Observations & Insight

The New News
We’ve launched a newly redesigned website at JohnLothianNews.com. The new site features a streamlined way to find what you are looking for and prominently places our original content on the front page in a way that is simple and easy to follow.

The Front Page / Features section showcases our top three original pieces, while the Video section presents our latest videos. There may be some overlap but that will ebb over time. The new front page also offers the John Lothian Newsletters and JLN Options issues, as well as our Page of the Day. If you are looking for something more specific, you can easily use the tabs to link to categories or our other properties such as MarketsWiki and MarketsReformWiki. The page is topped off with a news feed of stories we find of interest.

This new site was the result of many months of hard work by Jeff Bergstrom, our chief information officer. Doing technical and web design work isn’t easy. We’re proud of his work.
We welcome you to the new site. If you have any feedback, we’re happy to hear it and fix what might need fixing and consider what might make it even better.

Lead Stories

The Fear Gauge Is Looking Too Confident
Daisy Maxey – WSJ
The fear gauge is looking a bit too confident, thanks in large part to over-active central banks. The CBOE Volatility Index – better known as the market’s fear gauge – stood as 12.01 on Tuesday, well below its long-term average. The VIX rose to more than 27 at various points in January – elevated, but even that is not as high as it used to spike, says Russ Koesterich, head of asset allocation for BlackRock Global Allocation Fund.
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****SD: Still worries about market complacency/overconfidence making the rounds. That and talk of crowded “herd” trades reminded me of the phrase, “None of us is as dumb as all of us.” From CNBC — Something rare is happening in the market with the VIX: Trader

Fund managers brace for volatility spike
FT Adviser
A growing number of managers are shielding their portfolios from a possible spike in volatility, citing fears that a flurry of upcoming macro events could bring an end to markets’ summer lull. Volatility was unusually subdued, even by historic standards last month, according to analysts at Citigroup. The firm said the Vix index of equity market volatility was at its lowest ever level for August, with both currency and bond market equivalents also near their respective lows.
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Three-way split among BOJ board members over policy outlook: Sankei
Reuters
The Bank of Japan’s nine board members are split over how to stimulate the economy, or whether to stimulate it at all, as they prepare for a review of the central bank’s ultra-loose monetary policy, the Sankei newspaper reported on Wednesday.
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****SD: From Bloomberg — BOJ Won’t Expand Stimulus This Month, Former Executive Says

The New Short: Find Industries Exposed to Exotic Hacking Attacks
Jordan Robertson and Michael Riley – Bloomberg
A new way to bet against stocks is born. A few hours after Carson Block announced last Thursday that he was shorting St. Jude Medical Inc. stock over hacking risks to the company’s pacemakers and defibrillators, the e-mails started stacking up in Billy Rios’ and Jonathan Butts’ inboxes.
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Draghi Faces Calmest Europe Stock Market Since QE Kicked Off
Sofia Horta E Costa – Bloomberg
A rare moment of calm in Europe’s stock market greets Mario Draghi as the European Central Bank meets this week on interest rates. Volatility hasn’t been this low in the days preceding an ECB meeting since the start of quantitative easing in 2015, lending cover for the central-bank president should he choose to leave policy mostly alone, as economists forecast. The VStoxx Index trades 23 percent below its average before the ECB’s last 10 decisions, a level of tranquility that has little precedent since interest rates were cut and bond purchases begun last year
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****SD: From the Financial Times — Quantitative easing extension risks reopening ECB rifts. From Bloomberg — EU Fiscal Stimulus Is Just a Rule Change Away

Investor Movement Index (IMX): What It Tells Us
Nicole Sherrod – The Ticker Tape
Talk about a turn-around! After retail traders stepped back slightly from the stock market in July, they raised their exposure in a big way during August, snapping up beaten-down dividend plays even while continuing to clear the deck of some well-known stocks that recently hit long-term highs.
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Stock options suggest calm ahead of Apple launch
Reuters
Options activity surrounding Apple shares on Wednesday could best be described with an iPhone ringtone: crickets. Implied volatility, a key factor in determining options pricing, was at the lowest it has been since 2009 ahead of an Apple (AAPL.O) product launch. This means options traders were not foreseeing a post-launch jolt in the stock price.
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****SD: The ever-increasing focus on the Apple event is ridiculous. Bloomberg and CNBC had countdowns to the start — which was Tim Cook singing car karaoke with James Corden. “The watch is water resistant!” “The phone won’t have a headphone jack!?” “Mario in the app store!” Yeah, they’re a huge company with tentacles all over the place, but, ugh.

