this much is clear, this was not the plan.

When I interviewed Gill at a Chicago Executive’s Club luncheon earlier this year we discussed the approach of developing your successor. Gill laid out how the CME had identified a group of CME executives that were all being groomed as successors. To have Terry Duffy named as CEO, and Gill to exit so quickly, smacks of some other kind of decision making.

I suspect there was some kind of confrontation at the board level and an ultimatum. Gill lost. The CME is historic for its rivalries between executives and senior political powers. Terry Duffy won the board battle, and Gill is out.

It will be interesting to see how CME Group may now adjust its strategy, if much at all. The company is heading into much friendlier waters, or so investors believe, with the Trump administration, and its stock is rising dramatically – up to $117.05 yesterday, from $103.07 a week ago, with a market cap of $42.1 billion. The company’s average daily volume so far this year is up 8 percent to 15.4 million contracts, according to its third quarter earnings report held just last week. The CME Group is performing well, with solid growth in volumes coming from Europe, up 20 percent year over year in Q3 and Asia, up 7 percent. While revenues and net income were essentially flat, down 1 percent for the quarter but still solid. It is indeed, a curious move by CME while the company is performing so well on paper.

But this is not a loss for Gill. He won his freedom to retire and enjoy the fruits of a storybook career. He won more time with his teenage son while he is still at home. What will be interesting to see is how many other senior executives will follow Gill out the door in the coming months.

Congratulations to Terry Duffy as the new CME CEO and Bryan Durkin as the new CME president. The CME is in seasoned hands, with a great team behind them. This is your chance to really let your light shine.

(Jim Kharouf contributed to this story)


My, look at that volume pop!
Spencer Doar – JLN

There have been bumper crops of contracts at U.S. exchanges as people scramble to position themselves in the wake of Donald Trump’s election coup.

CME Group announced that Wednesday was its biggest day ever with 44.5 million contracts changing hands. That broke the previous record of 39.5 million contracts set during the flash crash of October 15, 2014. But futures/futures options exchanges aren’t the sole beneficiary. Below is a chart of daily volumes cleared by the OCC in November.

MWE Europe 2016

Also note that the daily average volume for October 2016 was 15.1 million contracts. Last month’s busiest day was the 28th with nearly 19.9 million contracts — that was the Friday when FBI Director Comey turned the election dialogue on its head.

Average daily volume in November 2015 was 16.4 million contracts.

Thus far, Trump = trading activity. Let’s see how long this volume pop lasts.


Lead Stories

Futures, option trading volume hit record after Trump win: CME Group
Combined trading volume on financial and commodity futures and options set a one-day record on Wednesday as Donald Trump’s stunning U.S. presidential win triggered massive market swings, exchange operator CME Group (CME.O) said on Thursday. Volume across all asset classes including stocks, Treasuries and oil totaled 44,516,949 contracts on Wednesday, topping the record of 39,567,064 contracts set on Oct. 15, 2014, CME said.

CME CEO Gill to retire at year’s end; Duffy to get expanded role
Phupinder Gill, chief executive of CME Group Inc (CME.CD) since 2012, will retire at year’s end, the world’s largest futures market operator said in a statement on Thursday.

****SD: A lot of “Wait, what?” going around.

Volatility shorts cash in despite shock U.S. election
Saqib Iqbal Ahmed – Reuters
Options traders who had bet that stock market volatility would plummet after the election made outsized gains even if Donald Trump’s win seemed to take financial markets by surprise. The CBOE Volatility Index, the most widely followed gauge of near-term investor anxiety, collapsed on Wednesday, in the largest one-day decline in more than five years.

Full Repeal of Dodd-Frank Isn’t Main Focus of Trump Transition
Andrew Ackerman and Ryan Tracy – WSJ
President-elect Donald Trump has publicly vowed to dismantle the 2010 Dodd-Frank financial overhaul, but his transition team is tempering expectations for a full repeal of the sweeping law, people familiar with the matter said. Instead, Mr. Trump’s team is focused on rescinding or scaling back the individual provisions Republicans find most objectionable, such as the Financial Stability Oversight Council’s authority to designate large nonbanks systemically important and thus subject to tougher regulation from the Federal Reserve.

