Observations and Insight

Brendan Bradley, chief innovation officer, Eurex – The New World of Finance
JohnLothianNews.com

“We are the wheels of industry. You wouldn’t actually have the rest of these businesses operating if it wasn’t for the fact that the finance world still greases all of the wheels making all these businesses come around.”

Brendan Bradley, chief innovation officer of Eurex, compares the financial world to the tech industry, and discusses the connection between companies like Google and Goldman Sachs. Bradley says that while the appeal for young people to work for a financial organization may not seem as high as working for a tech firm, it is actually the financial industry that helps tie other industries together. Bradley also discusses market structure, mention how OTC is generally seen as being negative while CCP is seen as being positive. Finally, Bradley concludes with the future of market infrastructure, comparing Bitcoin to T2S, as well as discussing the possibility of more crypto-currencies appearing in the future.

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Lead Stories

Worst Greek Stock Slump Since 1987 Proves Bears Right: Options
Sofia Horta e Costa – Bloomberg
Investors began giving up on Greek stocks even before the latest rout.
A U.S. exchange-traded fund tracking the nation’s equities has had a record streak of redemptions, losing money for four straight months. The wagers proved well-timed: the benchmark ASE Index plunged the most since 1987 yesterday after Prime Minister Antonis Samaras opened the door for the ascent of an anti-austerity party in Greek politics. It dropped another 1.1 percent to 893.13 at 12:29 p.m. in Athens.
http://jlne.ws/1wgLXG7
***DA: Look out below!

Could China’s volatility outbreak foreshadow something more sinister?
Matt Weller – Futures Magazine
As we noted earlier today, it’s been a particularly volatile day for global markets, highlighted by, among other developments, the biggest drop in Chinese stocks in more than five years.
The Shanghai composite index fell 5.4% to close at 2,856 on massive volume of 1.24T yuan ($200B USD). There are a number of catalysts for the volatility outbreak, but the primary one was a change in the minimum credit quality of bonds used as collateral for repurchase agreements; in other words, Chinese regulators are growing concerned with the elevated leverage levels and is trying to drain liquidity before it reaches excessive levels.
http://jlne.ws/1wgNGLE
***DA: When hot money turns to cold, it becomes difficult to deliver slowly.

Deutsche Bank Said to Cut Up to 10 London Credit Traders
Alastair Marsh, Nicholas Comfort and Stephanie Ruhle – Bloomberg
Deutsche Bank AG (DBK) cut or moved as many as 10 traders of credit-default swaps in London and related indexes as it trims that part of its fixed-income business amid new regulations, said people with knowledge of the matter.
Josh Farber and Melvyn Merran, who traded credit-derivatives indexes, and credit-swaps traders Colin Webb, Dray Simpson and Fionn O’Leary were let go, according to the people, who asked not to be identified because they’re not authorized to speak publicly. Another three to five swaps traders either had their positions cut or were moved to other jobs as the bank eliminated at least 20 positions across its markets business, the people said.
http://jlne.ws/1siewPw
***DA: The story is about underperformance, not over-regulation.

Analyzing the Unexpected VIX-Plosion
Adam Warner – Schaeffer’s Investment Research
It seems like only yesterday I was agreeing with The Oracle of CBOE Volatility Index (VIX) that volatility would remain low. Actually, it was two days ago. And I stand by my call, facts on the ground notwithstanding!
http://jlne.ws/1wycQIV
***DA: Difference of opinion – that’s what makes a market.

Mysterious ‘glitch’ trade foretold Apple’s fall
John Melloy – CNBC
On Dec. 1, Apple’s trading opened normally, with the stock hovering near its all-time high just below $120 a share. At around 9:50 a.m. ET, the stock dropped 6 percent to $111.27 on extremely heavy volume. A minute later the shares shot back up, halving the decline, as chatter across the floors focused on a so-called fat finger mistake or a glitch in a high-frequency trading algorithm as the cause of the selloff.
Eight days later on Tuesday, Apple shares fell below that glitch low price, turning what traders dismissed as a mistake into a premonition.
http://jlne.ws/1wgNnjS
***DA: Had to fill the gap.

