Lead Stories

Investors are bracing for a massive stock-market selloff
Joseph Adinolfi – MarketWatch
If options traders are correct, stocks are in for a wild ride in February. Demand for one-month call options tied to the CBOE Volatility Index, a popular gauge of stock-market volatility, has spiked in the past week, a sign that some are bracing for a sharp downturn following the inauguration of President-elect Donald Trump.

****SD: Happy Friday the 13th everybody!

No single factor behind sterling flash crash, BIS says
October’s flash crash in sterling was caused by several factors – including the time of day – according to a report by the international banking body, the Bank for International Settlements.

****SD: And sterling is having a rough go of it recently – see FT’s Pound endures volatile trading on prospect of hard Brexit. For more on the causes of the flash crash, check out Bloomberg here, the WSJ here and the Financial Times here.

VIX Watch: Markets Not Prepared For US-China Trade War
Shuli Ren – Barron’s
Has China fired a warning shot across the bow of the incoming Trump administration amid talk of a trade war?

Vapourware and vapour trades
Michael O’Neill – Tradingfloor.com
The term “vapourware” was coined by a Microsoft engineer in 1982. It evolved to encompass all computer hardware or software products that are announced to the general public but do not really exist.

****SD: It’s not vaporware, but I still feel like this is a rare chance to direct readers to the classic turbo encabulator video. There are a lot of other versions.

Exchanges and Clearing

LSE Boerse chiefs travel to meet top German politician: sources
Andreas Kroner – Reuters
Top executives from Deutsche Boerse and the London Stock Exchange will meet a top German politician to resolve a dispute about where to locate the combined group’s headquarters, three sources said, with pressure growing for it to be in Frankfurt.

CBOE Launches Second In Series of Social Media-Based Strategy Benchmark Indexes
Chicago Board Options Exchange (CBOE) announced today that it has launched the CBOE-SMA Large-Cap Weekly Index (SMLCWSM Index), the second in a series of sentiment-based strategy benchmark indexes designed to capitalize on short-term market momentum based on Social Market Analytics’ (SMA) social media metrics.

****SD: For some background on SMA and its partnership with CBOE, check out my piece from a ways back – Twitter’s New Followers — CBOE and Social Market Analytics Team Up for New Sentiment Index Based on Social Media Data. My column in the newsletter from December 20 also addresses sentiment as a predictive indicator.

Bats Auction Mechanism (BAM) Launches Successfully on EDGX Options Exchange
Press Release
Bats Global Markets, Inc. (Bats: BATS) announced today the successful launch of the Bats Auction Mechanism (BAM), providing price improvement opportunities for customer orders. The company began rollout of the new functionality on the EDGX Options Exchange on January 4th and completed it, with no disruption to customers, on January 10th.

qbeats’ Dynamic Content Pricing Goes Live With CME Direct
Press Release
qbeats announced today that its multi-patented QMV(TM), a dynamic content valuation and pricing system bringing the value of content to life, has gone live with CME Direct, the highly-configurable trading front end for all listed CME Group markets. CME Group (NASDAQ: CME), the world’s leading and most diverse derivatives exchange, will become the first full marketplace to offer premium financial content for purchase powered by qbeats’ QMV, an AI-based machine-learning platform that parses, ranks, and dynamically values digital content based on impact and demand.

Bats Global Markets, Inc. To Hold Fourth Quarter 2016 Earnings Conference Call Thursday, February 9th
Bats Global Markets, Inc. (BATS: Bats), a leading global exchange operator and provider of market data and other financial markets services, will hold its fourth quarter 2016 earnings conference call on Thursday, February 9th, at 8:00 a.m. ET. An earnings press release will be issued prior to the earnings conference call.

MCX’s standalone Q3 net profit up 94%
Business Standard News
Commodity exchange Multi Commodity Exchange of India (MCX) on Friday reported an exponential rise of 94 per cent in its standalone net profit for the third quarter of 2016-17.

Regulation & Enforcement

SEBI mulling delivery in commodities options
Tarun Sharma – CNBC Moneycontrol
Securities and commodities regulator SEBI is considering delivery-based commodity options when it finalizes the framework for commodity options contracts. SEBI is expected to come out with detailed guidelines for commodities options in the second week of February.

