Observations & Insight

Ed Haravon, Spot Trading – Ask Why? Opportunities in Financial Markets

“As you’ve all realized in your short time through your internships, for the most part this industry — and when I’m talking about this industry I’m talking about proprietary trading firms, exchanges, some the other service providers that support the business, so the industry at large — we really function more as applied science or applied technology companies, right?”

Remember when you could see the action matinee double feature for a buck? Or when a cream soda cost a dime? At some point in time those favorite, stale references were simply the present. Ed Haravon, COO of Spot Trading, says these are the good old days to be in financial markets. In every convoluted regulatory hurdle, bit of market fragmentation and algorithmic uncertainty lies the potential for an innovative solution and to blaze a new trail. And some day we’ll be the curmudgeons in a Jetsonian flying car reminiscing about ZIRP and five dollar beers. What better place to do that than Chicago, where all the cool kids go to hedge.

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Lead Stories

U.S. Options Trading Grows to 1.16bn Contracts in Q3
Traders News
Options trading regained some of its lost momentum as the Fall approached.
A bout of stock-market turbulence in August and September ignited U.S. listed options trading in the third quarter, according to market consultancy Tabb Group.

August VIX Outburst Previews Bigger Moves in Store for Next Year
David Wilson – Bloomberg
August’s bout of stock-market volatility was a forerunner of bigger swings in share prices next year, according to Julian Emanuel, UBS AG’s executive director of U.S. equity and derivatives strategy.

SEC – Market Structure Data: Q3 2015 Data Now Available
Press Release
Data series containing daily cancel-to-trade ratios, trade-order volumes, hidden rates, and odd-lot rate metrics for Q3 2015 are now available. This data extends to 45 total months the data series you can view in the data visualization tool as well as download in CSV format. The visualization for quote-life data now defaults to Q3 2015.

History Shows It’s Too Early to Start Trading Britain’s EU Vote
Eshe Nelson – Bloomberg
As David Cameron hammered out his plans to reform Britain’s role in the European Union before a referendum on the nation’s membership, financial markets barely blinked.
That’s because traders are still waiting for one vital piece of the jigsaw: the date of the vote.

China and the US Fed: Leading the World Toward Extreme Volatility?
Ivo Pezzuto – International Banker
The summer of 2015 probably will be remembered in the years to come as one of extreme volatility across global markets. In fact, in the middle of August, a peak of volatility rapidly spread internationally, triggered mainly by a combination of catalysts. These included, first and foremost, the potential decision by the US Federal Reserve to start tightening its monetary policy in September 2015, China’s enduring economic slowdown and the fears of a potential “hard-landing” scenario, and the epic stock market correction that followed China’s central bank’s unexpected decision to devalue its currency on August 11.


Biggest Metals Market Set for First Trade Drop Since Crisis
Agnieszka De Sousa – Bloomberg
The biggest market for metals is going into reverse for the first time since the 2008-09 financial crisis as slowing Chinese demand deters investors.
The London Metal Exchange is set for weaker volumes this year as hedge funds and banks have scaled back their commodities business, regulators increase scrutiny of the market and the bourse charges higher transaction fees.
Trading of futures and options from copper to zinc totaled 142.7 million contracts in the first 10 months, down 4 percent from a year earlier, according to data on the exchange’s website. If the final two months stay depressed, the LME will suffer its first annual drop in volumes since 2009, when the number of transacted contracts slipped by 1.1 percent.

LSEG appoints COO and CIO
Automated Trader
London Stock Exchange Group has appointed Chris Corrado as Group chief operating officer and Group chief information officer. He will also be a member of the LSEG Executive Committee. He will be based in London and joins the Group, effective from today.

Preuss to step down as Eurex chief executive
Luke Jeffs – Futures & Options World
Andreas Preuss, the chief executive of Eurex, is to step down from that role next year as part of group reorganisation that will see Preuss run IT, data and new asset classes and Jeffrey Tessler, Deutsche Boerse’s former head of post-trade, take over derivatives trading and clearing.

HKEx 2015 Third Quarter Results
Press Release
HKEx 2015 Third Quarter Results

Regulation & Enforcement

Lawyers urge caution over Mifid delay
Cian Burke – Futures & Options World
Commission has asked for one year delay to the Mifid implementation but lawyers warn proposal faces opposition
The European Commission call on Tuesday for a one-year delay to the implementation of Mifid II came as no surprise given the persistent lobbying from the industry that the original timeline was unworkable due to the vast scope of the reforms and scale of project involved.

SEC Chair White: ‘This is an unprecedented period of rulemaking’
Andy Blocker – SIFMA
Three top officials gathered at SIFMA’s 2015 Annual Meeting to discuss the state of capital markets and how the public and private sectors can work together effectively to strengthen the U.S. economy. Secretary of the Treasury Jacob Lew, SEC Chair Mary Jo White and Commodity Futures Trading Commission Chair Timothy Massad each outlined priorities for their agencies while keeping an eye toward the emerging challenges stemming from technology and global economic headwinds.

Regulators to Courts: Stop That Spoofer
Bradley Hope – WSJ
Fellow traders call him “Snuggle Bear,” or “Snuggs,” for short.
Regulators say trader Igor Oystacher continues to present a threat to the markets and needs to be stopped.
The Commodity Futures Trading Commission on Monday filed a motion in federal court to prohibit the 33-year-old founder of 3Red Trading LLC from trading futures contracts on several markets until its civil case against him is over. The CFTC previously accused him of illegally bluffing, or “spoofing,” the markets on at least 51 days between December 2011 and January 2014.


