First Read

Options Industry Conference Update: Congress Continues To Push For Avoiding Unintended Consequences in Tax and Dodd-Frank reforms
By Jim Kharouf and Jeff Bergstrom, JLN

The 35th Annual Options Industry Conference kicked off on Wednesday with a major focus on Washington, especially on a host of new proposals on tax and Dodd-Frank reforms.

The conference, hosted by Intercontinental Exchange’s NYSE in Scottsdale, Arizona, led with an interview with Congressman Tom Reed (R-NY 23rd District) who outlined initiatives to address tax reform in 2017. Reed told OCC’s Executive Chairman and CEO Craig Donohue that the tax reform may have enough support in Congress to get it passed this year.

As it pertains to the financial industry, Reed said one of the goals of a new tax structure is to avoid unintended consequences. A previous tax reform proposal from former Congressman Dave Camp (R-MI 4th District) had been considered negative for the options industry. Now, Reed said some simple adjustments could go a long way toward avoiding major consequences. He said using dynamic scoring rather than static scoring on tax proposals would raise revenues with more realistic outcomes. Dynamic scoring takes into account the broader behavioral effects of a tax rather than simply plugging in a tax and calculating revenues.

Read the rest of the Washington Outlook here


Notes: Options Industry Conference: Exchange Highlights For Each US Options Exchange
Jim Kharouf, JLN

Each year at the Options Industry Conference, each exchange gets five minutes to talk about highlights for their respective market. Here are some notables:

BOX is still hoping to launch its new trading floor in the CBOT building soon, pending regulatory approval

CBOE extended its trading hours, which is attracting new customers, specifically hedge funds.

MIAX has applied for a new CFTC-regulated clearing house and SEF for options on digital currencies such as bitcoin and others, called LedgerX.

Nasdaq will finish the ISE integration by the end of this summer and launched a new trading floor for PHLX in April in Philadelphia with windows.

NYSE Options upgraded its technology and reduced the speed of execution by 50 percent. It also has a new instant messaging technology called Imprint that allows for order entry using its YellowJacket IM system.


Bill Brodsky’s Pioneering Career: An Industry Innovator Looks Back

Bill Brodsky has been a fixture of the derivatives markets for the better part of 50 years — at the (then) American Stock Exchange, CME and CBOE. He recently stepped down from the CBOE after two decades as the CEO and then chairman of the exchange.

At each stop, Brodsky ushered in periods of change. He helped put AMEX on the options map in the ’70s; oversaw the launch of the electronic trading system Globex and of options on futures as CEO of the CME; and as CEO of the CBOE, took the exchange public and helped the birth of the VIX as a tradeable index (not to mention CBOE’s recent tie-up with Bats).

Brodsky was interested in markets from an early age, recalling how his father — himself involved in the securities business — would scan prices in the morning and evening editions of the newspaper. But his exposure to the ins and outs of trading truly started when he got a summer job on the floor of the NYSE. That summer job led to a series of other summer jobs that revolved around trading while he was in school. After getting a law degree, he joined his father’s investment banking firm. His association with options, in those days considered the backwaters of the derivatives industry, came about by chance.

In this JLN Video, Brodsky reflects on his storied career and the hurdles he overcame.

Watch the video »


Fighting for Futures; Beckett’s Battle Standard
By John Lothian
May is Brain Tumor Awareness Month May is Brain Tumor Awareness Month and the Futures Industry is teaming up to fight for one of their own and children with brain tumors Meet Beckett. Beckett is the son of Matthew and Millie Ryba. Becket is like most 7 year-olds except he has been battling a brain tumor since 2011. Millie works for the CME Group and Matthew used to work in banking until he left to stay at home full time to care for Beckett. Beckett is one of 28,000 children in the U.S. currently fighting a brain tumor.

***** John Lothian Productions shot and edited this video for PBTF and on behalf of Beckett Ryba and his battle with brain cancer. Please watch the video and make a contribution to the important cause.


Nasdaq Stockholders Elect Members to Board of Directors; New Director, Melissa M. Arnoldi, Elected to the Board and Eight Directors Re-Elected
Nasdaq Board Elects Michael R. Splinter as Chairman of the Board
Nasdaq (Nasdaq:NDAQ) stockholders today elected all nominated directors at the Annual Meeting.


