Observations & Insight

Dan Day-Robinson, Chairman, Swiss Futures and Options Association – Embracing Change
MarketsWikiEducation.com

“…While some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do. – Rob Siltanen, the creative genius behind Apple’s “Think Different” campaign”

Dan Day-Robinson will be the first to tell you he has a flair for the dramatic. As a former market maker, investment banker and now head of a trade association, he has hundreds of stories, and he knows how to tell them. He takes us on a rollicking tour through his years in the financial world, including his most recent charge as head of the Swiss Futures and Options Association. He lays out the history of the SFOA, a group that was once much more prominent than it is today, and explains his vision for its future.

Will you see him as one of the crazy ones, or will you see genius?

Watch the video »

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Lead Stories

Technology May Be the Last ‘Safe Haven’ Propping Up the Stock Market
Luke Kawa – Bloomberg
A gauge of market fear isn’t reacting the same way to the sell-off that’s marked the start of 2016 as it did when the Standard & Poor’s 500-stock index hit its 2015 low in August.
While the Chicago Board Options Exchange Volatility Index, better known as the VIX, closed above 40 amid the carnage that followed the shock Chinese devaluation back in August, it has remained rather subdued lately, closing around 26 on Tuesday.
bloom.bg/1n9OlhE

****SD: Where’s the tech company with gold computers and extra cash parked in U.S. Treasuries? Now that’s a safe haven.

Derivative hedges set to add to China volatility
Jennifer Hughes – Financial Times
Sharp falls in an important index of Chinese companies have raised fears that the need to hedge billions in linked derivatives will add to volatility in the region — potentially depressing markets even further.
Dealers have been watching the Hang Seng China Enterprises index — consisting of the Hong Kong-listed shares of large Chinese groups — because of its heavy use in structured retail products, particularly in South Korea.
on.ft.com/1nypioX

****SD: Just what everybody wanted to hear.

No Rally Safe in S&P 500 as Traders Forget About Buying the Dip
Oliver Renick and Dani BUrger – Bloomberg
If it feels like rallies in U.S. stocks are getting shakier in 2016, they are.
Case in point was Tuesday, when a 183-point gain in the Dow Jones Industrial Average evaporated and the gauge slid as much as 87 points before ending 28 points higher. In the 11 trading sessions since New Year’s, the Standard & Poor’s 500 Index has fallen an average of 1.3 percent from its intraday high, more than double the decline last year.
bloom.bg/1Sx6yD2

KCG Holdings Plans to Exit Options Trades From Retail Brokerages
Jason Feld – WallStreet.org
KCG Holdings (NYSE:KCG) is down 2.5% after Bloomberg reports the company plans to exit a business that handles options trades from retail brokerages by the end of February. A source told Bloomberg the firm is trying to sell technology related to the unit to other market-making firms. KCG will still trade options, just not for retail brokers, according to the person quoted in Bloomberg. The company will continue to make markets for retail brokers in stocks, bonds, exchange-traded funds and currencies, the person reportedly said.
bit.ly/1n9OCRU

Saudi central bank warns banks against riyal speculation
Reuters
The Saudi Arabian central bank has warned commercial banks against betting on depreciation of the riyal as tumbling oil prices put pressure on the Saudi currency, several bankers operating in the market said.
reut.rs/1nylT9N

****SD: Saudi regulators were relatively successful at reigning in previous periods of rampant speculation brought about by oil prices. So, China 2.0 this ought not be… More from Gulf News here

OptionsHouse Institutes Dime Buyback Program for All Customers
Press Release
OptionsHouse, the online brokerage rated “Best for Options Traders” by Barron’s, announced today that it has instituted a “dime buyback” program and in doing so has waived trading fees and commissions on customer trades which close short options contracts with premiums 10 cents or less. OptionsHouse is the only brokerage built for active traders to provide customers with a dime buyback program.
bit.ly/1nykBvs

