Lead Stories

Bats takes SEC to court over OCC capital plan approval
Global Investor Magazine
Exchange operator challenges SEC’s capital plan approval for OCC
Two US options trading firms and exchange operator Bats Global Markets are taking the SEC to court in an attempt to block a recent order approving a capital plan for the Options Clearing Corpration (OCC). Susquehanna International and KCG Holdings are also trying to suspend the proposal, which would see Chicago-based OCC collect $150m from five major stakeholders in order to bolster its balance sheet. As part of the deal, OCC’s owners including CBOE, Nasdaq and Intercontinental Exchange, will soon receive a stream of dividends from the clearinghouse worth $161m.

****SD: New appearance for Bats (see Exchanges section) and a new lawsuit. For the complete 58 page text of the SEC order that is being challenged click here. Doug Ashburn wrote a column almost exactly a year ago that serves as a nice primer on the background. At that juncture, Bats (then BATS) and BOX filed comment letters claiming the rule would put them at a competitive disadvantage. This suit is far from a surprise.

Wildest Currency Swings Since 2011 Curtail Options Strategies
Chiara Albanese – Bloomberg
The highest currency-market volatility in more than four years is depriving investors of a cheap way to protect against risks in financial markets — including Britain’s referendum on its membership of the European Union. A JPMorgan Chase & Co. index of swings in exchange rates averages more this month than at any time since 2011. Because volatility helps determine the price of currency options, they are losing appeal as a way to speculate in foreign-exchange markets, leading money managers to seek less-expensive alternatives.

****SD: Also, FX Options Lowdown: Brexit Volatilities

New guilty plea, charges in global press release hacking scheme
A third trader has entered a guilty plea over what U.S. authorities have called a more than $100 million international scheme to hack into newswires that distribute corporate press releases, and use stolen information to conduct insider trading.

Oaktree’s Howard Marks Says Donald Trump Scaring Investors
U.S. presidential candidates are creating fear among investors, Oaktree Capital Group LLC’s Howard Marks said. “They’re scaring the hell out of people,” Marks said Thursday in a television interview on “Bloomberg ” with David Westin and Stephanie Ruhle, citing Republican candidate Donald Trump’s comments that China, Mexico and Japan are taking U.S. jobs.

Hedge fund Citadel cut some staff at stock unit as losses grew -sources
Mary Childs and Robin Wigglesworth – Reuters
Hedge fund Citadel laid off roughly a dozen people at one of its stock picking units after its main investment funds lost 6.5 percent in the first six weeks of the year as stock markets tumbled, three people familiar with the matter said. Citadel, run by Kenneth Griffin, cut analysts, associates and portfolio managers at its Surveyor Capital arm in the last weeks, the sources said. Al Boston, the head trader, was among those let go, the sources said.

****SD: The FT’s take here

Barclays Head of European Credit Index Trading Said to Depart
Sylvain Lebre, European head of credit index and options trading at Barclays Plc in London, has left the bank, according to two people familiar with the matter.

Goldman Sachs derivatives head to lead NFA
The Trade News
Michael Dawley, co-head of Goldman Sachs futures and derivatives clearing services, has been elected chairman of the National Futures Association (NFA), the US self-regulatory body.


NYSE Embarks on High-Stakes Technology Shift for its Exchanges
Annie Massa – Bloomberg
On Monday, the New York Stock Exchange will begin to discover whether its bet on new technology has paid off. The company that symbolizes Wall Street to millions of Americans is moving its markets on to a single software platform called Pillar, a move that its owner Intercontinental Exchange Inc. hopes will allow it to shed its image of having clunky, out-of-date technology.

Some Still Love Coal as Exchanges Battle to Dominate Market
Matthew Carr and Matthew Leising – Bloomberg
Coal may be under attack from the Paris climate deal and governments promising its demise, but the world’s biggest exchanges covet the fuel more than ever. The organic rock used to generate 40 percent of the world’s electricity is at the center of a hard-fought battle for trading revenue in Europe between CME Group Inc. and Intercontinental Exchange Inc. CME has been winning for the past three years as the Chicago-based bourse offered incentives to brokers and simpler trading. ICE, the dominant energy market in the region, cut fees to zero and bought a trading software provider to get direct access to brokers.

Bats Global Markets New Logo
Bats Global Markets
We have a new look! Today we are announcing a new logo, as well as updates to our company and market center naming conventions, which you’ll see reflected throughout our website. As of this morning, we have officially changed BATS Global Markets (BATS) to Bats Global Markets (Bats), with the word Bats title-cased vs. all uppercase letters. We’ve applied this format across all of our U.S. markets and changed the name of our European market to Bats Europe (vs. Bats Chi-X Europe). In our global foreign exchange business, we maintain the Hotspot brand.