Millennials and Options: A Perfect Match?
Spencer Doar – JLN
Every business wants to capture the millennial customer. Millennials, loosely defined as those born between 1980 and 2000, are the largest generation on record and are set to inherit some $30 trillion. The generation’s (eventual) inherited wealth and sheer size demand that those in the options industry, and financial services as a whole, pay attention to their different demands and needs.

This generation largely doesn’t trust the old guard or their business models. They witnessed the financial crisis in ’08 during their formative years. Commissions? Phone calls to customer support? Fees? A human advisor? Millennials want little from traditional broking and investment models. Just look at the growth of the commission-free broking app Robinhood and automated investing service Betterman as proof.

Read the rest here.


Bits & Pieces
By John J. Lothian

MarketsWiki crossed the 100 million page view mark yesterday. 100,000,000! Talk about big data!

MarketsWiki is what transformed John J. Lothian & Company, Inc. into a real company with employees, culture and ambition. Before it launched, JJLCO was just me and a deal with Jim Kharouf on the Environmental Markets Newsletter.

From the idea I shared at the FIA Boca Conference in 2007 sprung the platform that would allow JJLCO to utilize the goodwill it had built up and turn that into cash to build MarketsWiki, which now has more than 22,000 pages.

Jon Matte was the first hire and co-founder of MarketsWiki. Jim Kharouf would leave FOW as a freelancer and join JJLCO as editor in chief. The late great Gail Osten, having left the CME Group, would join as a contractor and contribute key content that would land her a job with the CBOE. Sarah Rudolph would leave a freelancer career, after having left SFO Magazine, and join the effort. Jeff Bergstrom, my brother-in-law, was asked to join because I needed all hands on deck. He proved himself invaluable as a technology resource and became CIO of JJLCO. Jessica Darmoni, nee Titlebaum, as a team member came up with the idea of the Page of the Day.

There were many others who contributed, including sponsors and friends. Christine Nielsen, Laura Oatney, Doug Cameron, Ryan Lothian, Doug Ashburn, Ted Naganawa and others were key contributors.

Most recently, MarketsWiki has been averaging about 2.0 to 2.5 million page views per month. We have added many features to the site over the years, including more news content on the front page and integrated in feeds within the site.

Back when it was launched mainstream media was bankrupt both strategically and financially. The iPhone had just come out and there was a tipping point of how people were going to receive information. The industry needed a place to advertise and MarketsWiki has provided that. We are grateful for all the sponsors we have had over the years, which allowed us to build and develop MarketsWiki.

Our challenge now is to keep the site up to date, continue to improve and innovate with it. We are working on improving our analytics and being able to tell our story better and better.

Here’s to the next 100 million page views!


Wednesday’s Top Three
Wednesday’s most-read story was one we caught from May 6, The bonus that came along with CBOE’s Bats buy, from Crain’s. A close second was the big options story Two Sigma to acquire Interactive Brokers’ US options arm, in The Trade. Third was Bloomberg View’s take on the political story of the day – or week – Comey’s Firing Is a Crisis of American Rule of Law


MarketsWiki Stats
100,033,292 pages viewed; 22,487 pages; 205,811 edits
MarketsWiki Statistics


Lead Stories

Hedge Funds Facing U.S. Criminal Probe Over Bond Valuations
by Matt Robinson, Christian Berthelsen, Chris Dolmetsch, and Matt Scully – Bloomberg
Firms said to inflate securities’ value to bolster returns; Ex-Nomura trader testifies Premium Point mismarked holdings
U.S. prosecutors are investigating one of Wall Street’s darkest markets, focusing on hedge funds suspected of inflating the value of debt securities in their portfolios to juice the fees they collect.

Deutsche Börse expands its offer for start-ups; Venture Network opens for start-ups in the early growth phase
Deutsche Börse
The Deutsche Börse Venture Network expands its offer and opens for start-ups in the early stages, which have already completed a first seed financing and meet the necessary admission criteria. Up to now, the platform, which currently links more than 130 companies with more than 240 investors from all over the world, has only allowed start-ups in later growth phases. In order to continue growing internationally, sales are expanded to Austria, the Netherlands, France and Poland.

