Observations & Insight

Sandra Ro, CME Group – Financial Services Disruption: the Rise of Bitcoin and Blockchain

“There is this big debate as to whether bitcoin is a currency or a commodity. I would argue that it is its own category.”

Sandra Ro is a veteran in the world of bitcoin and blockchain, which simply means that she has been following the cryptocurrency and its underlying technology for over two years. In this MarketsWiki Education talk, Ro takes us through the nascent world of digital currencies, from the volatility of bitcoin, to the rise of blockchain technology and massive investments being made by venture capitalists, banks and other strategic investors. According to Ro, the next few decades are going to be exciting.

Watch the video »

Lead Stories

US Listed Options Volumes Climb in October; BATS and MIAX Continue to Gain Market Share
US listed options volumes totaled 362.1 million contracts in October 2015, 2.1% higher than September’s totals, but 26% lower than volume from the year-ago October. Through October 2015, year-to-date volume is 3.7% below 2014 same-period totals.

Derivatives And Usury: The Role Of Options In Transactions Used To Act In Fraud Of The Law
Emilio Barone – ValueWalk
The search for derivative contracts with complex features can also be explained as the market’s attempt to elude the restrictions imposed by the law on money loans. This is an undesirable effect of anti-usury rules. It can be added to the one mentioned by Montesquieu and Adam Smith, who pointed out that usury increases with the severity of the prohibition, since the lender indemnifies himself for the risk he runs of suffering the penalty.

****SD: In the article: “In 1867, Russell Sage was accused of being the gang leader of a usury group.” At first that might not seem like a scary gang — at least until you see your short-term loan has an 80 percent rate.

CME Group Extends Employment Agreements with Executive Chairman & President Terry Duffy and CEO Phupinder Gill
CNN Money
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that it has extended its employment agreement with Executive Chairman and President Terry Duffy through December 31, 2020. In addition, the company announced that it has extended its employment agreement with CEO Phupinder Gill through December 31, 2019.

****SD: Congratulations, gentlemen.

Indian Options Signal Stock Rebound on Nifty Put-Call Ratio
Santanu Chakraborty – Bloomberg
India’s equity-options market is indicating the possibility of a rebound as stocks fell to a two-month low.


NYSE Goes From Fan to Critic of IEX, Bashes `Unfair’ Plan
Annie Massa – Bloomberg
The New York Stock Exchange blasted IEX Group Inc.’s proposal to convert into a full-fledged exchange, calling it unfair and insufficiently documented.
“Like the ‘non-fat yogurt’ shop on Seinfeld, which actually serves tastier, full-fat yogurt to increase its sales, IEX advertises that it is ‘A Fair, Simple, Transparent Market,’ whereas it proposes rules that would make IEX an unfair, complex, and opaque exchange,” according to a NYSE letter dated Nov. 12 on the U.S. Securities and Exchange Commission’s website.

****SD: Maybe the population as a whole would view the financial industry in a better light if more industry letters included burns based on “Seinfeld” references. And I do wonder if the history books will remember the IEX folks as more “flash in the pan boys” than industry iconoclasts.

Cincinnati Stock Exchange comes back
Steve Watkins – Cincinnati Business Courier
After a hiatus of more than a year, the 130-year-old Cincinnati Stock Exchange is making a comeback.
The exchange, now known as the National Stock Exchange, shut down in May 2014, but a group of Wall Street investors has acquired the exchange with plans to reopen it next month.

****SD: And the Bengals are undefeated. Coincidence? I think not.

New Euronext CEO Boujnah passes final hurdle
Alice Attwood – Futures & Options World
Euronext has won regulatory approval for its new chief executive Stéphane Boujnah, paving the way for the former Santander banker to assume the top job at the European exchange on Monday.
A spokesperson told FOW on Thursday that Boujnah’s appointment has now been approved by its college of regulators which is made up of the French, Dutch, Belgian, Portuguese and UK regulators.

