Observations & Insight

CME Group CEO Terry Duffy on Business and Interest Rates Under the Trump Administration

With a new administration in place and a more optimistic outlook from the market community, CME Group is well positioned to succeed, according to CEO Terry Duffy.

Whereas global regulatory efforts have served as a headwind for the industry since the financial crisis, now the United States is benefiting from the perception that the new administration’s stance on regulation will serve as an tailwind. There is much left to be determined, certainly, but even the shift to no new regulation as opposed to deregulation is sufficiently pro-business to elicit optimism, said Duffy. Adding to that confidence is the Federal Reserve as it primes for more interest rate hikes.

CME Group more than weathered this regulatory storm while building out their interest rate complex in a zero rate interest rate environment with new products. CME’s Fed Fund futures and Ultra 10-Year Treasury futures set daily records for volume on February 22, and the exchange broke open interest records in Treasury futures on 14 consecutive days in February. The result is that CME has a deep pool of interest rate contract liquidity and the true action hasn’t even started yet.

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Lead Stories

Interactive Brokers Group Announces Decision to Cease Options Market Making Activities
Interactive Brokers Group, Inc. (NASDAQ GS:IBKR) today announced that it will discontinue options market making activities globally, which are conducted through its Timber Hill companies. The Company expects to phase out these operations substantially over the coming months. The Company intends to continue conducting certain trading activities in stocks and related instruments.

****SD: Recall that KCG stepped back from their options market making activities a few months ago. Not really related, but this week IB announced better functionality for options trading on its mobile app.

Snap options set for strong demand on market debut
Saqib Iqbal Ahmed – Reuters
Traders looking for a piece of the action around Snap Inc’s newly launched shares will get another way to bet on the fortunes of the Snapchat owner when its options start trading on Friday. Weekly and monthly options contracts on Snap’s shares are expected to start trading on Friday, CBOE Holdings Inc said last week, once certain regulatory requirements for their listing are met.

****SD: You don’t need a deerstalker cap and Calabash pipe to see the truth in this (there are a ton of Snap haters and lovers out there to make a great market).

No matador in sight as bull market in U.S. stocks turns eight
Chuck Mikolajczak and Rodrigo Campos – Reuters
The run of gains on Wall Street turns 8 years old on Thursday and, despite its advanced age, is expected to rage on, with perhaps a few hiccups, based on a combination of stronger company earnings, lower taxes and a corporate-friendly administration in Washington.

****SD: Also from Reuters – Factbox: Bull market turns 8 – historical facts and figures

OPEC and the shale industry seek a truce: Kemp
John Kemp – Reuters
The Organization of the Petroleum Exporting Countries (OPEC) and shale producers have fought each other to a draw over the last two years, with neither able to achieve a decisive victory. Now both want a truce.

****SD: Recent action from Reuters – U.S. crude oil slumps below $50 after stocks build.

U.S. Crude Oil’s Eastern Promise
Owain Johnson – OpenMarkets, CME Group
One of the hottest topics at the recent oil industry gathering – IP Week in London – was the growing influence of U.S. crude oil on the Asian markets. Until very recently, that would have seemed like a fantasy discussion. Before the repeal of U.S. crude oil export restrictions in December 2015, it had been 40 years since U.S. crude oil had left north America.

****SD: At what juncture does Viggo Mortensen get involved?

Broadridge buys post-trade firm to boost derivatives
Julie Aelbrecht – Futures & Options World
The acquisition sees consultancy firm gains a firmer foothold in the derivatives market
Tech firm Broadridge said its acquisition of post trade specialist Message Automation on Thursday will boost its derivatives offering as clients prepare for a swathe of financial regulatory reforms.

****SD: Broadridge press release here.

As E.C.B. Charts Economic Course, Politics Complicate the Picture
Jack Ewing – NY Times
Central bankers like to portray themselves as being aloof from the hurly-burly of politics, coolly assessing the economic data as they ponder whether to add a jolt of stimulus or take some away. But with populism on the rise in Europe and elsewhere, opinion polls have arguably become one of the European Central Bank’s most important sources of data points.