The Volcker Rule: How Trump’s New Regulator May Unleash Big Banks; Keith Noreika, acting comptroller of the currency, in exclusive interview, says agency could reinterpret proprietary trading definition
By Ryan Tracy and Liz Hoffman – WSJ
The nation’s main national bank regulator could act on its own to give banks relief from the Volcker rule trading ban, the agency’s acting chief said in his first interview since taking the job.

Cobalt attracts top currency traders to blockchain service; Market makers Citadel Securities and XTX join UK start-up platform
by: Philip Stafford – FT
A UK start-up trying to put the plumbing of the vast foreign exchange market on the blockchain has secured two of the world’s biggest traders, Citadel Securities and XTX Markets, to its fledgling service.

The Secretive Firm Set to Expand in Retail Options: Two Sigma Securities; Deal for Interactive Brokers Group’s options business is crafted to push firm into the big leagues
By Alexander Osipovich – WSJ
As the high-speed trading industry endures a wrenching period of consolidation, Two Sigma Securities is looking to come out on top.

How to Get a Straight Answer About Adviser Fees; If you get a complicated explanation of how much you’re being charged on your investment account, it’s time to walk away, experts say
By Michael Wursthorn – WSJ
Don’t know how much you pay your financial adviser? Just ask, wealth-management experts say.

Buying Into the Turmoil: Investors Embrace the Risks
Buy the dip. Be it stocks, bonds or more complex derivative bets, investors following this Wall Street maxim have reaped robust rewards in recent years.

CFA finance exams to grill hopefuls on AI, big data and robo-advice; Institute is reshaping its course to meet employer demand for fintech skills
by: Cat Rutter Pooley – FT
Candidates for the finance industry’s toughest exams will now have an extra challenge: becoming fintech experts.

Traders Ask What Will Rouse Markets When Trump and Twitter Can’t
by Eric Lam – Bloomberg
VIX sinks to lowest since 1983 despite Korea tensions, Brexit; Mobius blames social media as Blankfein warns over hubris
North Korea nuclear tensions, a crackdown on debt in China, confusion over U.S. policy, elections in Europe: rich ingredients for sending markets into a tizzy.

Citigroup Trader Fired Over 5-Word Message Uses 2-Second Defense
by Patrick Gower – Bloomberg
David Madaras testifies on second day of employment lawsuit; Madaras says managers misread thread of message responses
A Citigroup Inc. currencies trader fired for sending a five-word message to a rival said his defense comes down to two seconds.

Exchanges, OTC and Clearing

There’s one big trading company that’s loving all this uncertainty
Joe Ciolli – Business Insider
The stock market hasn’t been this dead in 24 years, but there’s still plenty of money to be made in investment products that bet on price swings.
Just ask CBOE Holdings, the world’s largest provider of volatility instruments, which smashed first-quarter earnings expectations on Tuesday due largely to investor appetite for wagers on the firm’s proprietary index, also known as the VIX.

The Next Degree of Fragmentation
Themis Trading Blog
Have you ever gone to Vegas while the NCAA basketball tournament has just gotten underway? It’s crowded! It’s hard to find a seat at a black jack table, which is a shame if you are in Vegas for the action, and not just walk around the shops at Caesar’s. You wish management would just open up more tables, so you could spend your time trying to win money. Eventually they do.
The equity markets are not so very different.

Interview: How Total Return Futures Deliver Margin Efficiency & Trading opportunities for Buy and Sell Side
Futurization enables firms to take advantage of swaps without the heavy capital and margin requirements of an OTC trade. In a Q&A, DerivSource spoke with Nicolas von Kageneck, senior vice president, sales, Equity & Index, at Eurex, and Stuart Heath, director, Equity & Index R&D at Eurex, about the newly designed Total Return Future product.

Toronto Exchange `Legitimate Contender’ For Aramco IPO, CEO Says
by Kristine Owram – Bloomberg
TMX Group CEO Eccleston says still in talks with Saudi Aramco;l Shares of TMX fell most since 2015 as earnings missed estimate
The Toronto Stock Exchange says it’s still in the running for part of the Saudi Arabian Oil Co. listing, which could be the world’s largest initial public offering.


