Observations and Insight

Focused: What The Industry Knows About Transparency

Back in November, the industry gathered for the annual FIA Expo event in Chicago. There, John Lothian News used an exhibitor booth (Thanks Cinnober!) as its studio to ask industry participants key questions about transparency issues in today’s markets.

  1. Where do we need to improve transparency in the markets today?
  2. What is the solution to achieve that?
  3. How will futures and options markets look in the future, in terms of transparency?

The final product is these three short videos featuring 15 participants from across the industry – trading platforms, FinTech firms, exchange executives, traders and more. Watch the video »

Lead Stories

KCG to Sell Institutional Forex Trading Business to BATS
Angela Chen – WSJ
KCG Holdings Inc. agreed to sell its institutional foreign-exchange-trading business, KCG Hotspot, to BATS Global Markets for $365 million in cash.
The trading firm had said last fall that it was exploring options for the division, which caters to hedge funds, commodity trading advisers, corporate treasuries and institutional asset managers. Hotspot was launched in 2002 and acquired by Knight Capital Group, KCG’s predecessor company, in 2007.
***JB: Press release for this can be found under “Exchanges” below.

Too late: We’re already in a bear market
Mark D. Cook – MarketWatch
The recent bubble that burst in the oil market has been the talk around the world. What would people say if the stock market fell 40% in 2015?
The U.S. market’s foundation is crumbling, according to my calculations — just as it did in 2000 and in 2008.
***JB:  If he doesn’t already, this guy should write for Zerohedge.

Apple passes the market torch to Facebook and the Fed
Shawn Langlois – MarketWatch
When expectations are as overheated as they were heading into Apple’s iPhone 6 victory lap yesterday, disappointment tends to follow. Not this time. Everything leading up to the report pointed to some serious eye-poppery from Apple, and that’s exactly what Tim Cook and his crew delivered.
As it stands now, Apple shares are trading in line with what they’ve done in the wake of prior reports. Over the past 20 fiscal quarters, the stock has moved an average of 4.2% during the session after its results. That’s about where it this morning.

2 Must-See Charts for VIX Watchers
Adam Warner – Schaeffer’s Investment Research
So what if I’ve now joined the entire world in saying that volatility will trend higher? It’s easy to predict something into the ether. It’s especially easy if you do it on TV, as there’s no repercussion for making a bad prediction … and then coming back on the air three months later and making the same prediction again. And again … and again … it will eventually look prescient.
***DA: One way to always be right is to make vague predictions and add qualifiers. Then consult the Magic 8-Ball.

Credit Drying For China’s SOEs
Linette Lopez – Business Insider
All the devils have come together for the Chinese economy and the country’s “long-awaited day of reckoning” is upon us, writes Societe Generale analyst Wei Yao in a recent note.
To China bears who’ve said that the country is a debt bubble, Wei’s conjecture will seem obvious. To bulls it raises another question: Where would these credit problems come from? Where have they been hiding?

This Is The Major Global Economic Challenge Of Our Time (And We Have No Idea How To Deal With It)
Ana Swanson – Forbes
Imbalances in the global flows of trade and capital* were at the heart of most major economic crises in recent years. In the euro zone, an imbalance between surplus countries like Germany and debtor countries like Greece, Italy and Spain triggered a devastating and ongoing economic crisis. In the U.S. financial crisis, huge inflows of capital helped feed an asset bubble in the housing market that eventually popped, impoverishing millions of American families.
***DA: The phrase “doing well while doing good” reached cliche status a few years ago. Now, I rarely hear the phrase. It should be at the top of the agenda.


Earnings Increase Expected for Nasdaq OMX Group
Analysts expect higher profit for Nasdaq OMX Group when the company reports its fourth quarter results on Thursday, January 29, 2015. The consensus estimate is calling for profit of 74 cents a share, reflecting a rise from 69 cents per share a year ago.
The consensus estimate has dipped over the past three months from 76 cents. For the fiscal year, analysts are expecting earnings of $2.88 per share. A year after being $849 million, analysts expect revenue to fall 39% year-over-year to $521.3 million for the quarter. For the year, revenue is expected to come in at $2.07 billion.

BATS Global Markets Agrees to Acquire the Hotspot FX Market
Press Release – BATS
BATS Global Markets (BATS) today announced a definitive agreement with KCG Holdings to acquire Hotspot FX, a leading institutional spot foreign exchange market, in a cash transaction valued at $365 million. Closing is expected in the first half of 2015, and represents further expansion into non-equity trading businesses for BATS as it enters the world’s largest asset class. Turnover for the global FX market was estimated at $5.3 trillion in 2013.*

Chinese Exchange Gets ‘Goxed’ for 1,000 bitcoins
William Suberg – Cointelegraph
Reports are emerging of Chinese Bitcoin exchange 796 mistakenly losing 1000BTC of customer funds in a botched customer service request…
796 CEO, Nelson Yu, had previously told CoinTelegraph that “in terms of our trading volume and liquidity of Bitcoin futures, we are the world’s biggest exchange,” with the service being called “the world’s most liquid futures and options exchange for Bitcoin and Litecoin.”

Regulation and Enforcement

EU says near deal with Washington on derivatives rules
Huw Jones – Reuters
The European Union and the United States are poised to accept each other’s rules on financial derivatives trading in a bid to prevent a global market that supports economic growth from fragmenting, a senior EU official said on Tuesday.
The two sides are introducing rules to make derivatives such as credit default swaps more transparent after their opacity played a key role in exacerbating the 2007-09 financial crisis.

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