Exchanges and Clearing

CBOE’s Edward Provost on Exchange’s New Initiatives
Day Two of CBOE RMC U.S. kicked off with bittersweet final remarks from CBOE’s Edward Provost, who officially retired as President and COO last week. Provost began with the obvious: CBOE Holdings’ acquisition of Bats Global Markets. “We believe the CBOE-Bats combination will enable us to cement CBOE’s position as the go-to partner for developing cutting-edge trading and investment solutions,” he said. “We expect to provide customers like you with innovative products across a wide array of asset classes,” he continued.

MEPs seek ‘extraterritorial’ oversight on London euro clearing
Jim Brunsden – Financial Times
Members of the European Parliament have urged regulators to press for “extraterritorial” oversight of the City of London after Brexit as a condition for allowing the UK financial centre to keep its dominance in the lucrative market for clearing euro-denominated derivatives. MEPs told European supervisors and officials at a hearing in Brussels that Brexit challenged EU rules on market access for overseas firms and that the bloc had to be able to police threats to its financial stability.

****SD: I read that as “extraterrestrial” at first.

MIAX Options And MIAX PEARL – Daylight Saving Time
Press Release
MIAX Exchanges are scheduled to begin Daylight Saving at 2:00 AM on Sunday, March 12, 2017. The MIAX will adjust the system times ahead 1 hour for trading beginning Monday, March 13, 2017.

Regulation & Enforcement

Gutting Dodd-Frank Is Hard, So Republicans Focus Elsewhere
Elizabeth Dexheimer – Bloomberg
Here’s the latest indication Wall Street regulations won’t be gutted anytime soon: Republicans who write financial laws are starting to focus on other things.

FX strategists set to evade research crackdown, at a price
Patrick Graham – Reuters
Banks’ currency trading arms believe they can exempt teams of strategists from new European rules on research by changing their job titles and imposing hard limits on what they can say in public.

Sebi speeds ups investigation in MCX insider trading case
Tarun Sharma -CNBC MoneyControl
The Securities Exchanges and Board of India has expedited the investigation into insider trading charges against the former promoter and employees of 63 Moons group of companies, formerly the Financial Technologies India (FTIL) group.

FINRA Proposes Streamlining Competency Exams
The Financial Industry Regulatory Authority (FINRA) announced today that it has filed a proposal with the Securities and Exchange Commission (SEC) to streamline competency exams and facilitate opportunities for professionals seeking to enter or re-enter the securities industry.

Majority of FX, binary options brokers in CFTC RED List remain active
US financial regulators are considered as some of the strictest in the world, imposing harsh restrictions on the online trading industry in the United States.


Moving Canadian Market Data Out of the Dark Ages
Jos Schmitt, Aequitas Innovations – TABB Forum
The vast majority of Canadian retail investors and investment advisors do not have access to a full set of market data information, and many of them are not even aware of the fact that they only have a partial view, says Jos Schmitt, Aequitas NEO Exchange. That is why NEO is urging the Canadian securities regulators to mandate access to real-time top-of-book consolidated market data for all investors, just like the SEC did in the United States.

From swaps to software: rivals eye Goldman and JP tech plans
Luke Clancy – Risk.net
With bid/offer spreads shrinking, and regulatory costs still growing, some banks believe they have found a new way to bolster their under-pressure trading businesses – an untapped source of value that might add hundreds of millions of dollars a year in sticky, predictable revenue. This goldmine is the risk technology used by the banks’ traders and risk managers, and the plan is to monetise it by making it available to clients.

Exclusive: ING, SocGen to test LNG trading with blockchain in months
Karolin Schaps, Christoph Steitz and Vera Eckert – Reuters
Banks ING and Societe Generale are in talks with traders to test liquefied natural gas (LNG) trading based on blockchain, the technology starting to shake up the traditional energy industry.

