Observations & Insight

I Love London
By John J. Lothian

I love London. Last year our MarketsWiki Education World of Opportunity Series attracted 142 interns, college students and young professionals to our events at the CME Group‘s offices and the London Stock Exchange

Next week, yes next week, we will be at Nasdaq‘s offices in the Woolgate Exchange building to present our 2015 MarketsWiki Education World of Opportunity Series. I am pumped by the great lineup of speakers we have.

We have tracked down Garry Jones, CEO of LME, to come speak during a very busy LME Week in a talk titled “Managing an Exchange in Uncertain Times.” During my trip to Geneva, Switzerland I was able to secure Nils-Robert Persson, executive chairman of Cinnober Financial Technology, as another speaker.

Our dear friend David Setters, senior associate of Contango Markets and one of the stalwarts behind Futures for Kids, has agreed to speak. You will recall David’s guest editorship of JLN when he announced he has ALS. His presentation is called “The Derivatives Industry as a Community, Maximizing the Opportunities.”

We have Mark Spanbroek, acting chairman of the European Principal Traders Association and chairman CME Europe speaking, as well as Adrienne Seaman, associate general counsel for Europe, Middle East and Africa (Emea) with CME Group.

Lee Hodgkinson , CEO, Euronext UK and head of markets and global sales is another speaker who will give us a great European perspective to the series.

I could go on about Cathy Lyall, Paul McCormick, Scott Riley, Sandra Ro, Christian Nentwich, Gareth Parker, Alun Green and Daniel Day-Robinson, but I won’t. They will be great.

If you have not signed up your interns, newer employees, friends, colleagues, daughters, sons, nephews, and nieces in London interested in careers in the markets, please do. The free event sign up is HERE

I have been to London many times. I love that we have been able to bring this series there and positively impact so many young people, firms and the industry. You can help do the same by giving us one last shout out before our event next week.

The MarketsWiki Education World of Opportunity is just in its third year and second in London. It is just the start of something really great for the future of our industry. Help us out. Get the word out one last time this week. We could not have put on the London, New York or Chicago events without the generous support of the CME Group, our global premier sponsor.

We will be sharing videos from this series on all our sites, including aggregating them all on MarketsWikiEducation.com

Lead Stories

Market Structure Vexes Options Traders
Markets Media
Options traders face a challenging predicament that has developed over the past several years: a decline in the number of market makers that provide liquidity, and an increase in the number of exchanges, which has served to disperse liquidity.
“There has been a real compression of market makers,” said Joy Rosenstein, head of equity options product management at Fidessa. “New exchanges add to the cost of connecting to the different venues. That also adds risk, because now you’re not quoting on three venues, you’re quoting on (soon to be) fourteen.”

Vix index reflects confidence in stocks
Nicole Bullock – Financial Times
Wall Street’s “fear gauge” is trading below its long-term average for the first time in more the six weeks as investors regain confidence in US stocks after volatile trading over the past two months.
Implied equity volatility as measured by the CBOE’s Vix index, a barometer of investor sentiment, on Tuesday remained below 20 after settling on Monday beneath the key threshold for the first time since August 20. The S&P 500 has recovered from the recent lows.

Historic Pacific trade deal faces skeptics in U.S. Congress
Krista Hughes and Kevin Krolicki – Reuters
Twelve Pacific Rim countries on Monday reached the most ambitious trade pact in a generation, aiming to liberalize commerce in 40 percent of the world’s economy in a deal that faces skepticism from U.S. lawmakers.
The Trans-Pacific Partnership (TPP) pact struck in Atlanta after marathon talks could reshape industries, change the cost of products from cheese to cancer treatments and have repercussions for drug companies and automakers.

IMC Teams With Convergex to Attract Retail Options Orders
Brian Louis – Bloomberg
Global trading firm IMC Financial Markets and Wall Street broker Convergex Group LLC agreed to join forces in a venture to boost their businesses by expanding into handling options orders for U.S. retail investors.
Market making firms like IMC rely on volume to make money. As U.S. options market makers face rising costs to comply with regulations and the expenses of being connected to multiple exchanges, trading volumes are even more important.


Levante Capital Selects Orc to Support Growth in Energy Markets
Orc, a global leader in trading technology, today announced that Levante Capital has selected Orc for connectivity to Nasdaq Futures, Inc. (NFX), a derivatives exchange for energy and power contracts.
Levante Capital is a proprietary trading group active in energy derivatives, including crude oil and natural gas. Leveraging Orc’s Trading Bricks solution for market making, Levante is expanding their Orc connectivity to realize new opportunities on NFX. Levante will specifically trade the WTI Crude Oil and Natural Gas options markets.

Euronext announces monthly trading volumes for September 2015
Euronext, the leading exchange in the Eurozone, today announced trading volumes for September 2015.

LME reviews market makers for incentive schemes
Alice Attwood – Futures & Options World
The London Metals Exchange (LME) has seen an encouraging start to its new market making programmes, and is currently reviewing its prospective partners for the scheme, as the exchange confirmed that it will not increase its fees next year.

Regulation & Enforcement

Traders questioned as NY probe of automated FX heats up
Karen Freifeld – Reuters
Oct 5 New York’s banking regulator has questioned dozens of traders and executives at Credit Suisse Group AG, Barclays, Deutsche Bank and other banks about whether their electronic foreign exchange trading platforms were rigged, according to a person familiar with the matter.

