Tony McCormick Out as CEO of BOX Markets, LLC
By John J. Lothian

The CEO of the BOX Options Exchange has stepped down as the CEO of the business side of the exchange, according to industry sources. Tony McCormick will remain as a consultant to the business side, BOX Markets, LLC, and will remain as CEO of the BOX exchange for the time being. Peter Layton, the chairman of BOX, will become the acting CEO.

BOX is one of 12 U.S. equity options exchanges and has struggled to break out from the competition. In February, BOX held a 2.5 percent market share among the US options exchanges, down from 3.53 percent a year earlier, according to OCC data.

McCormick, a former brokerage executive with Charles Schwab and Harris Bank, has been CEO of BOX since 2009. He had also previously served as a board member of CBOE and OCC

BOX is this year’s host of the OIC conference, set in Miami, Florida May 6-8.

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The Life of SCI: John Rapa Looks at the SEC’s Reg SCI
JohnLothianNews.com

After several high-profile market disturbances, from the 2010 “flash crash” to the Knight Capital algorithmic meltdown in 2012, the SEC considered a new set of rules to tighten up system compliance and integrity. The rules, known collectively as “Reg SCI” became effective in February 2015. John Rapa, president and CEO of Tellefsen & Company and a 30-year veteran consultant to exchange market structure, walks us through the new rules and what they mean for exchanges, dark pools and market participants.

Watch the video »

Lead Stories

Euro Fetching Less Than $1 Becomes Hot Call for Options Traders
Bloomberg
The foreign-exchange market is starting to realize the euro’s tumble may not end at parity.
There’s an almost one-in-four chance the euro will end the year below $1, options prices suggest, up from 5 percent at the end of 2014 and 11 percent on March 1, before the European Central Bank started bond purchases that have sent the currency sliding. The euro, which hasn’t fallen below $1 since 2002, was at $1.0618 at 7:25 a.m. in New York, down from last year’s high of $1.3993 in May.
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***DA: How the mighty have fallen. We are back to a world where it is the dollar against the field.

Alibaba options show investors wary ahead of lock-up expiration
Saqib Iqbal Ahmed – Reuters
Alibaba Group Holding Ltd’s blockbuster IPO has been followed by a steady slide in its stock price, which options market players do not expect to abate, with nearly a fifth of its shares to be released for trading on Wednesday.
The Chinese e-commerce giant’s stock soared after it first went public in September, but the party didn’t last. Trading just above $84 on Tuesday, the stock has dropped 29 percent from an all-time closing high of $119.15 in November on concerns about slowed growth in China and fake items on its website.
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***DA: Will the smart money git while the gittin’s good, or at least not as bad as it could be?

Traders Rush into VIX ETFs Ahead of FOMC Meeting
Chris Dieterich – Barron’s
Traders have beefed up their positions in volatility-related exchange-traded funds and notes to the most since 2012, wagering on a higher “fear gauge” ahead of this week’s meeting of central bank policymakers.Fast traders have been increasingly drawn to exchange-traded products that rise or fall based on moves in the CBOE Volatility Index (VIX). The so-called VIX is an options-based measure of expected swings in the S&P 500. Many people use the VIX to take the temperature of the market. A small-but-growing group of people use ETFs and options to trade VIX futures.
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***DA: Protection mode.

VIX Moves During Rate Hike Point to Volatility: Chart of the Day
Michelle Davis – Bloomberg
Federal Reserve rate increases in the past two decades haven’t tended to destabilize the U.S. stock market, according to Jim Strugger of MKM Partners LLC. This time may be different, he says, if volatility measures are any indicator.
The CHART OF THE DAY illustrates how Strugger, a derivatives strategist at MKM in Stamford, Connecticut, reached his conclusion: by showing the average value of the Chicago Board Options Exchange Volatility Index, or VIX, in the period before and after initial rate increases since 1994. Fed officials are debating the timing of the first rise in borrowing costs since 2006 at a two-day meeting ending today.
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Concerns Over Geared ETFs’ Impact On Markets Are Overblown
Tom Lydon – ETF Trends
“There is a false narrative about leveraged and inverse ETFs being spread by the prudential regulators,” Mike Piwowar, a member of the Securities and Exchange Commission, said at a Investment Company Institute conference, Reuters reports.
Leveraged and inverse ETFs utilize derivatives contracts to enhance daily index returns. For instance, most leveraged ETFs are designed to produce double or triple the performance of the underlying market on a daily basis while inverse options reflect the opposite moves to a benchmark.
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***DA: To me, the biggest concern with geared products is performance slippage. TVIX, anybody?