Tullett Prebon Agrees to Buy ICAP’s Global Brokering Business
Chad Bray – NY Times
The British brokerage firm Tullett Prebon said on Wednesday that it had agreed to acquire the global brokering business of its British counterpart ICAP in an all-stock deal.
The transaction would expand Tullett Prebon’s role as an intermediary for trading stocks, currencies and commodities. It comes at a time when so-called interdealer brokers have been hurt by lower trading volumes as they face uncertainty in the global markets and higher regulatory costs.
The deal would include ICAP’s global brokering business; associated technology and brokerage platforms, including its electronic interest-rate swap platform iSwap; ICAP’s associated information services revenue; and some of ICAP’s joint ventures.

CBOE Joins with LiquidityBook to Expand Connectivity to CBOE’s Pulse Trader Workstations
Chicago Board Options Exchange (CBOE) announced today that it is collaborating with LiquidityBook, a financial services technology company that specializes in multi-platform messaging, to expand connectivity to its CBOE PULSe trader workstation.

Lucera And Perseus Launch First Global On-Demand SDN Financial Network Exclusively For Capital Markets – Traders Gain Go-To-Market Capability In Less Than 2 Days Via Direct Access To World’s Largest Global Fiber Network Dedicated To Trading
Press Release
Lucera Financial Infrastructures and Perseus have partnered, creating the world’s largest on-demand Software Defined Network (SDN) exclusively for the capital markets industry, offering traders direct access to the industry’s largest network of global fiber dedicated to cross-asset class trading.

Eagle Alpha Whitepaper: Driving Investment Performance with Alternative Data
Gene Ekster (PDF Full Text)
The rapid uptake of alternative data research by both fundamental and quantitative institutional investors is shifting the investment landscape and creating innovative sources of alpha generation. The field is still in the early phases of development, yet depending on the resources and risk tolerance of a fund, multiple approaches abound to participate in this new paradigm.

Startupbootcamp Fintech Heads To New York To Launch Accelerator Program – Opens Program To New Applications
Press Release
Startupbootcamp, the global family of industry-focused startup accelerators, announced the launch of a brand new Startupbootcamp FinTech program in New York. Following the success of programs in London and Singapore, the evolution of the FinTech program to the US ensures coverage of the three main FinTech hubs around the world. Startups can apply now to be part of this new accelerator program.

Saxo Rolls out SaxoTraderGo to Other Banks and Brokers
Saxo Markets, the Institutional Division of Saxo Bank Group, continues to enhance its institutional credentials by making its next generation multi-asset trading platform, SaxoTraderGO, available to its white label clients (WLCs).


Valeant options bet sours as shares continue to slide
Saqib Iqbal Ahmed – Reuters
A large bet on Valeant Pharmaceuticals International Inc’s options looks like it will leave a $95 million hole in the wallet for the trader who took the position last month, as the drugmaker’s shares continue their slide.
On Oct. 5, about two weeks before short seller Citron Research raised questions about Valeant’s distribution relationships, a trader opened a large position in Valeant’s options.

How to Trade the Fed Using Options (Video)
Kevin Kelly, Recon Capital Partners chief investment officer, explains how to play the Fed using options. He speaks with Bloomberg’s Julie Hyman on “Bloomberg Markets.” (

How to Trade Mispriced Options Contracts
Shelley Goldberg – Wall Street Daily
Do you like trading options but don’t have access to an option pricing model? Do bids and asks on equity options occasionally make little sense to you?
Even if you know the Black-Scholes option pricing model, it can be an arduous task to price an option. Furthermore, you may not have the most up-to-date standard deviation to put into the formula.

The Perils of Following A Hedge Fund Manager
Bob Lang – CBOE Options Hub
We are all looking for that edge when investing or trading, that one little nugget of information that will over time transform our stake into that pot of gold. Sometimes that edge is provided by following the big money flows, and when a big money manager is taking a position either short or long we often want to ride his/her coattails, especially when they are so ‘generous’ to let us know. The notion that fund managers are much smarter than us and must have some sort of ‘information’ that says they get it right all the time. It’s just so easy, right?

How Retirees Can Sell Put-Option Premiums To Mitigate The Dilemma Of Low Bond Yields
Jonathan Selsick – Seeking Alpha
One of the biggest challenges facing investors of retirement age, with typically heavily weighted bond portfolios, is the current low income yields that bonds provide. In addition, bond portfolios are subject to significant risk in the event of a transition into a rising interest rate environment. While most people equate bonds with low risk, the sensitivity of bond prices to a change in rates – duration risk – is higher when rates are low, and as Bill Gross points out here, “today’s reward relative to risk – yield per unit of duration is more or less half of what it has been for the past 15-20 years.”


Five Things I’m Looking Forward to at RMC Asia
Russell Rhoads – CBOE Options Hub
The air was cold this morning as I headed to the train which means two things. Thanksgiving is just around the corner and right after that CBOE will be in Hong Kong for our first annual CBOE Risk Management Conference in Asia. The schedule is out and I’m excited about the whole docket, but five things in particular have me counting the days to November 30th.

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