US curbs CFTC on position limits, source code
Julie Aelbrecht – FOW
The US industry faces regulatory uncertainty under the Trump administration
The US House of Representatives passed a bill on Thursday limiting the US derivatives regulator’s powers to oversee the swaps market, set position limits and access algorithmic source code. HR 238 re-authorises the US Commodity Futures Trading Commission (CFTC) to oversee the derivatives market until 2021. A similar bill is passed with every new congress and this incarnation contains some limitations on the regulatory powers of the CFTC.

A New Era At The CFTC Can Make Commodities Great Again
Andrew Hecht – Seeking Alpha
On Friday, January 20, Donald J. Trump will take the oath of office and become the forty-fifth President of the United States. Throughout the campaign, the President-elect pledged to take a more rational approach to regulation in the nation.

House Votes to Require More Cost Analysis of SEC Rules
Andrew Ackerman – WSJ
House lawmakers voted largely along party lines Thursday to approve a bill to require securities regulators to more extensively assess how much their rules cost the financial industry, part of a push to curtail what Republicans say is overly burdensome red tape.

CFTC Unanimously Approves Proposal To Amend Recordkeeping Requirements
Press Release
The U.S. Commodity Futures Trading Commission (CFTC) today unanimously approved proposed amendments to Regulation 1.31. The proposed amendments would modernize and make technology-neutral the form and manner in which regulatory records must be kept, as well as rationalize the rule text for ease of understanding.

****SD: Massad’s statement here

Michael J. Osnato Jr., Chief Of Enforcement Division’s Complex Financial Instruments Unit, To Leave SEC
The Securities and Exchange Commission today announced that Michael J. Osnato Jr., Chief of the Enforcement Division’s Complex Financial Instruments Unit, is planning to leave the agency later this month.


The Coming Storm in Financial Data
Patrick Flannery, May Street – TABB Forum
The market data status quo appears impenetrable. But finance has been changing at a much faster pace than market data technology. Facing rapidly changing markets and evolving financial regulations, financial firms are in need of a wide range of data that can be quickly delivered in flexible formats to automated trading systems, compliance processes and research groups. And they are taking the matter into their own hands.

Decision to be Made on CAT Plan Processor Soon, Sources Say
Dan DeFrancesco – WatersTechnology
Self-regulatory organizations (SROs) are nearing a decision on which vendor they’ll tap to build the Consolidated Audit Trail (CAT), and could announce the decision as soon as Friday, according to several sources with knowledge of the situation. “I expect the decision will be made Friday, but don’t know when it will be made public,” one source tells WatersTechnology. Another source says the pick will likely be made on Friday or Tuesday

Formula for Trading on Trump Tweets Eludes Wall Street’s Best and Brightest
Chris Dieterich, Ben Eisen, Chelsey Dulaney and Telis Demos – WSJ
How do you trade a Donald Trump tweet? Investors are grappling with the president-elect’s highly visible but capricious social-media presence, which is upending well-worn Wall Street formulas for assessing the likelihood of certain developments and baking them into market prices.

****SD: But how are the worst and dimmest doing with Trump?


Changing Equity Outcomes Through Hedging; Swan Defined Risk Fund
Given the volatility of markets, long-only portfolios may not be appropriate for investors who cannot stomach market gyrations. Randy Swan, Lead Portfolio Manager of the Swan Defined Risk Fund, stays true to his always invested, always hedged strategy, with the objective of delivering consistent returns over a full market cycle.

Earnings Week of 1/17 – 1/20
Russell Rhoads – CBOE Options Hub
It’s a holiday shortened week, but it’s also a week where earnings season starts to kick into high gear. As always the data below is based on the last three years of earnings results unless the ticker is in italics. The columns show the biggest rally, biggest drop, average move, and what the stock did last quarter in reaction to earnings. Finally, double check the earnings dates as not all were confirmed.


Top 50 Day Trading Myths – Get the Facts
Alton Hill – Traders News
In this article, guest commentator Alton Hill, Co-Founder of Tradingsim covers the top 50 day trading myths that are floating around in the trading community. The list will cover what he has learned during his 15+ years of trading experience.

How Grain Futures Contracts Revolutionized Finance
Debbie Carlson – CME Group
When the corn, wheat and oats futures contracts debuted in 1877, little did the 12 men who founded the Chicago Board of Trade realize they were creating a vehicle that would result in trillions of dollars traded globally every year.

Exclusive: Citadel nears SEC settlement over customer orders – sources
Charles Levinson – Reuters
Citadel LLC has agreed to settle accusations by the U.S. Securities and Exchange Commission that its market-making arm misled customers about the routing of their stock orders, people familiar with the case told Reuters this week.

****SD: SEC release here.

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