Hedge fund trading underlines slow August
Julie Aelbrecht – Futures & Options World
Societe Generale said CTA indices were down in August after a strong summer
Commodity trading advisors had a bad August, according to Societe Generale, reflecting a trading slowdown that saw the world’s top exchanges report lower volumes last month. Societe Generale’s flagship CTA index was down 3.1% in August and the French bank’s short-term strategies index was off 3.41% on the previous month.
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Does S&P 500 need to ‘drop before it can pop’?
MarketWatch
The U.S. stock market’s ability to dodge big daily declines since calm reasserted itself following Britain’s June vote to leave the European Union might be little comfort for bulls, one Wall Street market watcher says.
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****SD: If the S&P has the same properties as a water balloon, then yes. But, every now and again, you get one of those really resilient balloons that won’t break when you chuck it at your brother.

Exchanges

CME Group Announces CME Authorization To Provide OTC Clearing And Settlement Services And Designation As A Central Counterparty By Hong Kong’s Securities and Futures Commission
Press Release
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that Chicago Mercantile Exchange Inc. has been granted authorization to provide OTC clearing and settlement services and has been designated as a central counterparty (CCP) by the Securities and Futures Commission (SFC) in Hong Kong.
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****SD: Also, CME Group Recognized As Central Counterparty In Mexico

CME Group to Open New Innovation Center at University of Illinois Research Park
Press Release
CME Group, the world’s leading and most diverse derivatives marketplace, announced it will open a new facility dedicated to technology research and innovation at the Research Park on the University of Illinois at Urbana-Champaign campus. On Friday, Sept. 9, members of the media are invited to attend a luncheon and ribbon-cutting ceremony at the new facility.
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BRIEF-Nasdaq says August U.S. equity options volume 114 mln contracts versus 88 mln contracts last year
Reuters
August U.S. equity options volume 114 million contracts versus 88 million contracts last year
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ICE to promote Lepart to European clearing COO
Luke Jeffs – Futures & Options World
US exchange is to promote Lepart to COO of ICE Clear Europe in November
The Intercontinental Exchange is to promote the operations head at its European clearing house to the position of chief operating officer at ICE Clear Europe, replacing its founding COO who is retiring from the firm. ICE Clear Europe is set to appoint Francois Lepart, currently its head of operations, as its London-based chief operating officer in November, replacing long-standing COO Mike Gibson, who is retiring from the European clearing arm of the US exchange group at the end of the year, as reported by FOW.
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Singapore Creates Group to Boost Market Stability Weeks After Glitch
Andrea Tan and Jonathan Burgos – Bloomberg
Singapore Exchange Ltd. said it has formed a committee to look at ways to improve the operational resiliency of its markets.
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SGX Reports Market Statistics For August 2016
Press Release
Total Derivatives volume was 13.8 million, up 7% month on month and down 19% year on year.
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ICE coal futures volume down 25% month on month in August to 160 million mt
Platts
The volume of coal traded and cleared on the ICE Futures platform in August fell for a second month by 25% to 159.96 million mt, an eight-month low, data from energy exchange ICE Futures Europe and electronic trading platform globalCOAL showed Wednesday.
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BM&FBOVESPA Market Holiday
Press Release
There will be no trading or settlement on BM&FBOVESPA’s markets on September 7.
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Moves

TRADING UP: JonesTrading Lands Head of Prime; GTX Lands Poltavsky for FX Sales
John D’Antona – MarketsMedia
Leading SaaS compliance platform Opus Global has appointed Emanuele Conti as its new chief executive officer. Conti brings more than 20 years’ leadership experience in risk management and data analytics. He was most recently CEO of Kroll Inc. and before that, president of the North America and international divisions of Dun & Bradstreet. Opus was co-founded by GTCR, a leading Chicago-based private equity firm and Doug Bergeron, former CEO of VeriFone, who will now serve as Executive Chairman.
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Mifid II and the rise of the market structure guru
Tim Cave – Financial News
Can you do the following: spend the morning summarising the minutiae of the EU’s incoming securities rulebook for your senior managers who don’t have the time to go through its thousands of pages, before talking a big client through the intricacies of a new trading venue over lunch, then rushing to meetings to represent your firm to regulators and on consortia projects? If the answer is yes, then you’re probably one of a small but growing band of market structure specialists within banks, brokers and other trading firms and your expertise is in hot demand.
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****SD: This and the below Risk.net story go well together.