****SD: No one knows anything about the “focus.”

RJO to target global mid-market – CEO Corcoran
Luke Jeffs – Futures & Options World
Gerry Corcoran told FOW there is a growing opportunity for mid-tier brokers
The chief executive of Chicago-based broker RJ O’Brien has said he plans to tap increasing demand for a mid-market brokerage firm that offers global access as banks have pulled back from derivatives. Speaking to FOW, Gerry Corcoran, the chairman and chief executive of RJ O’Brien, said: “I am convinced there is a vast middle market that is currently being underserved by global firms and we see this as a crucial opportunity for RJO.”

The Myth of Measuring Liquidity
George Bollenbacher, Capital Markets Advisors – TABB Forum
How liquid are the markets today? Lately, everyone seems to want to know, and many regulatory regimes vary their requirements based on the liquidity of the instrument under consideration. But we should not delude ourselves into thinking that we can measure liquidity and compare one level to another with any precision.

U.S. Election

Donald Trump’s Win Fuels Bets on Inflation
Ben Eisen – WSJ
Donald Trump’s victory has unleashed investor bets on rising consumer prices, a trade that has been tried often in recent years with little lasting success. A bond-market gauge on Thursday hit its highest level since the summer of 2015. The 10-year break-even inflation rate indicated expected annual inflation of 1.89% over the next 10 years. That measure, reflecting the gap in yields between Treasurys and their inflation-protected counterparts, known as TIPS, was 1.73% two days ago, according to Tradeweb.

Trump team looks to scrap retirement advisory rule
Mary Childs and Alistair Gray – Financial Times
Donald Trump’s advisers are eyeing plans to scrap a landmark piece of the Obama administration’s financial reforms, giving relief to the industry that lobbied hard against the wide-ranging proposals but raising fresh concerns about consumer protection.


An Early Winner From Trump Victory: Futures Exchanges
Alexander Osipovich and Gunjan Banerji – WSJ via Dow Jones Business News
A key turning point for futures traders in the early hours of Nov. 9 was Donald Trump’s 3 a.m. acceptance speech. The often bombastic candidate struck a conciliatory tone and focused on the American economy, spurring traders to rethink what a Trump presidency would mean for growth. “I know people who started buying S&P futures a minute or two into his acceptance speech,” said Michael Cosgrove, a managing partner at Vectra Capital LLC, a New York-based commodity trading firm.

CME Group CEO Phupinder Gill Announces Retirement – Board Expands Role Of Terry Duffy To Chairman And CEO
CME Group today announced that its Chief Executive Officer Phupinder Gill has informed the Company’s Board of Directors that he is retiring from the organization and Board, at year end, December 31, 2016. At the Board’s request, Terry Duffy has assumed the expanded role of Chairman and Chief Executive Officer. Bryan Durkin, who is currently Chief Commercial Officer, has been named President of CME Group.

CME Gill’s legacy in focus as he retires
William Mitting – Futures & Options World
Gill has in his four years as chief executive overseen the launch of CME Europe and failed to acquire Trayport The retirement of Phupinder Gill following four years at the helm of the CME Group has come as a shock to many in the market. Gill was a hugely popular figure, known for his straight talking manner and honest approach to business. And he has been a good leader for shareholders. Gill took over as CEO of CME shortly after the collapse of MF Global, arguably the lowest ebb in the CME’s venerable 118-year history. During his tenure, CME’s share price has more than doubled from $51 to $117. e exchange has launched a number of ground-breaking products including the deliverable swap future and the Ultra Treasury future as well as expanding its metals and agricultural products.

ECB looking at all options for euro trading after Brexit – Mersch
The European Central Bank is looking at all options to ensure it can continue to oversee euro trading after Britain, where many such transactions are cleared, leaves the European Union, a member of the bank’s executive board said on Thursday.

Euronext announces calendar for 2017
Euronext today announced the 2017 trading days for its markets in Amsterdam, Brussels, Lisbon, London and Paris.


CME head of precious metals Vias leaves after four months
Ewa Manthey – FastMarkets
Miguel Vias, CME Group head of precious metals, has left the company today, Metal Bulletin has learnt. Vias was appointed head of precious metals in July following the departure of Harriet Hunnable, who is now the manager of benchmark policy at the Financial Conduct Authority.

Regulation & Enforcement

U.S. judges probe spoofing in convicted trader’s appeal
Tom Polansek – Reuters
A panel of U.S. appeals court judges sought answers on Thursday about how widespread spoofing is in U.S. financial markets and whether it represents an advancement in trading, as they considered whether to overturn the nation’s first criminal conviction for the banned practice.