Tocom plans major systems upgrade in 2016
Luke Jeffs – Futures & Options World
Japan’s top commodities market the Tokyo Commodity Exchange said it is planning a major upgrade to its trading system next year, marking the latest change by its new chief executive.
Tocom said in a statement on Friday that it has cut a deal with network firm AT Tokyo to provide hosting services to its new technology.
The exchange said in a statement: “The AT TOKYO Chuo Data Center and AT TOKYO Chuo Data Center #2 (collectively called the “TOCOM Proximity Center”) will go into service in September 2016 in conjunction with the exchange’s new trading platform.”

Ex-CME CEO Donohue buys Kenilworth home
Dennis Rodkin – Crain’s Chicago Business
A former CEO of CME Group and his wife bought a Kenilworth house on a half-acre of lakefront land. Craig and Elsa Donohue paid almost $3.7 million Nov. 2 for the Sheridan Road house, according to the Cook County Recorder of Deeds.

****SD: Real estate transactions are the newsletter’s version of looking through someone’s medicine cabinet.

Regulation & Enforcement

OCC Comments on Recent Cyber Security Measures from Senate Bill
The undersigned organizations thank you for your strong efforts to combat cyber threats and protect American businesses and citizens. The cybersecurity measures approved by the House and Senate would implement a legal framework critical to encourage industry to share voluntarily cybersecurity information with the federal government, helping to bolster efforts to guard against cyber-attacks.

CME Group Warns Market Participants to Supervise Automated Trading Systems
The National Law Review
On November 2, 2015, the CME Group issued Market Regulation Advisory Notice RA1517-5 (Advisory) dealing with the responsibility of market participants to diligently supervise any automated trading system (ATS) that they operate. The Advisory applies to all CME Group Exchanges – CME, CBOT, NYMEX, and COMEX.

From Pits to Algos, an Old-School Trader Makes Leap to Spoofing
Brian Louis, Annie Massa and Janan Hanna – Bloomberg
Michael Coscia is no one’s idea of a 21st-Century Wall Street wizard.
In many ways he’s a throwback — a small-timer from Brooklyn who bootstrapped his way out and found the good life running a tiny firm near the Jersey Shore called Panther Energy Trading.
Until last Tuesday, when the good life collapsed beneath him.


Closing S&P 500 put options for 50% gain
Serge Berger – TradingFloor.com
Last Thursday, November 5, I discussed the morbidly overbought readings of the benchmark S&P 500 index and laid out a trade to buy put options for a mean-reversion trade lower.
Specifically I said that I was buying January 2016, $211 strike put options on the popular and very liquid S&P 500 ETF for $6 or less. Since then the S&P 500 has fallen about 2.7%, and the put options have risen to more than $9. I took some profits late Thursday from this trade and will take the rest of the gains today, Friday, when US markets open for trading. That’s more than a 50% gain in one week.

Hasbro’s Star Wars Can Force the Stock Higher
Steven M. Sears – Barron’s
Will the Force be with Hasbro and Star Wars or the U.S. dollar?
If it’s with Hasbro (ticker: HAS ), the stock, up more than 45% this year to a recent $78.36, can keep advancing. If it’s with the dollar, the hot toy maker may cool off.


Skew Charts to Prepare for CBOE Conference in Hong Kong
Matt Moran – VIX Views
This month I am planning to travel to the First Annual CBOE Risk Management Conference (RMC) Asia, which will be held on November 30 – December 1 at the JW Marriott Hotel, Pacific Place, 88 Queensway, Hong Kong. In my preparations for the trip, I am analyzing the skew charts for a number of option classes, including options on the S&P 500, the CBOE Volatility Index (VIX), and the FXI ETF.

Will Santa Claus Bring Volatility? – iPath S&P 500 VIX Short-Term Futures ETN
Nathan Buehler – Seeking Alpha
Hello everyone, I hope you have been doing well. Volatility has turned its head again and is close to backwardation. The purpose of this article is to examine past volatility events and determine the likeliness of a prolonged period of backwardation here.

****SD: Which is a better stocking stuffer, a) coal, b) socks, or c) volatility?

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