Observations & Insight

Bits & Pieces: Can Bill Herder Play Tennis In a Kilt?
Jim Kharouf and Doug Ashburn – JLN

With FIA Boca right around the corner it is time to get serious – this is about tennis and kilts.
While tennis skirts have been around for some time, kilts have been around much, much, much longer (see Braveheart, where a Scotsman is played by an Australio-American). This year, the Futures For Kids kilt challenge has been taken up by Bill Herder, a wee man who may be the first person to ask John Lothian for fashion advice – such as “So, um, where did you get your kilt?” Bill, an American in Singapore, will don the apparel that brought plaid to the fashion world at this summer’s FIA IDX Conference in London in June. You can support Bill here – https://www.justgiving.com/billherder/

We would like to push that challenge a bit further, and invite Bill to take that swanky dress to Boca this year for another Futures For Kids event – the FIA Boca Tennis Tournament on Tuesday, March 15th at 9 a.m. Not sure how many tennis balls a sporran can hold, but only one way to know for sure. With or without him, there is room for more players – of ALL SKILL LEVELS. This year, Trading Technologies is sponsoring the event and will match the $50 entry fee for every participant, with all proceeds going to Futures For Kids. Even if you don’t play much, or ever before, come out and meet some people in the industry, have some fun and support this amazing charity: GBP2.2 million raised since 2008, for kids in 15 countries. More info below – or for registration, http://goo.gl/zddGNQ click here

Switching gears to position limits: The CFTC’s Energy and Environmental Markets Advisory Committee met yesterday in Washington to discuss a couple of tweaks to the Dodd-Frank rules concerning swap dealer exemptions, but also to submit their report on the proposed rule on position limits. For those just tuning in, the commission has been going back and forth on position limits for a number of years, with its initial rule having been vacated by court order in 2012, been subsequently re-proposed and has been the subject of numerous meetings, roundtables and comment periods. For a full rundown of the position limits timeline, go to MarketsReformWiki HERE

According to EEMAC, position limits are a solution in search of a problem. They say, by a vote of 8-1, the position limits rule as proposed is unnecessary, could harm liquidity and would create numerous practical challenges. To read a summary of the report, or the entire report, along with links to additional information, click HERE

Lothian update: After another surgery to fix his aching back, John is convalescing at home. Though he may still be on the disabled list during the Boca conference, (so no tennis even if he does make it to Boca), he promises to make an appearance in the office next week. On March 8, he will be joining CME Group CEO Phupinder Gill in a fireside chat/breakfast at the MidAmerica Club on Randolph for an interview entitled “Future of the Futures Industry: Risk Management for the Next 150 Years.” Details and registration |HERE

Finally, it is time to close the book on the 2016 John Lothian News/MarketsWiki survey. Please take three minutes out of your busy schedule and click HERE to tell us what you think of us. As far as surveys go, it is short, quite entertaining, therapeutic and besides, you could win an Apple Watch that may or may not be subject to a forced hacking by the FBI or CFTC registration.

Lead Stories

With U.S. market volatility down, protection gets cheap
Saqib Iqbal Ahmed – Reuters
A topsy-turvy 2016 start for U.S. stocks has given way to some semblance of order for now, but traders who don’t think the lull in volatility will last may want to use the calm to pick up protection on the cheap, market strategists said. The cost to protect against a resurgence in volatility is the cheapest it has been since summer last year, by at least one measure, the VVIX index, a gauge of the volatility of volatility. “Options on VIX futures are right now attractive as an approach to hedging tail risk,” said Peter Cecchini, chief market strategist at Cantor Fitzgerald.

Baltic Exchange says in talks over sale; SGX says among suitors
Jonathan Saul and Anshuman Daga – Reuters
The Baltic Exchange confirmed on Friday it had received a number of “exploratory approaches” after the Singapore Exchange Ltd revealed it was seeking to buy the business which has been the hub of the global shipping market for centuries. Reuters exclusively reported on Thursday that the Baltic Exchange had held talks with SGX and other potential buyers, months after sources had said the London Metals Exchange (LME) made an approach to buy it.

