Observations & Insight

Financial Markets Leaders Remember the late Magnus Bocker
John Lothian – JLN

I asked several leaders around the exchange world to offer remembrances of Magnus Bocker, the late former CEO of SGX. To start, I shall offer my own and add additional remembrances as they come in.

I first met Magnus Bocker at a Deutsche Bank investment banking financial technology conference in New York where I had been asked to moderate an exchange leader panel. Magnus was then president of Nasdaq OMX. Also on the panel was Larry Leibowitz representing NYSE Euronext.

Magnus was always gracious with me. He was likable, always smiling, whip-smart and well-dressed. In fact one year at the FIA’s Boca Raton International Conference I remarked in a top 10 list that Magnus and then CME CEO Craig Donohue decided NOT to open a men’s clothing fashion line together. The two had almost appeared at the conference to be well-dressed twins in matching blue blazer, khaki pants and Gucci loafers.

Read the rest here


A MIAX Equities Exchange and the CFTC Connection: A Few More Words on LedgerX
Spencer Doar – JLN

In case you missed the big news Monday, the CFTC approved LedgerX as a derivatives clearing organization. Miami International Holdings, or MIH (parent company of MIAX), a partner and investor in the crypto exchange, put out its press release regarding the approval Wednesday night.

The key takeaway from the release is a pretty big “Whoa!” stemming from this one-off line regarding MIH’s licensing agreement with LedgerX: “MIH secured similar rights for securities to be listed on its MIAX Equities Exchange, once launched.” An equities exchange? There is not much information out there regarding this proposed endeavor. All the web yields is a trademark filing from 2016 for “MIAX Equities.” (Note: MIH has not yet responded with a comment as of publishing time. This story will be updated with that information once received.)

Read the rest here.

****SD: Still no comment from MIAX as of yet.

Lead Stories

These Intraday Stock Rotations Keep Crushing Volatility
Luke Kawa – Bloomberg
U.S. technology stocks hit the skids shortly after noon on Thursday, but even that couldn’t push the VIX index past 11.50.
What gives?
Well, it may be more about what hasn’t been giving: the pattern of aggressive intraday rotations between certain segments of the market that have effectively kept broad equity gauges aloft and volatility suppressed.

JPMorgan quant drops the whole market with report comparing to 1987
Tae Kim – CNBC
JPMorgan’s Marko Kolanovic recommends investors buy S&P 500 put options to protect against a market drop.
The strategist calls out the risk of multiple central bank meetings in September as a potential catalyst for increased volatility.

****SD: Assigning narratives to the market is such a tricky endeavor. Let’s say the circulation of Kolanovic’s note did cause the selloff — isn’t it crazy one dude (albeit respected and repping a PhD in theoretical physics, sure) can cause a drop by saying something which has been brought up before and I consider kind of a “duh.” Like the mentioned risks are a revelation? That buying protection when the market is at all time highs is a revelation? And folks only wake up to it on Thursday? Then again, there’s a reason psychology is so important in trading. More outlets with the Marko story: Financial Advisor Magazine and ZeroHedge

Libor, Phone-Smashing and Hacking
Matt Levine – Bloomberg
We talked a bit yesterday about the demise of Libor, the London interbank offered rate, a convention for interest rates that led to manipulation and scandal. Pascal-Emmanuel Gobry responded with a thoughtful Twitter thread about Libor, society and the nature of finance, “which is that all of finance is essentially a gentleman’s agreement (that’s what a vanilla loan is) and that the agreement matters more than what the agreement is about.”

****SD: Some options related content in today’s Levine column. He references Pascal-Emmanuel Gobry’s recent tweets about LIBOR. One excerpt: “I think it was Merton who joked that it wasn’t that everyone used his options pricing model because it was accurate, but that it was accurate because everyone used it. There is no ‘rational’ way to price options, but the financial system is made much better off by everyone pretending that Black-Scholes is a rational way of pricing options.”

Gundlach’s DoubleLine purchased five-month put options on S&P 500
Jennifer Ablan – Reuters
Jeffrey Gundlach’s DoubleLine Capital purchased some five-month put options on the Standard & Poor’s 500 Index a couple days ago as the CBOE Volatility Index .VIX fell to its lowest since December 1993.

Vix bounces after touching record low earlier this week
Mamta Badkar- Financial Times
Having touched its lowest intraday level on records dating back to 1990 earlier this week, Wall Street’s volatility gauge jumped on Thursday as US stocks notched fresh record highs only to suddenly do an about face following a sell-off in tech.