No quants need apply: new trends in risk hiring
Dragana Pilipovic – Risk.net
A long time ago in markets far, far away, risk managers were focused on internal dangers. Our mission was to guard against rogue traders and others who might do financial damage. If we had been characters in a science fiction movie, we would have been the sentry droids hunting for saboteurs who might breach the spaceship’s hull from the inside. Having survived the supernova known as the global financial crisis of 2008, however, I now feel that the risk function has diverted its focus outward, towards a meteor shower of new regulations. And that has redefined the qualities needed in a risk manager.
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Regulation & Enforcement

India’s ‘flash boys’ fret over proposed automated trading curbs
Abhirup Roy and Euan Rocha – Reuters
India’s “flash boys”, or high-frequency traders, are pushing back against the domestic markets regulator and in some cases putting investments in new strategies on hold, saying proposed tighter rules could render their ultra-fast systems redundant.
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Labor and Employment Alert: SEC Gives Employers 265,000 Reasons to Revise Their Separation Agreements
Lexology
The Dodd-Frank Wall Street Reform Act and Consumer Protection Act incentivizes and protects whistleblowers to encourage reporting of possible securities laws violations. The Security and Exchange Commission’s (SEC) Rule 21F-17 prohibits a person from “taking any action to impede an individual from communicating directly with the SEC staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement…with respect to such communications.” The congressional purpose underlying these provisions is “to encourage whistleblowers to report possible violations of the securities laws by providing financial incentives, prohibiting employment-related retaliation, and providing various confidentiality guarantees.” Financial incentives are a “critical component” of the whistleblower program.
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The Regulation of Commodity Markets: Part Two
OilVoice
In Part One of this series we took an overview of the regulatory policy objectives of the G20 group of Finance Ministers and their aim to restore global growth, strengthen the international financial system and reform international financial institutions following the 2007/2009 banking crisis and subsequent recession. The two largest international financial centres, the USA and Europe, have been at the forefront of compliance with the G20. This article considers the USA response to the G20 call to arms in regulating the financial markets.
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Why a Financial Transaction Tax Is a Bad Idea
Holly Bell – TABB Forum
Former Secretary of Labor Robert Reich recently produced a snappy video about why financial transactions taxes (FTTs) as proposed by Bernie Sander’s on the campaign trail should be retained and turned into law. Unfortunately, his pithy presentation is wrought with inaccuracies.
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Technology

Goldman Sachs Has Started Giving Away Its Most Valuable Software
Justin Baer – WSJ
From the kitchen table in his Upper West Side brownstone, Michael Dubno recently scratched out from memory the blueprint for the modern Goldman Sachs Group Inc. The sketches, dashed out on a yellow legal pad, more or less match what Mr. Dubno drew on a white board 25 years ago, in a dusty corner office on the fifth floor of Goldman’s old downtown headquarters: a schematic for a software database that would help the investment bank make billions of dollars in well-timed trades, and sidestep billions more in losses.
jlne.ws/2coPZcv

Lime Brokerage and Vela Trading Technologies Announce Product Integration
Globe Newswire
Lime Brokerage (Lime), a Wedbush Company, and Vela Trading Technologies (Vela), a global leader in high performance trading and market data technology, are pleased to announce the integration of Lime’s Strategy Studio, its software solution for streamlined strategy research and deployment, and Vela’s market leading low latency direct feed handlers. Both companies share a commitment to high performance trading technology, and the combined products enable clients to benefit from Strategy Studio’s rich strategy API and strategy management user interface, while accessing Vela’s broad and highly configurable set of over 250 global direct feeds supporting all major asset classes.
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Oracles: Making Smart Contracts Smarter – and More Useful
TABB Forum
Smart contracts are an exciting new frontier for technology, business, and law that have the potential to usher in a wave of innovation and serve as a building block for the next chapter of the internet.
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Education

The Three Biggest Misconceptions about Stock & Options Trading
Steve Claussen – OptionsHouse
In exchanges with retail investors over this past summer, I have been introduced to all types of self-directed on-line traders. Many are actively using options to either generate income, hedge their long stock portfolios or even simply use Call options to speculate without buying a share of stock at all. Conversations with these folks, exchanging ideas and potential strategies warms my heart. I have also come across many investors, who while curious about using options have somehow heard “facts” about options and derivatives which have caused them to fear and avoid using options in their investing portfolios.
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Miscellaneous

Jim Rogers on Oil, Gold and Why China Is a Buy
Isabella Zhong – Barron’s
Legendary investor Jim Rogers couldn’t be blamed for always carrying a piece of gold in his pocket given the uncertainty that stalks global markets. Rogers remains a true believer in the precious metal given his unease with what he sees in global markets. Frankly, he’s worried. He’s not a believer in Wall Street’s rally and is shorting U.S. stocks, though paradoxically for a gold fan he likes the U.S. dollar. And don’t get him started on the U.S. presidential race – he’s not a big fan of either Trump or Clinton.
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