ETFs Are Not Always Cheaper
Alex Bryan and Michael Rawson – Morningstar
Do exchange-traded funds or index mutual funds offer lower-cost exposure to similar indexes? It may be reasonable to expect ETFs to charge lower expense ratios than their index mutual fund counterparts. After all, ETF managers do not have to maintain accounts for individual investors like index mutual funds, which helps reduce their administrative expenses. In order to evaluate whether this structural advantage actually translates into lower costs, we matched ETFs and index mutual funds that track the same indexes within several Morningstar Categories and compared their annual report net expense ratios.
http://jlne.ws/1wydvdd

BGC Extends Tender Offer To Acquire GFI Group
Press Release via MarketWatch
BGC Partners, Inc. BGCP, -0.77% (“BGC Partners,” or “BGC”), a leading global brokerage company primarily servicing the financial and real estate markets, today announced that it has extended the expiration date of its tender offer to acquire all of the outstanding shares of GFI Group Inc. GFIG, -0.18% (“GFI Group” or “GFI”) it does not currently own for $5.25 per share in cash.
The tender offer is now scheduled to expire at 5:00 pm New York City time on January 6, 2015, unless extended.  The tender offer was previously scheduled to expire at 5:00 pm New York City Time, on December 9, 2014.  
http://jlne.ws/1wyawl4
***DA: This is what we used to call either a FFOK (fake fill-or-kill) order or an FOL (fill-or-linger) order.

Exchanges

CBOE Enters into Agreement with MSCI Inc. to List Index Options
Press Release – CBOE
CBOE Holdings, Inc. (NASDAQ: CBOE) announced today that it has entered into a licensing agreement with MSCI Inc., a leading provider of investment decision support tools worldwide, to offer options trading on several MSCI indexes. Under the agreement, in the U.S., options on the MSCI indexes will be solely listed for trading on the Chicago Board Options Exchange (CBOE).
http://jlne.ws/1wgOXlX

CME Group Wins Multiple Categories at the FOW International Awards
Press Release – CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that it has won four categories at the FOW International Awards:
Exchange of the Year – U.S. and Canada
Clearing House of the Year – U.S. and Canada
Best New Exchange or Trading Platform:  CME Europe launch
Most Innovative New Contract Launch by an Exchange:  FX on CME Europe
http://jlne.ws/cjpXe7

Regulation and Enforcement

Appeals Court Overturns 2 Insider Trading Convictions
Ben Protess – NY Times
A federal appeals court on Wednesday overturned two of the government’s signature insider trading convictions, a stunning blow to prosecutors and their campaign to root out illegal activity on Wall Street.
In a 28-page decision that could rewrite the course of insider trading law, the United States Court of Appeals for the Second Circuit  in Manhattan tossed out the case against two former hedge fund traders, Todd Newman and Anthony Chiasson. Citing the trial judge’s “erroneous” instruction to jurors, the court not only overturned the convictions but tossed out the cases altogether.
http://jlne.ws/1z6xY6X

Wall Street Seeks to Tuck Dodd-Frank Changes in Budget Bill
Ben Protess – NY Times
After four years of twisting arms in Congress, Wall Street may have finally found the opportune moment to reshape financial regulation.
A flurry of legislative deal-making surrounding the federal budget has opened a window of opportunity for bank lobbyists to challenge the Dodd-Frank Act, the sweeping regulatory overhaul passed in response to the financial crisis. With the clock ticking on a budget bill — lawmakers have vowed not to shut down the government, but need to act by Thursday night — banks are seeking to tuck their proposals into the giant federal spending package.
http://jlne.ws/1wgMfwB
***DA: The good news is, tucked into the bill, is a slight budget increase for the CFTC.

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