****SD: Wow, SOOO high. Where is the “Is the sky falling? VIX skyrockets 7 percent!” headline for today?

Exchanges and Clearing

Magnus Bocker, Former Singapore Exchange CEO, Dies at 55
Andrea Tan – Bloomberg
Magnus Bocker, the former chief executive officer at Singapore Exchange Ltd. and president of Nasdaq OMX Group Inc., has died of cancer. He was 55.
“We will remember him for his infectious optimism, fresh insights, and energetic approach to just about anything, from music to cars to the exchange business and his belief in SGX,” Singapore Exchange said in a statement Friday. He was a driving force for change, the company said.

Deutsche Boerse’s Kengeter in close contact with LSE in run-up to merger talks: Der Spiegel
Deutsche Boerse’s (DB1Gn.DE) Chief Executive Carsten Kengeter, who is under investigation for insider trading, frequently met and spoke by telephone with his London Stock Exchange counterpart in the months before they announced official merger talks, Der Spiegel magazine reported on Friday.

CBOE [sic] could get new open-outcry trading floor, even as frenzied trading declines
Chicago Tribune
Over the last decade, the frenzied screaming and hand-waving on exchange trading floors has started to go the way of the horse and buggy.

****SD: The content of this article is correct but the title is 100 percent wrong. This is a story about BOX’s proposed trading floor — CBOE has filed a comment letter opposing the proposal. Now, if BOX’s floor is approved, that could open the floodgates for more exchanges to launch more floors, in which case, who knows, the CBOE could get a new floor. But not at this time.

Eurex Exchange – Fixed Income Highlights
The first half of 2017 has seen fixed income markets enjoy a robust start, with geopolitical and event risk underpinning strong volumes across the board. The positive trend in volume development in FI products remains supported with open interest increasing YOY by 40% to 6 mn contracts for FI Futures and 5 mn in FI Options (+330%). In the context of European elections, Options on Euro-OAT Futures were relaunched in March 2017, building up an open interest of over 40,000 contracts to the end of May and ADV of 1,000 contracts. Over the last couple of months, markets have seen an easing in terms of geopolitical risks and economic data remains positive within Europe, adding pressure on the ECB to reduce quantitative easing over the course of 2018.

Deutsche Börse senses opportunity as banks pick Frankfurt
Samuel Agini – Financial News
German exchange is in ‘very good dialogue’ with clients and hopes to benefit from Brexit-related moves from London

Euronext publishes second quarter 2017 results

Final ISE Symbol Migration
The Nasdaq ISE symbol migration to INET will complete on Monday, July 31 with all remaining symbols being transitioned to INET as detailed below.

****SD: Another Nasdaq release – Nasdaq ISE and GEMX Update on the Price Improvement Auction Mechanism


Citi hires ex-Deutsche boss to run algo trading
Samuel Agini – Financial News
Citigroup has named a former Deutsche Bank derivatives specialist as its new global head of electronic and algorithmic trading for listed derivatives.

Black Executives Are Losing Ground at Some Big Banks
Max Abelson and Jordyn Holman – Bloomberg
Wall Street’s top bosses have pledged for years to boost diversity in their ranks. But the number of black people at some of the biggest U.S. banks is going in reverse.

What no one tells you about trading careers
Dan Butcher – eFinancialCareers
Most traders pursued that career path with visions of making it rich completely unaware of the risks involved in that line of work.

Regulation & Enforcement

Mnuchin: Volcker Rule, ‘Too Big to Fail’ Set for Changes Treasury secretary says he will discuss potential moves at Friday’s FSOC meeting
Rachel Witkowski – WSJ
The Trump administration is working with bank regulators to roll back postcrisis rules, Treasury Secretary Steven Mnuchin said Thursday, namely the Volcker rule and the system of determining which financial firms are considered “too big to fail.”

Special Report: Senate Agriculture Committee Holds Hearing on CFTC Nominees
Three CFTC nominees testified at a Senate Agriculture Committee today, a key step in the process for confirming their nominations. The committee has not scheduled a vote on the nominations yet, but the hearing revealed strong support for the nominees from members of both parties. The two most senior members of the committee, Senators Pat Roberts (R-Kansas), and Debbie Stabenow (D-Mich.), welcomed the nominees as well qualified to serve as CFTC commissioners and expressed their support for filling the vacancies at the agency.

CFTC commissioner nominees pledge to complete position limit rules
Sarah N. Lynch – Reuters
Three of President Donald Trump’s nominees to serve as commissioners on Wall Street’s top derivatives regulatory agency on Thursday pledged to work to complete rules that would restrict trading by market speculators who bet on the rise and fall of prices.