Quick Take: Trump’s Win Clears Way for Reshaping Financial Regulation and Compliance
Randall Mikkelsen, Thomson Reuters – TABB Forum
Donald Trump’s upset victory in Tuesday’s U.S. presidential election and the Republican party’s retained control of Congress pave the way for a reshaping of the financial regulatory landscape. Here are some issues on which the Trump administration and Congress could have an impact.

****SD: One stop shop for Trump regulatory questions.

Exclusive: Banc De Binary Preparing to Eliminate All Bonus Promotions
Victor Golovtchenko – Finance Magnates
One of the biggest binary options brokerages in the industry, Bank De Binary intends to abolish all bonus practices, sources have shared with Finance Magnates. The company is set to dramatically overhaul its business model in order to have a favorable relationship with European regulators.

Goldman’s Slow Volcker Compliance Could Pay Off
Gillian Tan – Bloomberg
On Wall Street, it’s rare that laggards are rewarded. But there are always exceptions. Goldman Sachs Group Inc. has been slower than some of its peers in complying with the Volcker Rule, a regulation born of the financial crisis that’s designed to make the system safer by restricting banks from betting their own money for the shot at lucrative profits. While most banks have shuttered their proprietary trading desks and retreated, for the most part, from merchant banking activity, Goldman has continued to hold on to some of its wagers.

Firm Charged With Misleading Investors About Binary Options Profitability
The Securities and Exchange Commission today announced that an Israeli-based firm must pay more than $1.7 million for misleading investors into trading binary options over the internet, and the agency warned that other firms may be out there actively trying to do the same thing.


Quantile Partners with AcadiaSoft on risk reduction initiative
FTSE Global Markets
Quantile Technologies Limited, a derivatives risk optimisation firm and AcadiaSoft Inc the collateral management automation maven have launched a risk reduction service for the financial services industry.


The three most popular postelection trades: BofAML survey
Evelyn Chang – CNBC
Money managers believe infrastructure spending will be one of Donald Trump’s first achievements in office, and buying the S&P 500 was the most popular trade the day after the election. That’s according to Bank of America Merrill Lynch’s survey of 114 global fund managers on Wednesday, less than 24 hours after the Trump election upset.

Trump Victory = Divergence Between U.S. & Emerging Equity Markets
Rick Rosenthal – CBOE Options Hub
Emerging market equities lead the charge in 2016 until Tuesday’s U.S. Presidential election. Donald Trump’s victory altered that course as the markets react to potential changes in global trade. Within the past two days, S&P 500 moves towards it’s 52-week high (2,493.81) and the FTSE Emerging Index declined by 5% from its record high from Sept. 8th (467.34) . Although it may be too early to forecast trends in the Emerging Markets vs U.S. Large Caps, investors have an opportunity to trade on volatility.

Only 2% of U.S. Investors Look to European Stocks Now
Antonia Oprita – TheStreet
A survey of fund managers carried out Nov. 9 and Nov. 10 by Bank of America Merrill Lynch showed that investors plan to react to the election by buying the S&P 500 (30%), selling risky assets (15%), buying gold (12%) and buying the U.S. dollar (10%). Only 2% of the 114 panelists who took part in the survey said they would buy European equities.

Why Trump Is Very Bullish For The Dollar
Andrew Hecht – Seeking Alpha
The dollar was set to rally no matter who won the election. The knee-jerk reaction to President Trump was a sell-off. Infrastructure spending favors the dollar. Less regulation is bullish for the greenback. Higher interest rates already are here.


Brexit, U.S. Election To Highlight GFLC
Evan Peterson – OpenMarkets, CME Group
2016 has delivered two major political upsets, first with the Brexit vote in June and this week with the election of Donald Trump in the United States. Former political leaders from the U.K. and U.S. will assess the political and economic fallout of these seismic events on the same stage next week at the ninth Global Financial Leadership Conference.

****SD: They’re leaving out the Gill news — that will certainly be on the minds of many.

TD Ameritrade Hosts Free Investor Education Day on Trading Strategies
On Wednesday, November 16, 2016, individual investors have the opportunity to expand their knowledge of basic and advanced trading strategies during TD Ameritrade’s Investor Education Day, a free, web-based education event open to the public and hosted by TD Ameritrade, Inc. (“TD Ameritrade”), a broker-dealer subsidiary of TD Ameritrade Holding Corporation (Nasdaq: AMTD).

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