CME Returned $1.6 Billion in 2015: What About Dividends?
Yahoo Finance
CME Group (CME) had $1.8 billion in cash and marketable securities and $2.2 billion in long-term debt as of December 31, 2015. The company has returned more than $5.6 billion to shareholders in the form of dividends since the implementation of the variable dividend policy in early 2012. In 2015, CME declared dividends of $1.6 billion, including the annual variable dividend for 2015 of $977 million, which was paid in January 2016. This translates into a dividend yield of 5.5% per year. Let’s compare this to its peers:

Regulation & Enforcement

Pros Say Complete Disclosure Is Way to Get Ahead of SEC’s Reg ATS Provisions
Traders News
It is no secret that the Securities and Exchange Commission is going after alternative trading systems (ATS) and how they operate. But there is a way to stay a step ahead of potential future regulation and possible sanctions – full and complete disclosure.
Disclose, disclose, disclose – that was the advice of several market structure and Wall Street equity trading pros to attendees at the recent 36th Annual Security Traders Association of Florida on how to deal with the SEC’s recently published Reg ATS regulation. While the actual regulatory filing is approximately 686 pages, two words – disclosure and transparency – can solve most problems either the buy- or sellside might face in so-called “offboard” or dark pool trading.

SEC Urges Whistleblowers To Report Without Delay – Corporate/Commercial Law
For the first time ever, the Securities and Exchange Commission has issued a lower whistleblower award because the whistleblower, a former investment firm employee, waited too long before reporting the misconduct. In this case, only after leaving the company. The whistleblower’s tip helped the SEC to take successful enforcement action against the company. And while the whistleblower received an award of USD 325,000 for providing information about the alleged misconduct and identifying the individuals concerned, the award could have been higher had the former employee reported it to the SEC earlier.

SEC to focus on asset management, disclosure, market structure in 2016
The main U.S. financial regulator, the Securities and Exchange Commission, will zone in on asset management, equity market structure, and disclosure effectiveness in 2016, Chair Mary Jo White said on Friday. There is limited time for the commission to accomplish any goals, with the administration of President Barack Obama coming to an end in less than 12 months. Traditionally, the head of the SEC, a politically appointed position, is replaced when a president leaves office. The SEC is currently down two members from its full complement of five.

FINRA Files Proposed Rule Requiring Registration of Associated Persons Who Design or Develop Algorithmic Trading Strategies
The Financial Industry Regulatory Authority (FINRA) has filed with the Securities and Exchange Commission (SEC) a proposed rule change that would require the registration of associated persons of FINRA member firms who are primarily responsible for the design, development or significant modification of an algorithmic trading strategy (or responsible for the day-to-day supervision or direction of such activities).[1] The proposed rule is largely unchanged from the proposal initially disseminated by FINRA (see here) in early 2015. If approved by the SEC, the rule will require covered individuals to pass a qualification examination and register with FINRA as Securities Traders.

China’s securities regulator to step down: Report
China will announce its top securities regulator is stepping down within days, the Wall Street Journal has reported, citing officials. The news follows a series widely-criticized policy moves overseen by Xiao Gang, chairman of the China Securities Regulatory Commission, that have been blamed for exacerbating a global stock market sell-off in recent months.


Four Financial Technology Trends to Watch in 2016
CME OpenMarkets
2016 has certainly started off with a bang with increased volatility and uncertainty of future demand. It’s hard to focus let alone think about key technology enablers for 2016 in the face of the macroeconomic events. But with uncertainty, comes new opportunity for innovation.

Barclays Head of European Credit Index Trading Said to Depart
Sylvain Lebre, European head of credit index and options trading at Barclays Plc in London, has left the bank, according to two people familiar with the matter.

Goldman Sachs derivatives head to lead NFA
The Trade News
Michael Dawley, co-head of Goldman Sachs futures and derivatives clearing services, has been elected chairman of the National Futures Association (NFA), the US self-regulatory body.


Option Club Presentations Offered by The Options Institute
Russell Rhoads – CBOE Options Hub
Today I spent the afternoon with the Option Trading Strategies of Tampa, St. Petersburg, and Clearwater group. They meet once a month and allowed me to spend about an hour discussing volatility in the current market along with a wide range of other topics that resulted from the questions I fielded. Option trading groups and clubs are among my favorite organizations to address as the members are often as passionate about the financial markets as I am.

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