Finance exams to grill hopefuls on AI, big data and robo-advice
Cat Rutter Pooley – Financial Times
Candidates for the finance industry’s toughest exams will now have an extra challenge: becoming fintech experts.
The CFA Institute, the organisation that hands out the coveted designation of “Chartered Financial Analyst” to people who make it through three rounds of exams, more than 300 hours of study and four years of work experience, is to revamp its tests to include questions on artificial intelligence, big data and robo-advice.

Citi Joins Axoni’s Financing Round, Bringing Total Raise to Over $20 Million
Axoni, a leading provider of distributed ledger technology to the financial services industry, announced today that Citi has joined its Series A funding round, bringing the total amount raised to over $20 million. Citi joins a noteworthy group of Series A investors, including Wells Fargo, NEX Group, J.P. Morgan, Goldman Sachs, Thomson Reuters., F-Prime Capital, Andreessen Horowitz, DCG, and others.

A 233-year-old Wall Street giant has developed an army of robots
The Bank of New York Mellon Corp has developed and deployed automated computer programs, or more than 220 “bots”, across its businesses over the past 15 months seeking more efficiency and lower costs, as the adoption of artificial intelligence technology in banking increases.


Trump train-crash is ominous for hyper-inflated asset markets
Ambrose Evans-Pritchard – Telegraph
The risks of a White House impeachment crisis and months of Washington paralysis are rising exponentially. You do not fire the head of the Federal Bureau of Investigations lightly.

Republicans fail to repeal methane regulations for drilling on public lands; Vote on Obama-era rule to reduce emissions from oil and gas drilling on federal land fails 51-49 as three Republican senators defect
Oliver Milman – The Guardian
A Republican move to undo limits on the emission of methane, a powerful greenhouse gas, has suffered an unexpected defeat in the Senate.

An Open Letter to the Deputy Attorney General Rod Rosenstein has more authority than anyone else to restore Americans’ confidence in their government.

QOTD: Michael Bloomberg has had enough
by Joshua M Brown – The Reformed Broker
When an elected executive fires the lead investigator in the middle of a probe into his or her activities, the implications cannot be ignored. That is especially true when the decision appears to have been reverse-engineered, as seems to be the case here, with the White House recently directing the Justice Department to produce a memo providing a rationale for the firing.


ESMA Meet-the-Market Workshop on the European Single Electronic Format
On Tuesday 6 June 2017, ESMA will hold a workshop on the European Single Electronic Format. This workshop is organised in the context of Eurofiling XBRL week and is open to the interested public, free of charge.

US derivatives head looks to right swaps trading, leverage ratio wrongs; The head of the CFTC intends to ease rules on swaps trading and bank capital rules.
By Joe Parsons – The Trade
The head of the US derivatives watchdog is hoping to revise rules around swaps trading and capital models, a move he believes would free up trading and clearing at the big banks.

Barclays to pay $97 million to settle U.S. charges it overbilled clients
Sarah N. Lynch – Reuters
Barclays PLC (BARC.L) will pay more than $97 million to settle civil charges that it overbilled its asset management business clients for tens of millions of dollars, U.S. regulators said on Wednesday.

Barclays fined $97 million for overcharging clients; SEC found Barclays overcharged clients up to $50 million in advisory fees.
By Hayley McDowell – The Trade
Barclays has been fined $97 million by US authorities to refund advisory fees or mutual fund sales to clients who were overcharged.

Ex-SEC accountant pleads guilty to trading fraud; David Humphrey fined following misrepresentation of personal derivatives trading activity.
By Hayley McDowell – The Trade
A former accountant at the Securities and Exchange Commission (SEC) has been fined $100,000 and banned from the industry for securities trading fraud.

Industry quiz Plato on MiFID II at Question Time event; Buy- and sell-side leaders debated MiFID II’s best execution requirements, trade reporting and TCA at the LSE this week.
By Hayley McDowell – The Trade
Industry leaders and Plato Partnership founders gathered at the London Stock Exchange earlier this week to answer key audience questions on MiFID II.