****SD: Have to keep up with the Joneses.

Market Turmoil Eases, but Investors Remain Wary
Mike Cherney, Leslie Josephs and Corrie Driebusch – WSJ
The crushing start to the year for markets has taken a respite. But poor earnings, heightened volatility and turbulence in the market for low-rated corporate bonds remain, stoking concerns that the breather for stocks may be just a blip.

****SD: How short a memory do you need to not be wary? That of the proverbial goldfish? Because even fish have been proven to have a memory span of up to two weeks

Gold options buyers get blistering bang for their buck
Economic Times
While gold investors have seen returns of over 16 percent this year, owners of bullish gold options have gained the biggest bang for their buck as some options have risen more than 11 times in value. Gold’s rally this year, which has made it one of 2016’s best performing assets, has been fueled by safe-haven buying as equities tumbled on lower oil prices and fears of a global economic slowdown. Spot gold hit a one-year top of $1,260 an ounce two weeks ago.

****SD: I prefer to live blister free thank you very much.


Baltic Exchange eyes sale, SGX confirms bid
Luke Jeffs – FOW
The Baltic Exchange said on Thursday it is in talks with “selected third parties” Shipping market the Baltic Exchange has said it in talks with “selected third parties” about a possible sale, with the Singapore Exchange confirming it has bid for the historic London-based institution. The Baltic Exchange said in a statement on Thursday: “The Baltic Exchange confirms that it has received a number of exploratory approaches and that it is now in confidential discussions with selected third parties regarding its future strategy and ownership.” The exchange added: “There can be no certainty that an offer will be made or the terms on which any offer might be made. Further announcements will be made as appropriate.”

LSE/Deutsche Börse deal gets veto threat from regional regulator
Stefanie Eschenbacher and Tim Cave – Financial News
The regional German regulator responsible for Deutsche Börse has said it could veto the exchange’s proposed merger with the London Stock Exchange Group if Frankfurt’s financial centre is disadvantaged by the deal.
In a statement sent to Financial News, the Ministry of Economics, Energy, Transport and Regional Development in Hesse, the state that contains Frankfurt, said that it would consider all aspects of the deal, including whether the merger of the two exchanges would hinder the developments of the financial centre in Frankfurt.

Traders fear LSE-DB “not good for market”
Julie Aelbrecht – FOW
Traders have expressed concerns over the potential merger between the London Stock Exchange Group and Deutsche Boerse, arguing the combination could hurt competition in the European futures market. The proposed merger between the London Stock Exchange Group and Deutsche Boerse was the first topic of debate at “Word on the Street” panel at FOW’s Evolution of Proprietary Trading event. Speaking on the panel, Mark Phelps, global head of sales and marketing at clearing provider GH Financials, said he was pessimistic about a market in which the two exchanges would combine: “It will probably not be good for the market. The market needs competition. Curve and Curve Global disappearing would be very bad for competition.”

Exchange fees “boost pressure” on props – panel
Alice Attwood – FOW
Traders voiced concerns over rising data and trading charges from exchanges Exchange’s rising trading, clearing and data fees are mounting the pressure on proprietary traders, with experts warning that if margins continue to be squeezed, the growing barrier to market entry will become too great for individual traders to break through. “The fees across the trading lifecycle continue to mount up and this is putting real pressure on proprietary traders, especially up-and-coming traders. Market data fees are a real pain point for the market at the moment,” said Mark Phelps, global head of sales and marketing at GH Financials.

****SD: Looks like Phelps was pretty vocal at the event.

Citadel in new attack on IEX application
Financial Times
Citadel, the Chicago hedge fund, has slammed IEX, claiming it does a “terrible job” handling trades by retail investors in the latest stage of a bitter debate over the start-up trading venue’s efforts to become an exchange.

Regulation & Enforcement

CFTC Chief Rejects Calls to Set Aside Trading Caps
It didn’t take long for the top U.S. commodities regulator to shoot down fresh calls for his agency to abandon a much-debated, long-delayed rule designed to curb bets on oil, gold, sugar and other commodities. Commodity Futures Trading Commission Chairman Timothy Massad rejected a CFTC advisory panel’s push, hours after the group—largely industry executives—warned that new trading restraints are economically unjustified and would harm markets.