Why We Can’t Just Ignore the ‘Patience’ Panic
Adam Warner – Schaeffer’s Investment Research
Patience. I’m old enough to remember when “Patience” was just a middling Guns N’ Roses song — give me “Paradise City,” “Welcome to the Jungle,” and “November Rain” any Fed Wednesday of the week.
Now it’s apparently the biggest deal in the world whether the Federal Open Market Committee (FOMC) leaves that word in the statement they release today. I suspect that this obsession over that word is more of a media creation than an obsession of people who actually manage money. If they have a guest on TV and ask him or her about “patience,” he or she will answer the question.
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***DA: By meeting’s end, we may be looking at “Live and Let Die,” a GNR cover of the McCartney classic.

Exchanges

Nasdaq sees tech partnership with HKEx in derivatives link-up
Reuters
Securities exchange operator NASDAQ OMX Group Inc (NDAQ.O) is a “natural partner” for its Hong Kong counterpart should the latter need technological assistance for derivatives link-ups with other exchanges, Nasdaq President Adena Friedman said.
Hong Kong Exchanges and Clearing Ltd (HKEx) (0388.HK) plans to add derivatives to a scheme which currently allows investors in Hong Kong to buy shares listed in mainland China and vice versa. HKEx is banking on the scheme to boost trading volume.
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Regulation & Enforcement

House Republicans take aim at Dodd-Frank in budget plan
Sarah N. Lynch – Reuters
Republican lawmakers took aim at the Dodd-Frank Wall Street reform law Tuesday, unveiling a plan that would gut regulators’ authority to manage the collapse of big banks and give Congress direct control of the U.S. consumer finance bureau’s budget.
The effort to repeal parts of Dodd-Frank is part of a broader fiscal 2016 budget plan released by the House of Representatives budget committee that calls for eliminating deficits and also repealing the president’s signature Affordable Care Act.
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Technology

CME Group Still Eyeing GFI’s Electronic Trading Assets?
Ron Finberg – Forex Magnates
According to Bloomberg, despite GFI’s executives backing a tender offer from BGC, and agreeing to work with them in the future, the CME continues to be interest in acquiring the Trayport and Fenics platforms that it had its eyes on in the past. Of the two products, Trayport had been viewed as having the most interest from the CME as it has strong market share in European oil and energy trades, an area of weakness for the CME. A currency options trading platform, Fenics would add scale of products and market participants for the CME, but fills less of a need for the exchange operator due to their existing FX options business doing well.
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Strategy

Weekly options: A business approach
John Sarkett – Futures Magazine
Dan Sheridan has seen the options business from both the institutional and retail sides. After 24 years as a Chicago Board Options Exchange market-maker and another 10 years as a options mentor for private traders, his approach has remained consistent: To be successful, you must treat options as a business.
“This is a craft,” he says. “We practice it daily. For those with the consistency and discipline, it becomes a good business.”
More recently, the practice has had a weekly focus. Weeklies have been the growth end of the options business. More contracts have come on board, and more volume is being traded. There are compelling reasons why:
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***DA: Of course, if you teach your strategy to enough people, your edge gets arbed out.

Education

Tail hedging review
Paul Britton and Jordan Sinclair – Pensions and Investments
Since the start of 2014, we have witnessed increasing interest in tail hedging with large global institutions looking to develop tail hedge mandates. Recent bouts of turbulence since October 2014 have intensified that interest, especially since volatility levels have continued to fluctuate rapidly, sometimes reverting back to depressed pre-October levels, creating interesting entry points for hedges. We have reviewed and analyzed the tail hedging landscape in 2014, along with a forward looking view for 2015, with specific focus on the drivers of tail risk, 2014 events and how they have impacted the pricing of tail hedging, as well as the current opportunities in this space.
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Emergency Hedging
Bernard Stegmueller Jr – Inside Futures
Most exchanges are now completely electronic, and are therefore very reliable, and very rarely experience any problems or downtime. However, when problems do occur, all traders (and especially day traders) need to have an emergency plan in place that they can use to hedge any open trades to avoid any losses. Interestingly, emergency hedging is quite an advanced trading topic, but beginning traders need to know about
emergency hedging before they even make their first trade, so for this reason, it is included in the day trading basics category.
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