****SD: I suppose this means OptionsHouse is literally dropping dimes?

Exchanges

TOM, Euronext lock horns over options report
Alice Attwood – Futures & Options World
The Order Machine commissioned report on pricing in the Dutch options market
Dutch market The Order Machine (TOM) and its exchange rival Euronext have again locked horns over pricing, after a report on the Dutch options market said TOM offers the best prices but Euronext responded by questioning its findings.
The report from research firm Markit said: “It was found that TOM was the exchange where the best available price and exclusive best price was present most often and that TOM was also the exchange with the highest number of underlying securities where the best price was provided most frequently.”
TOM said “equity options on TOM offer the most favourable quotes 76% of the time on average during the trading day, versus Euronext 73% and Eurex 34%”.
bit.ly/1V8jnSe

****SD: TOM hired Markit; Markit found TOM to have best prices. Research such as this, whether accurate or inaccurate, certainly deserves the scrutiny.

CME Group Announces Record Eurodollar Options Volume
Press Release
CME Group, the world’s leading and most diverse derivatives marketplace, today announced it reached a trading volume record for Eurodollar options yesterday, January 19, of 4,279,584 contracts, surpassing the previous record of 3,493,675 set on June 24, 2013. Open interest in Eurodollar options also increased by 1.6 million to 30.76 million, up from 26.05 million at 2015 year end.
bit.ly/cjpXe7

Euronext could be set for 2016 M&A deals – JPM
Luke Jeffs – Futures & Options World
The European exchange group last month won a legal reprieve from Dutch rules
Euronext could be set to move into an acquisitive phase after the Dutch government lifted last month tough capital requirements on the European exchange group, according to a note from JP Morgan.
JP Morgan Cazenove said in a research note seen by FOW the fourth quarter of last year saw slower trading activity at the main European exchanges and the bank has adjusted its estimates accordingly to reflect the lower volumes.
JP Morgan added: “On a relative basis, we retain our preference or Euronext believe last December’s decision to remove the capital requirements imposed by the Dutch Finance Minister provides greater freedom for balance sheet flexibility.”
bit.ly/1nylHaG

Fully prepared for options, index futures: Parveen Kumar Singhal
Rajesh Bhayani – Business Standard News
MCX has set its sights on options and futures using the expertise of the CME group. Parveen Kumar Singhal, joint managing director and caretaker chief executive officer of MCX, tells Rajesh Bhayani in an interview the CME group has shown interest in setting up a clearing corporation.
bit.ly/1n9OIIY

Derivatives drive growth at Singapore exchange
Jeremy Grant – Financial Times
SGX, the Singapore exchange, underscored how its business is being largely driven by derivatives with its second-quarter results boosted by record trading volume in futures contracts based on a Chinese stock index.
The exchange has suffered from anaemic equities trading volume and, late last year, a trading outage which drew a rebuke from the Asian city-state’s securities regulator.
on.ft.com/1NkuwJW

Germany’s EEX to buy two-thirds stake in Prague energy exchange -source
Michael Kahn – Reuters
Germany’s European Energy Exchange (EEX) will take a two-thirds stake in Prague’s Power Exchange Central Europe (PXE), a source familiar with the deal said on Tuesday, giving the EEX access to developing central and southeastern Europe.
The agreement is expected to be signed on Wednesday and close by the end of the first quarter 2016.
reut.rs/1nlnrUG

Regulation & Enforcement

CFTC Appoints Bitcoin Trading Expert to Technology Committee Members: Puts Bitcoin and Blockchain on the Agenda
NewsBTC
CFTC has appointed a bitcoin trading expert to their Technology Advisory Committee and has set a meeting on January 26th to review blockchain and bitcoin’s potential application to the derivatives market.
bit.ly/1nyl4O7

Trans-Atlantic Derivatives Fight Nears End as Capital Rules Loom
Silla Brush and Julia-Ambra Verlaine – Bloomberg
European Union and U.S. regulators are nearing a deal on oversight of the $553 trillion global derivatives markets that would prevent an increase in EU capital requirements from hitting banks this year.
Jonathan Hill, the EU’s financial-services chief, said an agreement is expected shortly and that progress has been made in negotiations with the U.S. Commodity Futures Trading Commission on supervision of clearinghouses such as those operated by CME Group Inc. and LCH.Clearnet Group Ltd. that are at the center of the market.
bloom.bg/1nylOTv