Mifid II indirect clearing RTS delay due to Emir
Cian Burke – Futures & Options World
The European Securities and Markets Authority (Esma) has told the European Commission the delay to the submission of draft Mifir/Mifid II regulatory technical standards (RTS) on indirect clearing, was to ensure consistency with indirect clearing rules under Emir.
In a letter sent to the Commission on Friday, Steven Maijoor, chair of Esma, said the rules had been delayed to allow the regulator to consult on possible amendments to the Emir RTS for indirect clearing of over-the-counter (OTC) derivatives.

Limits on Insider-Trading Prosecutions to Remain
Brent Kendall and Christopher M. Matthews – WSJ
The Supreme Court on Monday left in place a court ruling limiting the government’s leeway on insider-trading prosecutions, ending an effort to overturn a decision favoring Wall Street defendants.

T+2 Industry Steering Committee Applauds Regulatory Support For Move To Two Day Settlement Cycle In The U.S.
Press Release
The T+2 Industry Steering Committee (T+2 ISC) applauds SEC Chair Mary Jo White for her strong public support of moving to a two-day settlement cycle (T+2) in the U.S., calling it a major milestone in the industry initiative. Chair White recently released a letter addressed to Kenneth E. Bentsen, Jr., President & CEO of the Securities Industry and Financial Markets Association (SIFMA), and Paul Schott Stevens, President & CEO of the Investment Company Institute (ICI), expressing support of this initiative, which the ISC aims to implement by the end of the third quarter of 2017. Chair White’s letter came as a response to a letter Bentsen and Stevens submitted, on behalf of the T+2 ISC, in June 2015, outlining the specific regulatory changes needed to facilitate such a move.


Market stress puts focus on high-speed technology
Philip Stafford – Financial Times
Investors have been rattled in the past year by three major eruptions of volatility in bonds, currencies and equities, episodes that have understandably shocked human traders, but also revealed the shortcomings of high-powered computing systems.
With transactions across markets dominated by computer algorithms, also known as high-frequency trading, the inability of such systems to cope with an avalanche of orders during peak periods of market stress, has focused attention on their limits.

Why build a trade reporter?
Dan Barnes – Futures & Options World
The trend to develop transaction reporting technology in-house challenges the usual model for buy vs build. Dan Barnes writes.
A report released in July 2015 revealed that 72% of capital markets firms are investing heavily in their own in-house transaction reporting systems for derivatives trading, despite the availability of third-party systems. At face value the result was surprising.

APIs add fuel to FinTech innovation
Hazem Dawani – Futures & Options World
Ever wonder how Uber seamlessly plugs into Google Maps? Or how golf courses can show The Weather Channel’s forecast alongside tee times? The simple answer: APIs.
In one way or another, most of today’s consumer-facing technology is powered by APIs, which run under the surface and allow software programs to interact with one another. For companies (and developers), APIs drastically reduce the time required to build applications – relying in part on third parties for the skeletal structure.

Fidessa Regulation Matters – ‘Doesn’t ESMA time fly!’
Anne Plested – Automated Trader
Looking at the latest changes regarding accuracy of business clocks, now reincarnated as RTS 25, I noticed a number of interesting points in the text. Most importantly, the absence of the usual clause “…applies from 3rd January 2017?, with just the generic phrase stating that the rules will “enter into force on the twentieth day following that of its publication”. Is this an accidental omission, I wonder? If not, given that the European Commission has three months to endorse the text, which could be delayed by one or two months if the European Parliament and Council oppose it, there’s a possibility we could see business clock synchronisation in force some time in Q1 2016.

Alphabet to back Symphony service
Joe Rennison and Richard Waters – Financial Times
Alphabet, Google’s renamed parent company, is set to become the latest investor to back Symphony, joining a host of big banks in their attempt to dislodge Bloomberg’s dominant position in Wall Street messaging.

Data Transfer Pact Between U.S. and Europe Is Ruled Invalid
Mark Scott – NY Times
Europe’s highest court ruled on Tuesday that a widely used international agreement for moving people’s digital data between the European Union and the United States was invalid.


Book It While It’s Hot
Meredith Kelley Zidek – CBOE Options Hub
When we last left off, I wrote in detail about the long calls I bought for SVXY. I still have those, and the update is that while they traded for only $4.64 each at the time last mentioned (versus my $8.50 buying price), the bid/ask on those has risen to $7.00/$8.30 as of this writing, with the last trade recorded at $7.49. I keep under consideration the idea (translated: I can’t wait) of getting out of these calls as soon as I can do so for even money. All right; it’s not really true that I’m chomping to get out of them. I would have to assess conditions at the time. My intention is to amplify returns that I would expect to make on a particular number of SVXY shares. I might make money on neither, though, with the shares simply turning into slimmer versions of their former selves (which allows me to retain some value and some hope for future gain – slim livestock can always fatten up) and the calls turning into dust. That is the risk I took by buying calls. I will evaluate the risk every day until I get rid of the menacing things. I have until January, but dollars and time do not always equate in the way we would like, and I’m not crazy about holding a potentially depreciating asset. This is the extended-mix way to say I am nervous owning long calls.


VIX Streak over 20.00 Ends at 30 – So Now What? Part 2
Russell Rhoads – CBOE Options Hub
Yesterday I put up a blog showing what the S&P 500 did over different time periods after a streak where VIX was over 20.00 came to an end. I got a request to show what VIX did as well, so the numbers show up in the table below.

VIX Below 20: All-Clear Signal, or Intermediate Top?
Adam Warner – Schaeffer’s Research
OK, we’ve often talked about the positive side of an overbought CBOE Volatility Index (VIX). But what about the reverse — the negative side of underbought VIX, in honor of breaking under 20?
Is 20 a key level? Well, it’s the whole number that most closely approximates the all-time mean in VIX. And, hey, we’re all about mean reversion here, so it has to mean something.

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