Fed’s Kashkari: Keep Dodd-Frank regulations in place for big banks
Minneapolis Federal Reserve Bank President Neel Kashkari said on Wednesday that there should not be any relaxation of regulations that have tightened oversight of Wall Street.

Investing and Trading

Buying Into the Turmoil: Investors Embrace the Risks
Landon Thomas Jr. – NY Times
Buy the dip. Be it stocks, bonds or more complex derivative bets, investors following this Wall Street maxim have reaped robust rewards in recent years.
Such buying has been evident in the shares of large American companies since March 2009, when the Standard & Poor’s 500 stock index touched a low of 666. (It closed on Wednesday at 2,399.63.) It also appeared when investors piled into European stocks after Britain’s vote to leave the European Union last summer. And the phenomenon has been amply illustrated by the wagering that the VIX index, a measure of how sharply investors think stocks will shoot up and down, will continue to move lower as it has done in recent weeks.

Mobius Says Low Market Volatility Is Tied to Social Media
by Tom Redmond , Yuko Takeo , and Toshiro Hasegawa – Bloomberg
Templeton investing guru says social media creates confusion; People then dismiss bad news, leading to market calm, he says
Mark Mobius has a left-field theory on why volatility in global stock markets is so low.

Hedge Funds Run Out of Investment Ideas
By Stephen Gandel – Bloomberg
Wall Street’s biggest loudmouths are apparently out of things to say.

Donald Trump warned US will pay a diplomatic price for withdrawing from Paris Agreement; ‘I feel that if the US withdraws, it’s a betrayal to the global community,’ says leading delegate to UN climate summit
Ian Johnston – Independent
The United States would pay a diplomatic price for withdrawing from the Paris Agreement on climate change, a leading Chinese expert has warned.

The Misery of Managing Other People’s Money
By Mark Gilbert – Bloomberg
Standard Life Plc has just published the prospectus for its planned merger with Aberdeen Asset Management Plc. As well as the usual boilerplate language on the potential pitfalls from changes in the market, regulatory and tax environments, the section on “Risk Factors” highlights the challenges old-school money managers face as they struggle to maintain market share and fees amid the rise of low-cost exchange-traded funds and index-tracking investments.

Investors Now Have More than $4 Trillion in Exchange-Traded Products
The amount of money in exchange-traded products topped $4 trillion globally last month, a fresh milestone in the rise of so-called passive investing.

If Trump erodes democracy, stocks will suffer: James Saft
By James Saft
Donald Trump’s firing of FBI Director James Comey caused barely a ripple on the glassy surface of equity markets, but more than 100 years of market and social data show that might be a mistake


BGC Partners Announces Its 2017 Annual Meeting of Stockholders; To be held on Tuesday, June 6, 2017 at 10:00 a.m. ET Webcast available for investors
BGC Partners, Inc.
BGC Partners, Inc. (NASDAQ: BGCP) (“BGC Partners,” “BGC,” or the “Company”), a leading global brokerage company servicing the financial and real estate markets, today announced that it plans to hold its 2017 Annual Meeting of Stockholders on Tuesday, June 6, 2017, at 10:00 a.m. ET at the Company’s executive offices in New York City. The meeting will inc

Barclays Chairman Explains Why He Didn’t Fire His Second CEO
by Stephen Morris – Bloomberg
Staley says he’s not vindictive after pursuing whistle-blower; One investor said to have reduced stake due to incident
Barclays Plc Chief Executive Officer Jes Staley apologized to shareholders for trying to unmask a whistle-blower, while the bank’s chairman said Staley has “learned his lesson” and the incident isn’t a fireable offense.

JP Morgan nabs FX market share from Citi and UBS; Ranking of top FX dealers reveals a significant redistribution of market share this year.
By Hayley McDowell – The Trade
JP Morgan has steamed ahead of Citi, UBS and Deutsche Bank to hold the most FX trading market share this year, according to Greenwich Associates.

Citadel Securities joins Citi on Cobalt’s post-trade FX blockchain network; Cobalt’s post-trade service now has 22 beta partners and the firm has expanded with a new office in New York.
By Hayley McDowell – The Trade
Citadel Securities has signed up to use FX blockchain firm Cobalt’s FX post-trade service, due to launch later this year.

