ISDA, SIFMA, ABA, BPI and FIA Comment on SA-CCR; Options Market Share Continues Shift

Mar 19, 2019

Observations & Insight

The Spread – There Goes the Sun – 3/18
Last year we filmed our FIA Boca edition of “The Spread” in a pool. However, we were at a different Airbnb this time, so you are not in for a repeat treat.
Watch the video and see the stories referenced here »


Chicago Mayor Emanuel addresses FinTank meeting, makes case for Chicago as crypto and fintech hub
Chuck Mackie, JLN
In what might prove to be a seminal moment in the development of the cryptocurrency and blockchain community in Chicago, Chicago Mayor Rahm Emanuel addressed an audience of nearly 150 on Monday. Extolling the virtues that Chicago possesses, Emanuel made the case that the city has the opportunity to become a preeminent global fintech center.

****SD: I’m happy Chuck was there for this line: [Rahm] stressed his belief that promotion efforts should focus on the wider area of fintech, acknowledging that “I don’t know s%&! about bitcoin.”

Lead Stories

ISDA, SIFMA, ABA, BPI and FIA Comment on Proposed Standardized Approach for Calculating Exposure Amount of Derivatives Contracts
ISDA, the Securities Industry and Financial Markets Association (SIFMA), the American Bankers Association (ABA), the Bank Policy Institute (BPI), and the Futures Industry Association (FIA) today submitted comments regarding the proposed rule issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency to implement the standardized approach for counterparty credit risk (SA-CCR) as a replacement for the current exposure method (CEM) in the US capital rules.

****SD: An important change is afoot when it comes to the inputs banks use to calculate their derivatives exposure. Are you up to date on the CEM vs. SA-CCR debate? Access the comment letters on the SA-CCR proposal here. I talk about the CEM vs. SA-CCR situation in the above episode of The Spread.

Options LiquidityMatrix: Options Market Share Continues Shift Amid Light Volumes in January
TABB Forum
The first month of 2019 lacked volatility, which in turn resulted in light volumes for the US options industry. Year-over-year volume was down about 11% in January, to 416 million contracts traded. But the drop in volume should not be seen as a red flag for the industry, as average monthly volume in 2018 was around 428 million contracts, less than 3% higher than in January 2019.

****SD: NYSE and MIAX (primarily on the back of Pearl volumes) continue to expand their reach.

Volatility-Crushed Currencies Need ‘Proper Crisis’ to Live Again
John Ainger – Bloomberg (SUBSCRIPTION)
Only a crisis is likely to awaken market volatility from its deepest sleep in more than four years, according to strategists.
A JPMorgan Chase & Co. measure of price swings in global currencies has dropped to the lowest level since September 2014 as the world’s largest economies show signs of slowing and global central banks signal caution in terms of their future monetary policy. With officials on hold, and few interest-rate increases forecast this year, volatility in the $5.1 trillion-a-day foreign-exchange market has been suppressed.

****SD: The chaos of Brexit is an improper crisis.

Wall Street’s fear gauge drops to over five-month low
Pan Kwan Yuk – Financial Times (SUBSCRIPTION)
Panic over? It is according to the derivative markets. Wall Street’s so-called fear gauge fell to its lowest level in five and a half months on Tuesday, as diminishing expectations for further US interest rate rises this year continue to boost investors’ appetite for equities.

Ronin Capital Expands Use of Rival Systems for Options Trading in Asia
Rival Systems (Rival) today announced that Ronin Capital, a proprietary trading firm, has deployed the Rival platform for their trading initiatives in Asia. Ronin Capital is now using Rival to trade options and futures on the Hong Kong Futures Exchange and Osaka Securities Exchange. Rival was selected for this initiative as it provides superior speed, unparalleled support, and commitment to working with traders to quickly deliver innovative features.

Biggest Trading in Copper Options Ever Signals Supply Troubles
Michael Roschnotti and Justina Vasquez – Bloomberg (SUBSCRIPTION)
The biggest trading volume in copper call options on record signals supply troubles brewing in the market.
A spread trade worth $6.5 million was posted just after 7 a.m. on Comex in New York in a bet that the price of the metal used in wires and pipes will surge past $3.05 in a few months, from Monday’s settlement price of $2.909.

