Observations & Insight
Jim Kharouf – JLN
It’s no longer surprising to be surprised by Jeff Sprecher. The guy who shook up the futures industry with a bold but failed bid for the Chicago Board of Trade in 2007 has been accumulating pieces on the chessboard ever since, with the biggest move being the taking of NYSE Euronext in 2013.
This week, Sprecher’s ICE Group surprised again with the $650 million in stock acquisition of OTC energy platform Trayport. Not having to put up capital, but stock, made it even more admirable. And that followed last month’s $5.2 billion deal to buy IDC, $1.55 billion in shares and $3.65 billion in cash (paid in part by a just-announced $2.5 billion bond float.)
There are rumblings in the industry that the Trayport deal was all but signed with the CME Group, and would have been a nice complement to its energy complex. But Howard Lutnick’s BGC Partners decided to go with ICE in the end, leaving the CME hanging. CME really, really wanted GFI Group largely for Trayport and FX data provider FENICS, but Lutnick won that duel and passed Trayport along to ICE.
And on Tuesday, ICE finally got ICE Futures Singapore and ICE Clear Singapore off the ground with energy, gold and FX contracts.
The competition between ICE and CME is very real and very tangible. And for shareholders of both businesses, both exchanges are winners at the moment, with each stock up double digits this year. CME’s market cap stands at $32.87 billion with a share price of $97.18, versus ICE’s $28.85 billion. Hard to believe but ICE’s share price on October 14th was $229.36, and yesterday it closed at $262.93. It’s almost like ICE is skipping turns here.
The trick of course is how to integrate all of these pieces and parts into the larger ICE Group, a name Sprecher does not like. Some mutter that ICE is simply buying up properties, stripping them down and distancing themselves from customers used to a different kind of relationship. ICE executives are unapologetic. They are running a business, not a country club.
Whether customers will benefit from or tire of the ICE Group’s strategy is a key question going forward. It is a contrast in styles, CME and ICE, but no longer a contrast in weight divisions – both are heavyweights.
This Year’s Hottest ETF Now Luring Cautious Set of Europe Bulls
Inyoung Hwang – Bloomberg
Hawkish rhetoric from Janet Yellen plus hints of fresh stimulus from Mario Draghi are making for a winning combination — again.
That scenario at the beginning of the year sent record amount of cash into the WisdomTree Europe Hedged Equity Fund, catapulting it to the No. 1 spot for 2015 ETF inflows in the U.S. And now it’s playing out again, only this time around, investors burned by the stronger euro and summer selloff are making their wagers more cautiously — via the derivatives market — while the pace of inflows to the exchange-traded fund slows.
Why the Upcoming VIX Dip is Meaningless
Adam Warner – Schaeffer’s Research
I had one further thought on the CBOE Volatility Index (VIX) Expiration Games of Wednesday. Having the whole VIX put board trade serves to bump VIX marginally higher throughout the entire trading day, not just the open. Obviously, the ostensible purpose is to impact the cashout price. But the effect remains all day.
India VIX Posts Second Weekly Decline as Options Demand Weakens
Santanu Chakraborty – Bloomberg
The benchmark gauge of Indian equity-option costs declined for a second week, reflecting weaker demand for protection against market swings and uncertainty.
Risk of market jolt on Brexit could complicate BoE decision
Jemima Kelly – Reuters
UK markets have not even begun to discount the chance that Britain could vote to leave the European Union next year, raising the risk of a blowup closer to the vote and complicating the timing of any Bank of England interest rate rise, top investors say.
Global asset managers speaking at this week’s Reuters summit on the 2016 investment outlook said the absence of a firm date for the vote had kept the narrowing odds on “Brexit” and close-to-50/50 opinion polls off most market radar screens so far.
Growth Momentum Persists For NASDAQ OMX Despite Low Trade Volumes In October
Global exchange operator NASDAQ OMX Group (NASDAQ:NDAQ) has seen mixed trends in trading volumes throughout this year. While equity derivatives in the U.S. have seen subdued volumes in 2015 thus far, derivative trade volumes in Europe have outperformed compared to last year. On the other hand, U.S. cash equities surged in Q3 after trade volumes were suppressed in the first half of the year. With a relatively good Q3 in terms of trade volumes across both cash equities and equity derivatives, NASDAQ’s market service segment saw 6% year-on-year growth to $542 million. Excluding the negative impact of foreign exchange, NASDAQ’s market services revenues were up by about 11% on a y-o-y basis. 
Nasdaq CEO Greifeld Plans to Name Adena Friedman As COO and Heir Apparent
Charlie Gasparino – Fox Business
Nasdaq, Inc. (NDAQ) Chief Executive Bob Greifeld is planning a management overhaul that will both set the stage for his retirement, and for the first woman to run a major U.S. stock market, the FOX Business Network has learned.
