Observations & Insight

Hits and Takes
By JLN Staff

Today is day two of the Chicago version of MarketsWiki Education World of Opportunity at the Stuart School of Business at Illinois Tech. We have the largest audience scheduled today for two sessions, one at 1 PM and another at 3 PM. We still have room for last minute additions as well.

Our speakers include Richard Sandor, Bryan Durkin, Terry Savage, Joe Guinan, Amy Shelly and Jennifer Wilson at the first session. At session two we have Mehmet Yanilmaz, Julie Armstrong Menacho, Keith Petersen, Patrick Kenny, David Kelbaugh and Jay Feuerstein

We are grateful for our sponsors of the event, including global premiere sponsor CME Group and event sponsors CBOE, OCC, Barchart.com, Inc., The IFM, Stuart School of Business at Illinois Tech and Trading Technologies.~JJL

The FIA is looking for fintech innovators for their Innovators Pavilion at EXPO 2017.

“FIA invites all fintech startups to apply to be featured in the Innovators Pavilion at Expo 2017! We are looking for leading edge companies that are creating innovative products and services for any aspect of the global securities and derivatives industry. These innovations can include blockchain, machine learning, big data, cloud computing and social trading.”

Apply for the FIA Innovators Pavilion HERE.~JJL

The top 3 pages visited yesterday on MarketsWiki were MiFID_II, Main_Page and ION. The top visited page on JohnLothianNews.com was yesterday’s newsletter.~JJL

Yesterday, John Lothian News shot a new video series with Trading Technologies and industry executives. The discussion, led by Jim Kharouf, will feature Brian Mehta, chief marketing officer at TT and Doug Monieson of Hyde Park Angels speaking about where the next generation of talent is going to come from and how this industry can attract them. Our second interview features Drew Shields, TT chief technology officer and Julie Menacho, executive director, global head of market technology services at CME Group, talking about data, new technology and what’s next in that space. A third video is also in the works. Stay tuned for the show, due out this fall.~JK


Lead Stories

Interactive Brokers’ market making segment feels impact of options business wind-down
Maria Nikolova – FinanceFeeds
Interactive Brokers said the results for the second quarter of 2017 include approximately $22 million in one-time exit costs related to the halt of the company options market making business.

A striking stat shows why even the bears are tempted to bet on stocks
Alex Rosenberg – CNBC
If you think the S&P 500 is set to rise even higher from current, near-record levels, you’re in luck. Bullish options contracts that will increase in value should the market rise a few percentage points over the course of the next month have rarely cost less.
“They’re basically giving away call options,” Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors, surmised Monday on CNBC’s “Trading Nation.”

Vix index sends mixed messages to investors
Miles Johnson – Financial Times
Stock market investors have spent vast amounts of effort this year worrying about why people are not worried enough. With gauges of expected market volatility touching new lows, a parade of bearish commentators has offered up warnings following the same logic: violent corrections occur when investors are complacent about risk; investors have been measurably complacent this year because volatility is low; therefore the likelihood of a violent correction is high.

****SD: I must not be on VIX’s email list. More on the VIX from FT Adviser, What’s behind low volatility?, and Business Insider, A $30 billion hedge fund identified a potential trigger for ‘the next financial crisis’

Markets’ Steady Climb in 2017 Defies Historic Odds; Major indexes haven’t gone a calendar year without a pullback of at least 5% in at least 30 years
Steven Russolillo – WSJ
Stock markets go up and down: It is a fact of life. Except in 2017.

Marex Spectron Launches New Customizable Derivative Hedging Division
Colin Firth – Finance Magnates
London-based global commodities broker Marex Spectron today announced the launch of a division dedicated to derivative hedging solutions. The new division, Marex Solutions, aims to provide highly customised and efficient derivative hedging solutions. Marex states that it will incorporate many new innovations from the fields of fintech and data analytics.

****SD: I’m going to go out on a limb and assume this was not written by the British movie star (if he does moonlight as a derivatives reporter, I think I know my next story).

Pound Traders Set Brexit Bets as Key Summit Comes Into Play
Anooja Debnath and Alex Morales – Bloomberg
October meet is earliest to talk about EU-UK trade: Barnier; Volatility could be ‘quite violent’ on mood shifts: Mizuho
What will Brexit look like in three months’ time? Pound traders are trying to figure it out.

****SD: Some other options related FX news from Bloomberg – China’s Yuan Drops Off Nine-Month High as Gains Seen Overdone

Exchanges and Clearing

CFE Integration
Our team is focused on executing a seamless technical and operational integration of CFE to Bats’ best-in-class technology. We are committed to ensuring you continue to enjoy the same great trading experience and customer service you’ve always enjoyed.
Our plan is to migrate CFE to the Bats technology platform on Sunday, February 25, 2018. Ample notice will be provided for any technology or functionality changes. These include any changes to pricing, order types and product offerings.

Deutsche Boerse cultivates local ties after LSE deal setback
Tom Sims – Reuters
Deutsche Boerse is planning to spruce up the Frankfurt stock exchange, a familiar backdrop for TV broadcasts on the German economy, as part of a push to try to attract more retail investors.