Brussels financial directives have no interest in helping London
Neil Collins – Financial Times
The analysts at RBC Markets were quick out of the blocks this week, to explain why the Fevertree results were even better than they anticipated. This mixer drinks company is a wonder of the age and RBC reckons it is worth its current GBP2.2bn price tag, or more than 20 times its last 12 months’ revenues. So much sexier than boring old Britvic, currently valued at GBP1.8bn, or about 1.3 times its 2016 sales.


The 2017 Tech 40
Institutional Investor
Financial firms and markets have always been awash in data. Now managing and making sense of it has become a business in itself, and the industry’s top technological innovators are aggregating data and deploying advanced analytical tools to set themselves apart.

**Adena Friedman, CEO at Nasdaq, is number one on the list. ICE chairman and CEO Jeff Sprecher is number four, and CBOE’s Chris Concannon ranks in at 15.


How to Profit With VIX at 1993 Levels
Steven M. Sears – Barron’s
The CBOE Volatility Index, or VIX, dropped to 8.84 on Wednesday after the Federal Reserve finished a two-day rate-setting committee meeting. That marked its lowest level since December, 1993.
The intraday low sparked a shock-and-awe moment as a generation of investors had never seen the fear gauge at such an extraordinarily low level. The reaction among many traders was to buy relatively inexpensive upside VIX calls before everyone else got the same idea.

****SD: Sears with a good point – “About a week ago, for example, Bank of America Merrill Lynch executed a huge VIX trade. The bank bought 260,000 VIX October $15 calls, and sold about the same number of VIX October $12 calls, and then sold about 500,000 VIX October $25 calls. The trade generated a credit of $5 million. The bank crossed about 80% of the trade — that means taking the other side — and the VIX crowd handled the rest. The trade was portrayed in some media reports as someone making a massive bet VIX would soon surge. The reality is less dramatic.”

Trader Q&A: How to Trade Options In a Low-Volatility Environment
Katie Coburn – Schaeffer’s Research
The VIX — or the Chicago Board Options Exchange (CBOE) Volatility Index — is one of the most commonly tracked measures of U.S. stock market volatility. It gives us insight into investors’ expectations for short-term volatility in the stock market. But how does the VIX impact your options trading approach? To answer that question and more, I spoke with Schaeffer’s Senior Trading Analyst Bryan Sapp to discuss all things VIX.

The BITCOIN Effect: Gold Options Look Dirt Cheap
Inside Futures
Is gold dead? It sure acts like it. The “barbarous relic,” once counted on as the “hedge of last resort,” has done nothing but move sideways during the first half of 2017, despite the political tumult in Washington and the post-Trump decline of the US dollar. Gold may be flat as a pancake, but Bitcoin is exploding.

****SD: The phrase “dirt cheap” always makes me wonder how much dirt actually costs. Is dirt itself actually “cheap”? What are the varying dirt qualities? Is there fancy dirt? If you’re looking for large amounts of dirt for a filling project or have a lot of dirt to sell, check out this random website I found called Dirt Match run by a fellow named Ryan Crownholm, a “veteran trucking and excavating professional” and (self-proclaimed?) “Dirt Master.”

CBOE Morning Call 7/28/17
Russell Rhoads – CBOE Options Blog
Earnings continue to be skewed to the positive side as far as stock price reactions go, although the stock market seems to taking a breather. JP Morgan followed Goldman Sachs’ lead and said some nasty things about tech stocks which hit the Nasdaq particularly hard yesterday and took other sectors down with it. VXN (think Nasdaq VIX) was up much more than the other broad-based equity volatility indexes. Needless to say, traders will probably focus on large tech stocks until there is some sort of stabilization.


Master ETF Strategist Discusses Eight Potential Black Swans
Evan Simonoff – Financial Adviser Magazine
With few exceptions, equities in recent months have advanced at a pace so smooth some might call it glacial. It’s certainly enough to lull one into contentment if not complacency.

One Trader Warns Of An “Explosion Of Large Block Trades Across Rates Markets”
Zero Hedge
While The FOMC statement yesterday had a little for everyone (dovish inflationary comments and hawkish employment and balance sheet normalization), the bottom line is that, as former fund manager Richard Breslow notes, Yellen has kicked the can down the road one more time to avoid making any decision before the start of autumn: “they are only human and well aware of the fact that August has repeatedly been a cruel month for upsetting their best-laid plans for September.”

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