***DA: A storm is brewing here. Even Sen. Elizabeth Warren chimed in, with a request that Commissioner Giancarlo have the report withdrawn. Again, the report and summary are on MarketsReformWiki HERE

Are all clearers created equal? Court decision favours OCC’s capital plan
On Tuesday, a Washington Circuit Court ruled that appeals by a group of market petitioners, including BATS Global Markets, BOX Options Exchange and Miami International Securities Exchange could not block moves by the Options Clearing Corporation (OCC) to institute a capital plan that it says will strengthen its balance sheet and allow it to collect capital each year from stakeholders and in return pay out dividends to them. Following the ruling by the DC Circuit Court, OCC’s owners including CBOE, Nasdaq and Intercontinental Exchange, are in line to receive dividends worth $161m from OCC. However, the decision raises some interesting questions.

Predictive Analytics Can Defeat Rogue and Insider Trading
It seems there is no end to new cases of market manipulation, as the latest scandal involving banks possibly rigging the $1.5 trillion government-sponsored bond market breaks in Europe. Regulators have been relentless in cracking down on financial services firms involved in insider trading and market manipulation, and financial services firms are going to great lengths to comply with new regulations. Yet, the scandals continue. Therefore, this year we will begin to see wider usage of predictive analytics in capital markets in order to really crack down on any kind of aberrant activity before it happens.

A Burgeoning Binary Options Market in Israel? Don’t Bet on It
Shelly Appelberg – Haaretz
The Israel Securities Authority will soon decide whether to bar this form of high-risk form of investment — at least to Israelis.
Israel has become quite the global hub for betting on binary options, via Internet of course. But are binary options investments suitable for everyman, or should they be confined to a game for sophisticated market animals? Good question, which the Israeli watchdog is presently mulling, with a frown on its face.

****SD: Becomes pretty clear which side of the argument the author agrees with.


NYSE’s New Technology Launch Hits a Hiccup in Its First Week
Annie Massa – Bloomberg
The New York Stock Exchange is pumping the brakes in its shift to new technology. Its new platform, Pillar, which began its roll-out Monday, moved back into testing mode on Friday, according to a trader alert. Migration to the technology will not pick up again until March 8.

Blockchain and the holy real-time settlement grail
Izabella Kaminska – Financial Times
Not since Prometheus bequeathed the gift of fire upon humanity — prompting stone-age entrepreneurialism of the highest order (me make fire, me then make register of value-added products made with fire, me then make trade offering to my heathen cave dwelling neighbour in hope to secure peace or value in return, me get clubbed on the head regardless) — has a technology captured the imagination of a people so. We’re referring of course to blockchain — or as we’re campaigning for it to be called, batchlink, matchmerkle, infocartel, or tradeballandchain.

Robo-advisor Trading Still Needs a Human Touch
Jeff Patterson – Finance Magnates
E*TRADE Financial Corporation (ETFC) has announced the latest results of its quarterly tracking study of its investing community, StreetWise, which yielded several interesting preferences, including a propensity of support behind the utilization of digital guidance for investing, according to an E*TRADE statement.


How to make millions if oil doesn’t crater
Stephanie Yang – Yahoo Finance
Oil has been on a winning streak recently, gaining almost 9 percent in one week. Now, one trader is trying to capitalize on the recent strength with an options strategy that will pay more than $1 million, as long as crude prices don’t fall dramatically in the next few months.

Do You Need to Buy at Market Bottoms to Get Profitable Results?
Ronald Delegge – InvestorPlace
Legendary speculator Bernard Baruch once quipped: “Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars.” Baruch was on to something. And since reams have been written and said about tops and bottoms in both individual securities along with broader markets (VTI), we can’t help but ask: Does a person need to buy at the absolute bottom to turn a profit?

The CBOE S&P 500 PutWrite Index (PUT): An Explanation and Evaluation of Lessons Learned
The Blue Collar Investor
The PutWrite Index (“PUT” or “$PUT) is an index created by the CBOE (Chicago Board options Exchange) which acts as a benchmark index that measures the performance of a hypothetical portfolio that sells S&P 500 Index (SPX) put options against collateralized cash reserves held in a money market account. It is similar to the “BXM” which tracks the performance of a hypothetical S&P 500 covered call strategy.

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