Hedge funds pause oil buying as fresh doubts about the economy surface
John Kemp – Reuters
Hedge fund managers have become more cautious about buying oil since the end of February as doubts about the global economy resurface, dampening expected price rises from OPEC-led production cuts and U.S. sanctions on Iran and Venezuela.

Cryptocurrencies and Derivatives: The Battle for Dominance
Jessica Darmoni via Medium
The Futures Industry Association (FIA) held their 44th Annual Boca conference last week in Boca Raton, Florida. The gathering attracted over 1100 attendees consisting of regulators, market makers, technology providers and exchange leaders. ErisX attended the conference and chief executive officer Thomas Chippas shared his expertise on a panel exploring how cryptocurrencies are impacting the derivatives industry. He was joined on stage by moderator Colleen Sullivan from CMT Digital, Ron Bernstein from Coinbase, Tim McCourt from CME Group, John Deters from Cboe Global Markets and Adam White from Bakkt.

Exchanges and Clearing

MIAX Options – SPIKES First Monthly Expiration Tuesday, March 19, 2019
The first SPIKES monthly options expiration will be on the morning of Tuesday, March 19, 2019. The expiring SPIKE March options last day of trading is Monday, March 18, 2019. Settlement value is based on the SPIKE Settlement the morning of Tuesday March 19, 2019. The symbol for the SPIKES Settlement value is SPKCS. Historical SPIKES settlement values and supporting data will be available on the SPIKES Settlement Data section of the MIAX website.

Bombay HC extends NSE-SGX arbitration deadline to December 2020
Business Standard News
The Bombay High Court (HC) has extended the arbitration deadline till December 31, 2020, for settling the dispute between the National Stock Exchange (NSE) and the Singapore Exchange (SGX) over the trading of Nifty products. In the interim, Nifty derivatives will be allowed to be traded on the SGX.

****SD: After all of this, it looks like we’re back to where we started.

Cboe’s Bob Books Elected Chair of the SIPs
The Operating Committees of the Securities Information Processors (SIPs) today announced that Bob Books has been elected to serve as chair.

Her Story: Lisa Shemie
Cboe Blog
Lisa Shemie never envisioned a career in law.
“I was not one of those people who dreamed of being a lawyer,” she says. Instead, while trying to figure out her next step after college, her dad reminded her of how great she was at arguing with him and suggested considering law as a profession. Without a tremendous amount of forethought, she decided to apply to law school, and the rest is history.

Regulation & Enforcement

CFTC wants TFS-ICAP senior managers to respond to complaint in flying & printing case
Maria Nikolova – FinanceFeeds
Jeremy Woolfenden, former Global Head of Emerging Markets broking at TFS-ICAP, and Ian Dibb ex-CEO of TFS-ICAP, are under increased pressure to respond to the complaint launched by the United States Commodity Futures Trading Commission (CFTC) against them at the New York Southern District Court.
The CFTC Complaint alleges that, from approximately 2008 through 2015, brokers at TFS-ICAP offices in the United States and the United Kingdom attempted to deceive and deceived their clients by engaging in the practices of communicating to them fake bids and offers and fake trades in the foreign exchange options market. The CFTC Complaint alleges that the practices, known as “flying prices” and “printing trades”, were a core part of TFS-ICAP’s broking business.

Sebi slaps Rs 43.5-lakh fine on 5 entities for non-genuine trades in BSE stock options
Business Standard News
Markets regulator Sebi Tuesday imposed a total fine of Rs 43.5 lakh on five entities involved in reversal of trades in the illiquid stock options segment on the BSE.


Banking’s Back-Office Workhorses Are Merging as Technology Reshapes Finance; A global shake-up in the humdrum business of payments has set off a merger frenzy
A global shake-up in the humdrum business of payments has set off a merger frenzy among the giant but obscure companies that connect banks, merchants and consumers.

CEO of Apex Clearing talks about the future of wealth management
Dan DeFrancesco – Business Insider (SUBSCRIPTION)
The future of managing money could be more like picking what you want for dinner at a restaurant than being locked into a specific service for years.


How to Trade Around a Fed Meeting Full of Potential Wild Cards
Joanna Ossinger – Bloomberg (SUBSCRIPTION)
The Federal Reserve’s policy decision Wednesday is being eagerly anticipated by investors looking for further details about what the pivot to patience on rates means, how the new “dot plot” will look and how policy makers will approach inflation-targeting and balance-sheet runoff.