Thomson Reuters Teams Up With Tradeweb To Create Suite Of Solutions For MiFID II Compliance
Thomson Reuters is creating a holistic suite of reporting services that will support the workflow of market participants in their efforts to meet post-trade transparency requirements mandated by the Markets in Financial Instruments Directive II (MiFID II). In preparation for the new regulations, the company is working closely with over 50 European exchanges and more than 30 additional venues to onboard new MiFID II content to its Elektron Data Platform. It is also providing test data to market participants so that they can prepare their systems for new parameters, such as high-precision time-stamps, in advance of MiFID II deadlines.

IBM has figured out how to store data and information on a single atom
Mike Murphy – Quartz
Big things really can come in small packages.


High Prices, Low Volatility
With the S&P 500 VIX near its lowest levels in more than a decade, we anticipate more volatility for stocks. And we expect any correction to be a normal, even healthy intra-cycle move that could create potential small-cap opportunities. With only a few weeks to go, 1Q17 is already shaping up as an interesting one.

How to Trade Ahead of Friday’s Payroll Report
Steven M. Sears – Barron’s
The stock market could be about to encounter severe volatility. If this happens, it will represent a sharp change in what has essentially been an unwavering advance for the past four months.

The Radical Impact of Earnings on Tesla Options
Selling puts is one of the most common implementations of an option strategy during a bull market, but we have to look at it in the context of earnings volatility. This is a risky strategy, but there is a clever way to reduce risk.

Is Carry Trade On Its Way Back Up?
Francesco Santostasi – The Market Mogul
A possible return to the carry trade strategy for 2017 is a rustling that echoes amongst some professionals and the international press. Despite the resonance that destabilising events like Brexit and US elections have internationally, the economic scenario is encouraging for such a strategy.

CBOE RMC Presentation: Funds and Use of Options Strategies
Russell Rhoads – CBOE Options Hub
The first session of the 33rd Annual CBOE Risk Management Conference featured Teri Geske from Wilshire Associates and Michael Oyster from Fund Evaluation Group. Their presentation focused on white papers that discuss BuyWrite and PutWrite benchmark indexes that were created by CBOE.

CBOE RMC Presentation: Decision Cycle for Downside Risk and Income Focused Strategies
Russell Rhoads – CBOE Options Hub
Carlos Chujoy from the Employment Retirement System of Texas, Aashish Vyas from Swan Global Investments, and Joanne Hill from CBOE Vest Financial teamed up this afternoon for a session titled “The Decision Cycle for Downside Risk and Income-Focused Strategies”.


CBOE RMC Keynote Presentation by Ed Thorp
Russell Rhoads – CBOE Options Hub
The keynote speech at today’s CBOE Risk Management Conference in Dana Point, CA was delivered by a legend in the business, Edward O. Thorp. Thorp’s discussion focused on Position Sizing and Relation to Risk Management.


Setting the Record Straight with Mr. Leaprate Staff
Michael Greenberg – Finance Magnates
Business competition can get fierce. Since launching Finance Magnates, I’ve seen competitors exchanging jabs on comments, poaching each other’s employees and launching thinly-disguised predatory campaigns. But even the most bitter (or desperate) business rivals retain some semblance of self-respect and maintain at least a minimal level of business etiquette.

****SD: Drama! When your subhead is “Throwing mud has never been our style, nor do we need it to stay relevant or beg for business. But…” you know it’s going to be good.

Surviving on the front line in Mosul’s street battles
John Davison – Reuters
Mohammed Fathi sat calmly on a plastic chair, twiddling his prayer beads as machine gun fire erupted from a neighbor’s house, incoming bullets crackled overhead and helicopters strafed targets nearby in western Mosul.

****SD: What with the whirlwind nuttiness of the White House and all, I have to remind myself that very important events continue to unfold across the globe, such as Daesh on the retreat. For another example, in non-Trump times the assassination of Kim Jong Nam in Malaysia would have garnered much more prominent coverage. Hard to top a story that a features a LOL shirt, a fake prank, VX (not VIX) nerve agent and a boatload of international intrigue. Given recent film releases — “Sully” came out 7 years after the Hudson landing, “Patriot’s Day” came out 3 years after the Boston Marathon bombing and “Deepwater Horizon” came out 6 years after the Gulf oil incident — I’d bet we’ll see an adaptation by 2023.

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