EU Readies Plan for Clearing Crisis, the New Too-Big-to-Fail
Boris Groendahl and John Glover – Bloomberg
The European Union plans to give authorities sweeping powers to tackle ailing derivatives clearinghouses to prevent their failure from wreaking havoc throughout the financial system. Draft EU legislation seen by Bloomberg sets out rules on saving or shuttering clearinghouses that would apply to firms such as London-based LCH. The proposals cover everything from the creation of resolution authorities to the powers they would have when winding a company down, including writing down shares, debt and collateral.
Trump’s Presidential Chances Are Pushing Traders Toward the Yen
Netty Idayu Ismail – Bloomberg
Even though polls show a receding chance of Donald Trump becoming U.S. president, money managers wary of public opinion being proved wrong are increasingly looking toward Japan for an ideal hedge.
****SD: Donald Trump pushes a lot of people to a lot of places.
Queue Position And Algo Slices: Like Taking Candy From A Child (Order)
Every buy-side trader has been there. You see the bid, you try to hit it and it disappears in front of you. Haim Bodek explains how it’s done. High frequency trading (HFT) strategies modelled on the Chicago Futures pits and enabled by bespoke order types allow firms using them to exit trades moving against them and rejoin the queue at the top to wait for favourable market conditions. And the key to the whole strategy? A ready supply of orders behind them in the queue – child orders created by the slicing algos used to execute many buy-side orders.
****SD: I always have trouble with the phrase “taking candy from a baby/child.” Have you ever tried to part a kid from his candy? It is not easy, and even if successful, that kid will not go quietly into the night. And not to sound like John McCain, but same goes for “sleeping like a baby.”
59 Years Ago the Russians Won the Space Race – Why Being First is Not Being Best
Russell Rhoads – CBOE Options Hub
Fifty-nine years ago today everyone in the United States was a bit freaked out. It had nothing to do with the stock market or economy. It was due to something unseen that was floating over our heads. The Russians had launched Sputnik, the first artificial satellite to orbit earth. The Russians had beaten the United States to being the first in space. The reaction in the US was a combination of fear (does this mean we are behind the Russians militarily as well?) to let’s get to work and catch up fast! Both reactions were natural, but either reaction is not necessarily how traders should react to other’s beating them to a new strategy having success with a new market. In trading being first is not always being best. It was true in the space race as well.
****SD: On that note, cheers to Boeing for providing some competition for Elon Musk on the mission to Mars front.
Another step toward trial for DRW Holdings in market manipulation case
Lynne Marek – Crain’s Chicago Business
A New York federal court judge denied trader Don Wilson and his DRW Investments’ request for summary judgment in their fight with the Commodity Futures Trading Commission, but also denied the government’s request for partial summary judgment.
****SD: I say let it be heard in the court of Judge Judy Sheindlin. I’d love to see Byrd’s facial expressions when hearing experts testify about market manipulation stratagems. (For those not in tune with the daytime TV jet-set, Byrd is Sheindlin’s stoic, yet amusing, bailiff.)
BlackRock Sees Vol Rising
ETF Daily News
What should investors expect in the last quarter of the year? We see three themes that are likely to shape economies and markets in the months ahead as well as a number of key risks, as we write in our new Global Investment Outlook: Q4 2016.
CBOE Acquisition of Bats Should Be a Home Run
Christopher Harris, Robert Ryan and Zachary Feierstein, Wells Fargo Securities – Barron’s
We are upgrading CBOE (ticker: CBOE) to Outperform from Market Perform on the view that the acquisition of Bats will create considerable shareholder value. We see the stock working as investors appreciate the accretion to earnings per share (25%-plus in our view) along with the more diverse potential upside optionality in the combined businesses.
****SD: I had the news yesterday, but this is the actual note from Wells analysts. Know what else was a home run? The Toronto Blue Jays last night. Sorry Bmore.
Exchanges see mixed trading in September
Julie Aelbrecht – Futures & Options World
Exchange trading volumes for September suggest a month of mixed results
The world’s top futures markets have reported mixed trading levels for September with the main US markets showing growth while trading in Europe and Asia varied. The Chicago Mercantile Exchange, Chicago Board Options Exchange and the Options Clearing Corporation reported growth for September, while other international exchanges lag behind, foreshadowing a month of mixed results.
Intercontinental Exchange Reports ICE & NYSE September and Third Quarter 2016 Statistics
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today reported September and third quarter 2016 trading volume and related revenue statistics, which can be viewed on the company’s investor relations website in the Monthly Statistics Tracking spreadsheet.
Bats Announces Successful Migration of BZX Options Exchange to Next-Generation Matching Engine
Bats Global Markets
Bats Global Markets, Inc. (Bats: BATS), today announced the successful migration of its largest options exchange, BZX Options, to the company’s proprietary next- generation matching engine.
****SD: EDGX, Bats new(ish) options exchange, was built with this technology.
Euronext Announces Volumes for September 2016
Euronext, the leading pan-European exchange in the Eurozone, today announced trading volumes for September 2016.
BSE to use international exchange for equity derivatives push
Business Standard News
The exchange will be banking on various tax sops given by the government, including exemptions from stamp duty, as well as commodity and securities transactions tax (STT), to attract market participants. “We are clocking decent volumes in the currency and interest rate futures segments and are hoping the international exchange will provide us a platform to make a mark in the equity derivatives space as well,” said an exchange official on condition of anonymity.