Revenues rise for TP ICAP, boosted in part by the weaker pound
by: Philip Stafford – FT
TP ICAP, the world’s largest interdealer broker, reported a rise in turnover for the first four months of the year as the outlook for interest rate changes in the US and political uncertainty in Europe injected volatility into over-the-counter markets.

Bond Traders’ Bonuses Set to Rise 15% as Banks Resume Big Raises
by Katherine Chiglinsky – Bloomberg
Pay consultant Johnson Associates issues projections for 2017; Takeover advisers and equity traders may see rewards decline
Wall Street bond traders who survived years of slumping revenue are on track to receive some of the financial industry’s biggest bonus hikes for 2017 as banks increase total incentive payouts the most this decade.


Australian banks lick wounds after tax hit, investors brace for impact
Jamie Freed and Jonathan Barrett – Reuters
Australia’s big banks will likely swallow a surprise new A$6.2 billion ($4.56 billion) federal tax, industry and political sources said on Wednesday, given a lack of public support for an oligopoly that has reaped years of record profits.

China Bonds Send Fresh Stress Signal; For the first time since records began, five-year government-bond yield breaks above the 10-year
By Shen Hong – WSJ
China’s $1.7 trillion government-bond market is exhibiting a new sign of stress: The yield on longer-term debt has fallen below that on shorter-term debt—an anomaly that some traders are blaming on Beijing’s efforts to reduce financial risk.

Money from Chinese State Giants Helped Fund Aluminum Stockpile; A complex web of deals shows how aluminum firm China Zhongwang was able to route metal around the globe
By Scott Patterson – WSJ
Money from state-run Chinese companies was used to help finance the buildup of a massive aluminum stockpile that has crisscrossed the globe, depressed prices and sparked a criminal investigation in the U.S., according to business records, emails and people with direct knowledge of the transactions.

Taiwan’s Taiex closes above 10,000 for first time since 2000
by: Peter Wells – FT
Taiwan’s stock market benchmark has closed above 10,000 points for the first time since the dotcom boom of 2000.


How ‘Brexit’ Could Alter London, the World’s Banker
For centuries, London has functioned as a critical artery for the flow of money around the world. From Canary Wharf to the City of London, it now comprises one of the greatest concentrations of financial companies on earth. But a large piece of London’s banking business depends on its inclusion in the European Union. Britain is now moving to exit the union, jeopardizing its status as a leading global financial center. RELATED ARTICLE

‘Brexit’ Imperils London’s Claim as Banker to the Planet
From a skyscraper in Canary Wharf, the once-bustling cluster of docks transformed into a global banking center, traders at Citigroup’s regional headquarters move unfathomable sums of money around the planet. They are exploiting London’s unrivaled connections to the intricate plumbing of the international financial system.

Young professionals resist London’s lure and head north for jobs; Migration of workers to and from cities such as Manchester and Leeds evens out
by: Andy Bounds, North of England Correspondent – FT
For decades, young professionals in England’s provincial cities had only one destination in mind: London. These days, the traffic is going both ways.

These are the City of London’s General Election priorities for Brexit, fintech, and job growth
Thomas Colson – Business Insider
The winning party in June’s general election should prioritise a “bespoke” Brexit deal for financial services, promote the British fintech scene, and boost the UK’s financial services industry outside London, according to the country’s most powerful financial lobbying group.


The Crop That Ate America
By Alan Bjerga, Jeremy Diamond and Cindy Hoffman – Bloomberg
Farmers who had long rotated plantings among a diverse group of grains are increasingly turning to a single one. Corn has always been a mainstay of U.S. agriculture, but its increasing profitability has driven up corn’s share of total production, while grains such as wheat, oats and sorghum have steadily fallen, according to a Bloomberg analysis of a half-century of crop data. This locks farmers, as well as machinery-makers including Deere & Co., to the rises and falls of one crop, as both domestic and export markets grow more and more tied to the dominant U.S. grain. That exposes farmers to greater volatility and greater trade risk if a major buyer, such as Mexico, were to decide to stop buying U.S. corn.

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