MGEX Breaks Open Interest Record
MGEX, a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), has broken the total open interest record with the close of Tuesday’s activity. The new record is 108,962 contracts.

****SD: As a small exchange, when the FT has a big story on your rockstar product, you’re doing pretty decent. Bloomberg has some context for the wheat scene – The U.S. Drought Is Turning Wheat Into Hay.

Regulation & Enforcement

CFTC files suit for $16 million binary options scam
Henry Hughes – SMN Weekly
The US Commodity Futures Trading Commission (CFTC) announced it has filed a civil suit against Jason Scharf and Michacel Shah for alleged $16 million binary options scam.

Sebi meets market players to discuss derivatives overhaul
Samie Modak – Business Standard News
The Securities and Exchange Board of India (Sebi) has initiated discussion with various stakeholders, including brokers, stock exchange officials and foreign investors, for overhaul of the derivatives segment.
According to sources, Sebi officials met representatives of exchanges and select brokerages to discuss possible changes in futures and options (F&O).

Trump to nominate former Senate aide Peirce for SEC commissioner
U.S. President Donald Trump intends to nominate former Senate Republican aide Hester Maria Peirce to be a member of the Securities and Exchange Commission, the White House said on Tuesday.

SEC Announces Christopher Hetner As Senior Advisor To The Chairman For Cybersecurity Policy
The Securities and Exchange Commission today announced that Christopher R. Hetner will continue to serve as Senior Advisor to Chairman Jay Clayton for Cybersecurity Policy, having previously served in this role under Chair Mary Jo White and Acting Chairman Michael Piwowar. Mr. Hetner will continue to coordinate efforts across the agency to address cybersecurity policy, engage with external stakeholders, and help enhance the SEC’s mechanisms for assessing cyber-related market risk.


SEC Integrates AI and Machine Learning for Risk Assessment
Emilia David – WatersTechnology
Machine learning and artificial intelligence are helping the SEC speed up the process for identifying possible misconduct.
SEC acting director for the division of economic and risk analysis, and acting chief economist Scott Bauguess said during his keynote speech at the CyberRisk North America event in New York that the regulator has been working on integrating artificial intelligence into its examination process.


Brokers’ Call on Wall Street: Bye
Michael Wursthorn – WSJ
Wall Street’s brokerage model is under assault—from within.
A growing number of brokers, disillusioned with pay hurdles and strict corporate cultures at the so-called wirehouses, are taking their billions of dollars under management and going independent. In doing so, many also say they are pursuing more control over their practices and a higher standard of care for clients that focuses more on service and less on pitching proprietary products.

****SD: “Buh-bye.” – David Spade

Tyndall to join Barclays as FX options trader
Eva Szalay – FX Week
Mike Tyndall is set to join Barclays in New York as a foreign exchange options trader, reporting to Paul Thirlwall, head of global FX options, FX Week has learned.


Weekend Review – Volatility Indexes and ETPs – 9/19
Russell Rhoads – CBOE Blog
Earnings season continues with results being somewhat mixed so far. The economic calendar is fairly light this week. We do get the EIA Crude Oi stockpile change numbers at 9:30 Chicago time – expectations are for a drop of 3.214 million, last week’s number was down 7.564 million.

Low Volatility Does not Equal Complacency
Crystal Kim – Barron’s
With the market inching up and making new highs — the S&P 500 logged its 26th record close on Tuesday — it’s little wonder that the CBOE Volatility Index has remained depressed.A lack of volatility hasn’t been great for ProShares VIX Short-Term Futures (VIXY) and iPath S&P 500 VIX ST Futures ETN (VXX). Though, those who don’t have the confidence to get the timing and magnitude calls just right, which few can pull off, shouldn’t be investing in these type of vehicles anyway.


How data changed gambling
The Economist
On July 16th, Roger Federer (pictured) triumphed over Marin Cilic to win the men’s Wimbledon tennis championship for the eighth time. It was an expected end to an otherwise unpredictable two weeks, with many top seeds exiting the tournament earlier than anticipated. Despite—or perhaps because of—the unlikely results, punters flocked to the betting windows. Paddy Power Betfair, one of the world’s largest betting groups, saw nearly GBP1bn ($1.3bn) traded on Wimbledon this year.

ECB Is Studying Stimulus Options for Possible Fall Decision
Piotr Skolimowski and Alessandro Speciale – Bloomberg
Options for winding down QE said to be evaluated by ECB staff; But there is little chance of policy change until after summer
While European Central Bank policy makers look forward to a summer break, the institution is quietly working on stimulus plans for them to consider on their return.

Trading volume slows sharply even as stock market hits highs
Wallace Witkowski and Ryan Vlastelica – MarketWatch
ummer trading volume has gone from a slowdown to more of a near halt even as stock-market benchmarks fitfully carve out records.
Following some of the slowest trading of the year over the past few sessions, Tuesday volume improved fractionally. On Tuesday, 2.94 billion shares exchanged hands on the New York Stock Exchange, compared with a month-to-date daily average of 2.91 billion shares and a daily average of 3.48 billion shares for the year to date, according to Dow Jones data.

****SD: Folks on the sidelines is its own apprehension indicator.

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