Regulation & Enforcement
In Market-Manipulation Brawl, CFTC Loses Round One
Alexander Osipovich – WSJ
In the high-profile fight between the Commodity Futures Trading Commission and trader Don Wilson Jr., the first point has gone to Mr. Wilson. A federal judge in Manhattan ruled Friday the CFTC needed to show that a trader intended to create an “artificial” price in order to prove attempted market manipulation. The CFTC had tried to lower the bar by saying it needed to show only that the trader had an intent to affect market prices.
****SD: Is trial by combat still a thing?
CFTC and Oystacher Said to Be in Spoofing Case Settlement Talks
Matthew Leising and Janan Hanna – Bloomberg
The U.S. Commodity Futures Trading Commission is in discussions to settle its market-manipulation case against Igor Oystacher and his Chicago firm 3Red Trading LLC, according to people familiar with the matter.
****SD: More on the ongoing Snugs saga.
U.S. top court leans toward making insider trading prosecutions easier
Nate Raymond – Reuters
U.S. Supreme Court justices hearing a closely watched insider trading case indicated on Wednesday they could issue a ruling that would make it easier for prosecutors to pursue such charges against hedge fund managers and other traders. The appeal by an Illinois man convicted after making nearly $1.2 million trading on information that came from his brother-in-law was the first insider trading case to come before the justices in two decades.
Regulatory Tsunami – Right Here and Now
John D’Antona Jr. – Traders News
Brace, brace, brace. That’s the cry often heard from ships as they prepare to face an impact whether it be incoming enemy fire, contact with another ship or a fierce storm and seas. No matter which direction the brokerage industry looks, there’s the proverbial tidal wave of regulation and/or compliance issues it is faced with from the regulators. And while these new regulations were once viewed as out there and somewhere, the regulations are now coming home to roost..
****SD: When you see the ocean recede far below low tide levels, watch out for the big wave.
Banks targeted in emergency clearing house plan
Philip Stafford and Jim Brunsden – Financial Times
Banks, commodity traders and asset managers may be forced to participate in emergency fundraising if a clearing house in the European Union collapses, under new proposals being considered by Brussels. The plans, which the EU Commission envisages publishing in November, are set to be the first major financial services proposal by Brussels since the UK’s vote in June to leave the European Union.
Ex-CFTC Commissioner allays derivatives fragmentation fears
Joe Parsons – The Trade
The widely predicted fragmentation in the uncleared swaps market has not emerged, according to the former commissioner for the US derivatives watchdog, as Europe prepares to implement new collateral rules. Speaking to The Trade on the sidelines of Sibos 2016 in Geneva, head of global public policy at DTCC and former commissioner at the CFTC Mark Wetjen, said the expected cross-border fragmentation and regulatory arbitrage in OTC derivatives trading, caused by a fracture implementation timeline, has not materialised.
The Supercharged SIP, IEX Speed Bumps and Latency
Patrick Flannery, MayStreet – TABB Forum
Over the summer, data latency discussions focused on “speed bumps” as IEX prepared for its August launch as the first US stock exchange with a built-in delay, or speed bump, designed to equalize market access. A new development coming this fall, however, may turn that market latency debate on its head. That’s because the Securities Information Processor, or SIP, long regarded as a default way of receiving data on Wall Street, is about to become turbocharged. For many trading firms that have invested heavily in systems and technology for receiving data faster than the SIP – and for IEX, whose speed bump artificially introduces old-SIP-like latency into its market – a super-fast SIP will change the playing field.
****SD: Well, that’s amusing. A bet there are a lot of programmers out there tossing their hands in the air.
Performance Driven Trading
Ben Polidore – Traders News
With the rise of global unbundling, traders’ best-execution workload will increase dramatically, as they must develop a best-ex commission allocation scheme for all counterparties. Given so many brokers and so much noise inherent to trading, this is not just a practical concern, but an econometric one. This isn’t a new problem, but one that will become more common. Some of ITG’s clients, notably quantitative firms, are already trading exclusively for best-ex, with a history of performing TCA and judging algorithmic trading experiments. This document attempts to document some of the practices we have observed and offers some insights into how they can be used by traders at non-quantitative funds.
How To Trade The U.S. Presidential Election
Cumberland Advisors – Investing.com
Markets dislike uncertainty. However, October is historically a volatile month, with the CBOE Volatility Index (VIX) averaging 22.26 in the past decade. In addition, the US presidential election is just one month away. Should investors choose risk-on or risk-off? One way to help answer that question is to dissect the stock market pattern for election years.
Clinton Vs. Trump: Which Stock Sectors Potentially Gain or Lose?
Dan Rosenberg – The Ticker Tape
Can stock sectors be red or blue? It sometimes seems that way. The energy sector, for instance, thrived under President George W. Bush but wilted under President Barack Obama. Health stocks frequently lagged under Bush, but revived under Obama. And sector performance in the coming years could reflect to some extent the winner of the 2016 presidential election and his or her policies.
Oil Tankers Piling Up in North Sea Show Glut Facing OPEC
Laura Hurst – Bloomberg
A pile up of tankers waiting in the North Sea suggests a glut is building again in the market where benchmark crude is traded, highlighting the task facing OPEC as it seeks to rein in a global glut.
Contracts for difference gain traction in FX
Paul Golden – Euromoney Magazine
In an FX context, a contract for difference (CFD) is an agreement between two parties to exchange the difference between the opening price and closing price of a currency. The person making the trade does not physically – or virtually – possess the bought currency and does not have to deliver the sold currency. A number of European regulators have expressed concern about the leverage aspect of CFDs. In August, Belgium’s Financial Services and Markets Authority (FSMA) banned CFDs amid concerns over excessive leverage – although the ban does not apply to derivatives that are traded on regulated exchanges or on multilateral trading facilities.