CBOE Tightens Trader Rules After Paying $6 Million SEC Fine
Sam Mamudi – Bloomberg
Nine months after regulators fined the Chicago Board Options Exchange for failing to police its members, the biggest U.S. options market approved a rule aimed at preventing fraud.
Firms trading at the unit of CBOE Holdings Inc. (CBOE) will be required to write down how they supervise their businesses, according to a Securities and Exchange Commission filing from the Chicago-based options exchange. They must also carry out regular office inspections and send CBOE an annual report on regulatory practices.
An Artist Was So Angry With Wall Street’s Formula For Pricing Options, He Created This Brutal Exhibit
Andy Kiersz – Business Insider
An art exhibit and book, both titled “Infinity is the Enemy”, by artist t. Rutt, bring together Dadaist-inspired art and high finance to start a conversation about the nature and uses of infinity.
The motivation for the exhibit is the Black-Scholes-Merton model, which sits at the foundation of modern finance. The model provides one of the basic methods for estimating the correct price of financial instruments like options, and is used broadly in the financial markets.
**I do not think this guy really has a clue about what he is actually angry about. Anyway, I prefer Dogs Playing Poker myself. -JB
***My colleague JB does not always have the best taste in art, but he does really like dogs. -SR
Nine private equity founders share $2.5bn payday
Henny Sender – Financial Times
The nine founders of the four big listed US private equity companies took home more than $2.5bn between them last year, with Apollo Global Management’s Leon Black alone receiving $546m.
The dividend income, investment profits and other compensation shared by the founders of Apollo, Blackstone, Carlyle and KKR – at least double last year’s payouts – reflect the rising market value of their companies in a market boosted by the Federal Reserve’s easy money policies.
**This made me think of the 1% and it occurred to me that I would be happy with 1% of that. I’m a simple guy with simple needs. -JB
Swaps Revolution Falling Flat as Brokers Keep Grip on New Market
Matthew Leising – BloombergBusinessweek
Meet the new swaps market. Same as the old swaps market.
U.S. lawmakers and regulators sought to transform the $693 trillion over-the-counter derivatives market by bringing transparency and competition to a historically private part of the financial industry that worsened the 2008 credit crisis. Loosening banks’ grip over trading was a top priority for Gary Gensler, who oversaw the shift as chairman of the Commodity Futures Trading Commission.
Videocast: VIX selling continues
Human Traders Squeezed in Europe as Fees Dwindle, Tabb Says
Nandini Sukumar – BloombergBusinessweek
Human equity traders remain under pressure in Europe, with computers siphoning off a record share of trading commissions, according to Tabb Group LLC.
Investors spent 42 percent of their brokerage commissions in 2013 on algorithms and other forms of automated execution, up from 35 percent in 2012, according to a Tabb survey.
***At least the algorithms are happy. -SR
LSE faces off with BATS on post-trade reporting
John Bakie – The Trade
London Stock Exchange Group (LSEG) has added Swiss stocks to its trade reporting service to provide a pan-European service that puts it head-to-head with BATS Chi-X Europe’s offering.
The exchange operator said the addition of Swiss stocks was the final missing piece of its service for reporting OTC equity trades, which is available to both LSE members and non-members.
CME Group’s turn to move into Asian commodities markets
Chiara Milioulis – Medill Reports Chicago
It’s now the “Merc’s” turn to make a move.
CME Group Inc., locked in a race to extend its global footprint against rival IntercontinentalExchange Inc., found itself outflanked in Asia by ICE’s just completed takeover of the Singapore Mercantile Exchange.
***This story quotes some guy named John Lothian. -SR
Regulation and Enforcement
Predecessor’s shadow looms over new U.S. swaps regulator
Douwe Miedema – Reuters
Timothy Massad, set to become the top U.S. derivatives regulator, will face a delicate balancing act this week as he lays out the direction he’ll take the agency after the departure of his controversial predecessor.
Gary Gensler, who left the Commodity Futures Trading Commission in January at the end of his term, transformed the watchdog from a relatively sleepy agriculture-focused regulator to a powerful overseer of Wall Street.
**”Powerful overseer”? Matter of perspective I guess. -JB
Obama Budget Punishes CFTC While Providing SEC More Than Requested
Mark Melin – ValueWalk
As the Obama Administration budget was announced today, the Commodity Futures Trading Commission (CFTC) seems to be the agency left out in the cold at a time when regulating over the counter derivatives (OTC) has been identified as a key strategic economic concern. With between $400 and $600 trillion in previously unregulated derivatives, a significant market crash could literally wipe out the world economy, valued at just over $70 trillion.
**Looking like a hamstrung “powerful overseer”. -JB
SEC’s Gallagher accuses Fed of power grab over foreign brokers
Sarah N. Lynch – Reuters
The Federal Reserve’s tough new capital rules for foreign banks with U.S. operations constitute a power grab to oversee stock brokerages that could ultimately harm market liquidity, a top U.S. securities regulator said Monday.
Ari Rubenstein – CNBC
Earlier this month, the Securities Exchange Commission (SEC) released a draft of its 2014 Strategic Plan for public comment. The plan is technical, but the motivation is straightforward: increase investor confidence in our markets. This is a critical goal, and regulators and the industry alike must work together to achieve it.
PHLX Initiates Rollout of New Floor Broker Management System
Press Release (NASDAQ OMX)
The new FBMS provides enhanced functionality for handling orders in open outcry and introduces real time trade reporting for broker handled orders. When utilizing the new FBMS, orders represented in the trading crowd (other than FLEX and cabinet trades) will no longer execute in the trading crowd, but instead, after potential trades are announced in the trading crowd, they will be submitted via FBMS to the Exchange and executed in real time in compliance with Exchange order handling and priority rules.
Fear, Greed, and All Things Ukraine
Adam Warner – Schaeffer’s Investment Research
I use the CBOE Volatility Index (VIX) and VIX derivatives all the time as fear and greed proxies, mainly because I’ve spent 400 years or so in options, and it’s what I’m familiar with. But of course, there’s a whole world of indicators out there, some of which tell us a similar story and some of which don’t. Sometimes there’s a time lag associated with one indicator, whereas another may reflect sentiment more contemporaneously.