Proposed Legislation Would Add Scrutiny of Wall Street Regulators
Victoria Finkle – NY Times
A congressional effort to put regulators under the microscope when they write new rules for Wall Street is gaining momentum, potentially creating new obstacles to the closer oversight of financial risk taking.
A bipartisan group of senators is working on a package of regulatory reform bills that most likely would include a measure to subject the Consumer Financial Protection Bureau, the Securities and Exchange Commission and other independent agencies to a heightened cost-benefit analysis and review process for major rules, according to people briefed on the plans.
nyti.ms/1nykjVp

CySEC issues CIF license to binary options firm Daweda Exchange
LeapRate
The Cyprus Securities and Exchange Commission (CySEC) today announced that it has issued a Cyprus Investment Firm (CIF) license to Daweda Exchange Ltd.
bit.ly/1nykVu3

****SD: The flock to Cyprus continues.

Technology

Battle over future of data ID standards hots up
Allan D. Grody – Futures & Options World
Bloomberg, Markit, Cusip Service Bureau and other data vendors have been posting on the various blogs and giving interviews about the administration of the International Securities Identification (ISIN) numbering system. Bloomberg and Markit offer their own codes while contending ISINs are a poor chose as a unique product identifier (UPI) for Europe’s Mifid II/Mifir implementation which affects all tradeable contracts and instruments. Cusip thinks otherwise, being the largest issuer of ISINs. The International Swaps and Derivatives Association would like to see the completion of regulators consultations on all identifiers before deciding.
bit.ly/1Nku0LT

Rival Systems expands products on Eurex
Finextra
Chicago-based Rival Systems (Rival), a trading software company established last year, today announced that users of its Rival Trader platform can now access the full range of listed products on Eurex, the international derivatives marketplace.
bit.ly/1nylMLx

Dash Financial Launches Next Gen Order Visualization Technology System
John D’Antona Jr. – Traders News
Buyside traders who want to know how their orders are being handled and executed are getting a new desktop technology that will let them actually see potential and actual trades with their own eyes.
The technology or system, dubbed Dash360, is designed to increase both buyside and sellside order transparency and aid in measuring execution performance, something buyside traders have been clamoring for over the last several years. The system is real-time – giving traders instant analysis and solutions aiding in their order routing and execution decisions.
bit.ly/1nyq0md

Speakerbus and Green Key Technologies Partner to Provide Seamless Communication Between Users of Both Platforms
Green Key Technologies
Speakerbus and Green Key Technologies announced today a unique technology partnership. Under the agreement, users of Green Key’s comprehensive voice software can communicate seamlessly with Speakerbus iTurrets clients, effective immediately.
bit.ly/1V8hDZ9

Education

What ‘VIX Sensitivity’ is Telling Us
Adam Warner – Schaeffer’s Research
As I try to get back in the volatility flow, I notice something a bit odd on the surface. The CBOE Volatility Index (VIX) has trended less sensitive to SPDR S&P 500 ETF Trust (SPY) moves in recent days.
Volatility overall has picked up, of course. But intuitively I’d expect VIX to accelerate on a relative basis as the market gets scarier. Yet, that’s not what we’ve seen.
bit.ly/1NkvnKr

****SD: VIX sensitivity sounds like a pseudo-scientific ability of a medium.

5 Stock Market Indicators at Extremes
Karee Venema – Schaeffer’s Research
Last week was a volatile one for the market, as January options expiration and a negative macro environment stoked big moves in stocks. The Dow alone tracked a 751-point range, including Friday’s 537-point intraday plunge. In the wake of this extreme price action, Schaeffer’s Quantitative Analyst Chris Prybal highlighted five oddities that popped up.
bit.ly/1NkvfL0

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