Observations & Insight

Double Miles?: CBOE’s Frequent Trader Program Looks to Reward Traders and Provide a Window into Traders’ Worlds
Jim Kharouf – JLN – Reporting from the Options Industry Conference

So how many miles you got?

For frequent fliers, piling up miles trip after a trip has its payoff. CBOE adopted just that approach for its end-user community, a group which has been somewhat of a mystery to the exchange. Last month, CBOE launched its Frequent Trader program, which gives rebates to traders who reach certain monthly trading thresholds.

The program is designed to do two things – encourage individual traders to trade more of the CBOE’s exclusive products, SPX options and VIX options, and give CBOE a view of just who is trading them. The voluntary program establishes an anonymous numeric ID with the exchange but not with anyone they are trading with, and allows the exchange to examine some of the key questions for any exchange – just who is trading certain products, when and in what increments? Understanding all of that information is a first for CBOE.

“We could never identify individual customers before because they were always behind the broker-dealer,” said Eric Frait, CBOE’s vice president of business analysis, at the Options Industry Conference in Palos Verdes, Calif. “We had some idea, but it’s always been anecdotally.”

Read the rest of the story on JohnLothianNews.com

Lead Stories

Analysis: U.K. Interest-Rate Volatility Is Underpricing Brexit Risk
GBP swaptions are underpricing the risk of the U.K. leaving the European Union compared with currency options, as the potential manifold impact of such an event on interest-rate markets makes it more difficult to trade, Bloomberg strategist Tanvir Sandhu writes. The term structure of GBP swaption volatility remains upward-sloping while its foreign-exchange counterpart has inverted. The spread between implied and realized volatilities on the pound has risen to record highs while a similar measure in the rates market has lagged.

Investor sentiment sends mixed signals on stocks
Diversification is usually applied to portfolios, nest eggs and assets. But what about research diversification? Many investment decisions are based on single indicators or lopsided, flawed and biased research. Investment performance can only be as good as the research it’s based on. That’s why it makes sense to look at a wide variety of indicators and consider their composite message.

Half Full: Trade Alert’s Schwartz Says Options Industry Has Growth Opportunities
Jim Kharouf – John Lothian News – Reporting from the Options Industry Conference
Today’s options market is a mixed bag of some strong products gaining traction but, in general, the industry has slowed dramatically over the past decade.

BRIEF-KCG says in Market Making averaged 218.8 mln U.S. equity shares per day
For April, in market making, averaged $26.0 billion dollar volume traded, 5 billion shares traded, and 3.6 million trades per day in U.S. Equities

Automated Trader Update: ICE helps fuzz freeze USD22m
Automated Trader
ICE surveillance tech helps UK police. New Automated Trader articles on kerf time series database systems, OptionGamma pain, low latency trading, and NO Signal snafus. LSE launches FTSE 100 weekly options, DTCC signs MoU with KRX, Markit buys stake in PRIMA, Leucadia acquires ITG Investment Reasearch, ESMA publishes Q1 risk dashboard, TABB and SWIFT on blockchain. GHF & Celoxica release platform, IPC launches FX Hub.


Focus on short dated volatility brings LSE options response
A growing market shift among institutional investors towards short-dated volatility plays has led the London Stock Exchange (LSE) to start offering weekly options on UK stocks for the first time while other exchanges are moving closer towards allowing intraday strategies.

Changes to the Executive Board of Eurex
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Nasdaq CEO Bob Greifeld explains why he stopped taking advice after turning 35
Business Insider
Around the time Bob Greifeld turned 35 in 1992, he stopped taking advice.
He was hired in ’91 as the COO of Automated Securities Clearance, Inc., an executive position that, obviously, implied his skills and judgment were valued and trusted. He soon realized his position as a leader meant that he needed to be confident in himself and not seek out answers from others.

A walk-through of Euronext’s strategy 2.1
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More cost cutting, “very disciplined” M&A and a new index business are just some of the targets laid out by Euronext in its new strategic plan. Financial News walks you through what you need to know.

****SD: From Euronext: Euronext Releases Its New Strategic Plan: “Agility for Growth”

Launch Date For NZ Milk Price Futures And Options
NZX is pleased to announce that the launch of milk price futures contracts will occur on 27 May 2016. The launch of the related milk price options contracts will be announced in June following the futures contracts launch.

Regulation & Enforcement

Regulators “can’t stop HFT”, it’s up to the exchanges – says panel
The Trade
Regulators cannot stop the ‘manipulative’ behaviour of HFTs and it is up to exchanges to ban them, according to panellists at The Trade’s MiFID II event in Frankfurt earlier this week. Chief executive officer at Aquis exchange, Alasdair Haynes, explained that Aquis had banned aggressive proprietary trading earlier this year as it “damaged liquidity” and “hurt the asset manager in the long-term.”


Brexit roulette — a guide for the average investor
Financial Times
Rising uncertainty over whether the UK will leave the EU is putting your wealth at risk. With little over a month to go until Britons decides whether to back a Brexit or remain in the union, the polls are close, sterling has taken a pummelling and the UK economy appears to have paused for breath. As we enter the closing weeks of the campaign, more adventurous investors are seeking to take advantage of the uncertainty by placing strategic bets on what the markets will do in the event that the UK stays, or leaves.

Earnings Next Week – 5/16 – 5/20
CBOE Options Hub
Next week is all about retail which should be interesting since Macy’s (M) woes were a big focus this week. As always the data below is based on the last three years of earnings results, unless the data is in italics. In those cases less than three years worth of history is available. The columns show the biggest rally, biggest drop, average move, and what the stock did last quarter in reaction to earnings.


Are Options a Core or Satellite Component of Portfolio Management?
CBOE Options Hub
Today I had the pleasure of moderating a panel at the OIC Financial Advisor Forum which was running concurrently with the 34th Annual Options Industry Conference. My panel was on the presidential election cycle and market volatility with a combination of a political expert and two individuals involved in money management. I enjoyed the challenge of trying to integrate the markets and politics into a single common themed discussion. Despite being immersed in thinking about my own moderating duties today, there was something that I heard a couple of times from other presenters that has me questioning where institutional use of options falls on the spectrum of commonality. My thought process got going early in the day when one presenter said that he has a core money management philosophy and that option used is a ‘satellite strategy’.

A New Economics Curriculum: Q&A With Discovery Education
CME Group
The new world of finance and economics means we pay for things with our phones, secure credit with a couple of mouse clicks, clear transactions in nanoseconds and never carry a wallet. With the torrid pace of financial technology getting faster every day, it’s never been as critical for young people to understand the principles that drive transactions and commerce. Yet, only about one-third of U.S. states require students to take an economics course before graduating.

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