LME kicks off bumper upgrade project
Alice Attwood – Futures & Options World
The London Metal Exchange has commenced work on a group-wide technology overhaul, within which the exchange will add its first new contracts in five years, launch new market maker schemes and its clearing house will launch trade compression and begin taking warrants as collateral.
A spokeswoman at the metal exchange told FOW on Friday afternoon that work on the technology upgrade has begun, with operations to conclude over the weekend.
The exchange will on Monday add its new aluminium premium, steel scrap and steel rebar contracts.
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China Crash Lessons for Asia Bourses Determined to Stop a Repeat
Andrea Tan – Bloomberg
For Hans Sicat, it was another day, another tumble in Chinese share prices, and another government attempt to stop the bleeding.
When Sicat, president of the Philippine stock exchange, watched the pattern play out for more than two months after China’s stock market peaked in June, he couldn’t help but think that policy makers were fighting a losing battle.
Hong Kong Exchange Looking to Launch China Share Arbitrage Products
Gregor Stuart Hunter – WSJ
Chinese shares with dual listings in Hong Kong tend to be vastly more expensive on the mainland than their counterparts in the city—a gap tempting to investors seeking arbitrage opportunities.
Yet a range of idiosyncratic and complex rules has made it nearly impossible for investors to buy cheap shares in Hong Kong, sell expensive mainland shares and pocket the difference. New products offered by Hong Kong’s exchange could change that.
Regulation & Enforcement
Barclays’ FX fine: The death knell for last look?
Farah Khalique – Euromoney Magazine
The $150 million fine imposed on Barclays this week for abusing its last-look policy on clients’ currency orders until as recently as three months ago signals another nail in the coffin for the controversial practice, say analysts.
LCH portfolio margining launch on track
Alice Attwood – Futures & Options World
The London Stock Exchange-owned clearing house, LCH.Clearnet, is on track for an “early 2016” launch of its highly-anticipated portfolio margining service, and is currently running testing of the new offering.
Electronic Market Maker XTX Markets Partners with TraderTools
Victor Golovtchenko – Finance Magnates
Another player has been quietly stepping in to fill the void left by big liquidity providers to the foreign exchange market. A start-up company run by two former Deutsche Bank executives has been filling the gap that big banks have left in the market in recent months due to prohibitive costs and inherent scandals that stirred the FX market.
Japan Ignoring High-Speed Trading Risks, Liquidnet CEO Says
Yuji Nakamura, Nao Sano and Tesun Oh – Bloomberg
As the rest of the world looks for ways to rein in high-frequency trading, Japan is making a mistake by letting it expand unchecked, according to Seth Merrin, head of dark-pool operator Liquidnet Holdings Inc.
Is fintech just full of froth?
Naveen Gupta – The Business Times
Stakeholders beware: many startup founders don’t seem to grasp the underlying business proposition fully.
When Volatility Fizzles, Summon the Iron Condor
Jamie Dlugosch – InvestorPlace
The Iron Condor is a solid strategy for option traders, if you know how to properly wield it. Not only is the name incredibly cool, but it’s a great way to make consistent profits.
My first job on Wall Street required the passing of the securities license examination. It’s hard to believe that was 1987, as I remember taking the test as if it were yesterday
I also remember the angst caused by questions related to the options market.
Understanding the various option trading strategies was like learning a foreign language. Even the most basic concepts were a bit mystifying at first.
Small-Cap Rally RUT Delayed Year-End Play
John Voorheis – CBOE Options Hub
The recent market rally we have seen seen has been driven by big cap names such as AAPL, FB, GOOG, but this week it would appear small cap is catching up based on price action in the Russell 2000 small cap index (CBOE: RUT 11.77.32).
Small cap stocks are traditionally a big favorite of mutual funds – popular investment vehicles for traditional retirement investors, the same individuals who are known for driving the year-end ‘Santa Clause Rally.’
TYVIX Weekly Review: Term Structure of Treasury Volatility Flattens Along With Curve as Rate Hike Looms
Catherine Shalen – CBOE Options Hub
Market participants have observed that the expected December increase in the federal fund target rate is flattening the term structure of Treasury yields as investors shift from the short to the long end of the curve. However, fewer market observers have noted that the same scenario is playing out on the volatility side. As TYVIX continues to decrease, the expected volatility of shorter-dated Treasuries, such as one-year Treasuries, is rising, pushing the spread between the two volatilities to its lowest value for the year.
Trader’s Goof Illustrates Perils of Shorting
Timothy Collins – TheStreet
There are perils to shorting stocks. Real Money Pro’s Doug Kass does it well, but he’s had years of experience. Years of bumps and bruises. Years of good times while others didn’t enjoy the action around them. Years of survival. Survival — that’s the key. Capital preservation. Live to fight another day.