****SD: The Financial Times has Economists weigh in on what to expect from FOMC meeting. Daily Fed commentary from Bloomberg: Bond Traders Have Forgotten the Taper Tantrum. The WSJ has Fed Faces Crucial Decision on Mix of Treasurys in Its Portfolio. CME Group Chief Economist Bluford Putnam just put out a video as well – Inflation Beyond Fed Control?

Overdone? Short EU equities ‘most crowded’ trade for first time
Josephine Mason, Helen Reid – Reuters
Fund managers have named bearish bets in European equities as the “most crowded” trade in Bank of America Merrill Lynch’s survey for the first time in its history, suggesting sentiment for one of the world’s most shunned markets may rise from here.

First-quarter earnings will be a ‘show-me’ moment for stocks, says BlackRock
Barbara Kollmeyer – MarketWatch
How to keep the magic going for this stock market?
It’s a multi-layered thing, says our call of the day, from BlackRock’s chief equity strategist Kate Moore. In order for the stock market to keep attracting more buyers and build on gains seen since the start of the year, investors will need to work past several big “milestones” over the next six to eight weeks, she told MarketWatch in an interview on Monday.

Another Way to Hedge Tech Stock Volatility
Jim Iourio – CME Group OpenMarkets
When bitcoin hit its high in December 2017, its total market cap was approximately $420 billion. By contrast when the five stocks in the FAANG plus MSFT hit their highs back in September/October 2018, their combined market cap was closing in on $5 trillion. To put that number in perspective, it was roughly 17-18 percent of the market cap of the entire U.S. stock market.

Top Hedge Fund Says Buy Gold, Sell Stocks in `Trade of Century’
Sarah Ponczek – Bloomberg (SUBSCRIPTION)
One of last year’s best-performing hedge funds says the “trade of the century” is to buy gold and sell stocks as risk assets are due for another meltdown.


S&P 500 ETFs See Biggest Inflows Since Index Hit Record High
Luke Kawa – Bloomberg (SUBSCRIPTION)
Inflows into the three biggest exchange-traded funds that track the S&P 500 Index spiked as the benchmark U.S. stock gauge enjoyed its best week of the year amid technical factors that may have juiced activity.

****SD: “Quadruple witching — the expiration of futures and options on indexes and individual stocks that typically spurs a lot of trading activity — may have contributed to these flows.”

How’s Your Bracket?
Bob Seawright – Above the Market
Last month on CNBC, Warren Buffett announced his annual NCAA tournament bracket contest for Berkshire Hathaway employees. First prize is $1 million a year for life for any employee who picks a perfect Sweet 16 in the tourney. The odds of doing that are about one in 2-3.5 million, depending upon the year. Last year, none of the 17.3 million ESPN brackets had a perfect Sweet 16 and no Berkshire employee made it out of the first round (not Dayton’s “First Four”) alive.

****SD: You are much more likely to win the Powerball (one in 292,201,338) than to pick a perfect bracket. According to Duke professor Jonathan Mattingly, if you account for seeding in your calculations the odds are one in 2.4 trillion. But he’s a Duke professor, so who knows.

March Madness Is Similar To the Stock Market
Aaron Brown – Bloomberg (SUBSCRIPTION)
This week marks the start of the NCAA’s 68-team, single-elimination tournament to select the men’s basketball team champion. There is a women’s version as well, but the men attract most of the betting interest. Workplaces across the country are creating “bracket pools” with entry fees from $1 to $10,000 where bettors try to predict the results.
I’m going to demonstrate a powerful quant technique — factor investing — to pick a winning NCAA bracket. Skip lower for the picks, but if you have patience, I’ll show interesting things along the way.

2019 Bibliography of Adverse Effects Of HFT (Studies, Research, Press)
Themis Trading Blog
Our long-time friend and collaborator, R.T. Leuchtkafer, has put together a single document that organizes and presents years of data-driven research (academic, government, and industry) of the adverse effects of high frequency trading on markets.This undertaking is mammoth, and it includes press, op-eds, key commentary, books, and documentaries. It is organized. It has sections that you will be immediately drawn to, such as effects of HFT on market quality and investor costs.

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