The low vol feedback loop; EU shuts door on electronic access providers; More exchange consolidation?

Dec 14, 2017

Observations & Insight

Ed Tilly – Staying Ahead of the Technology Curve

In this video from MarketsWiki Education’s Intern Recruiting Event event in Chicago, Ed Tilly, chairman and CEO of Cboe Global Markets, discusses how changes in technology force you to adapt to stay ahead of the curve. Tilly breaks down what’s going on in the exchange space and how the Cboe has changed over the years. With the explosion of screen trading and the end of open outcry trading, exchanges have had to roll with the punches and make sure customers are happy. Tilly’s goal is to bring transparency and liquidity to the marketplace.

Watch the video here »

Lead Stories

Persistently low volatility is the issue in financial markets, not the daily ups and downs
Nicholas Spiro – South China Morning Post
The most damaging effect caused by the long period of tranquillity in markets is the risk it poses to financial stability when bets on the calm continuing start to unwind

****SD: I do like this quip – “One of the many adverse effects of the collapse in volatility is that it magnifies market moves, causing analysts and journalists to read too much into daily declines in asset prices.” The days of “No news? Let’s just play some piano tunes” are long gone.

EU shuts door on foreign electronic access providers
Samuel Wilkes – (SUBSCRIPTION)
For more than a year now, regulators from across the European Union have regularly met in Paris to answer – or attempt to answer – a bottomless list of questions submitted by market participants trying to understand the second Markets in Financial Instruments Directive. But one of those answers may have just slammed the door on third-country firms, which currently provide electronic access to EU trading venues.
That would potentially lock out significant numbers of US futures commission merchants (FCMs), which currently provide access to EU venues using local exemptions – unless they have an EU affiliate ready to apply for a full Mifid II licence.

****SD: Don’t you just love overlapping regulatory oversight from multiple jurisdictions that don’t gel? Key point from this story if you can’t get behind the paywall – with this revelation coming less than three weeks before MiFID implementation, U.S. FCMs not already addressing the direct electronic access (DEA) issue are unlikely to be ready in time. Looks like the UK might be an exception and allow non-EU firms to provide DEA, but the rest of the EU may bow to ESMA. Yikes. The updated ESMA Q&A that muddies the DEA waters can be found here. The fun begins on page 15.

Chicago trading chief predicts more stock exchange mergers
Samuel Agini – Financial News
The chairman and chief executive of Cboe Global Markets, which expanded this year by acquiring one of the world’s biggest equities exchanges, has predicted more landmark deals ahead.

ECB Keeps Policy Unchanged as Investors Seek Economic Update
Carolynn Look – Bloomberg
The European Central Bank maintained its pledge to move slowly in winding down euro-area stimulus, as investors wait to see if President Mario Draghi will unveil a more upbeat economic outlook.

****SD: On the other side of central bank news – Financial Times’ Yellen kept markets calm but 2018 may be rockier

Exchanges and Clearing

MIAX Options Exchange Celebrates 5th Anniversary
MIAX Options Exchange (MIAX Options) has reached an important milestone as it celebrates the 5th anniversary of its launch. Successfully launched on December 7, 2012, MIAX Options began by listing a single symbol before rolling out additional symbols thereafter. Today, MIAX Options lists and trades options on over 2,700 multi-listed classes and is recognized within the options industry for its exceptional technological capabilities, risk assessment and management as well as quality customer service.

****SD: Nice recap of all things MIAX.

Record open interest in MSCI derivatives: 3 questions for Ralf Huesmann
Eurex Group
On 13 December Eurex’ MSCI derivatives segment saw a record Open Interest of +2 million contracts. This makes Eurex the world’s largest marketplace for trading MSCI futures and options in terms of open interest. We talked to Ralf Huesmann, Eurex Product Research and Development, about the driving forces behind the rising demand for MSCI derivatives.

****SD: One reason for growth – product offsets.

Deutsche Börse Reportedly Considering Launch of Bitcoin Futures
Simon Golstein – Finance Magnates
Deutsche Börse has announced that it is considering launching Bitcoin futures, according to local newspaper WirtschaftsWoche.

Bitcoin-futures contracts create as many risks as they mitigate
The Economist
Often promoted as a way of mitigating risk, futures contracts are frequently more like new ways of gambling. That was true of a close precursor to the instrument, introduced in the Netherlands in 1636, linked to the hot investment of the day—tulip bulbs. Likewise the world’s first two futures contracts linked to bitcoin. One launched on the Chicago Board Options Exchange (CBOE) on December 10th; the other was due to follow a week later on the Chicago Mercantile Exchange (CME).

****SD: On the other hand, The Economist also has Bitcoin is a speculative asset but not yet a systemic risk

Derivatives: Order-to-Trade Ratio Calculation for Equity Derivatives (MiFID II) (87/17)
In response to legislation implementing MiFID II, Nasdaq Stockholm will introduce order-to-trade ratio (OTR) calculations on the equity derivatives market. This notice contains information on the calculation methodology and the maximum ratios that will be applied effective 2 Jan 2018.

****SD: Another miscellaneous exchange tweak – Moscow Exchange: Final Settlement Of Weekly Option Contracts In January 2018


Another senior Citigroup equities trader departs
Paul Clarke – efinancialcareers
BlueCrest Capital Management has continued its end-of-year raid on investment banks’ trading desks by hiring a senior equity derivatives trader from Citigroup in London.

Mizuho targets candidates with hybrid quant and sales-trading skill sets
Dan Butcher – efinancialcareers
Mizuho has been aggressively growing the U.S. operations of its relatively small investment bank by hiring in IBD and for its markets business since last year. It realized that it was behind the eight ball in both program trading and electronic trading, so the bank brought in senior specialists in those areas from other larger banks – and has been hiring to build out the teams reporting to each.

Regulation & Enforcement

FIA and SIFMA Release White Paper on U.S. Access to Non-U.S. Trading Venues and CCPs
FIA and SIFMA today released a white paper setting out recommendations for improving U.S. access to international swap markets.
Currently, U.S. firms have not been able to access non-U.S. swap trading venues or central counterparties unless the Commodity Futures Trading Commission makes a case-by-case assessment of the relevant regulatory frameworks in Europe or Asia to determine whether to defer to home country regulators. This approach has led to several problems for U.S. swap dealers and their customers and has resulted in the fragmentation of international swap markets into separate pools of liquidity.


Options Strategy: Selling Put Spreads and Buying Stock
The Ticker Tape
Stock traders and investors often enter orders to buy shares at a price that’s lower than the prevailing price. But did you know that certain options strategies can be used to pursue the same objective?

Euro Seen Capturing Currency Throne From Dollar Again in ’18
Todd White and Anooja Debnath – Bloomberg
Single currency seen rising to $1.21 on more hawkish ECB; Dollar strength to be sapped by politics, Fed under-delivering
After trouncing the dollar this year, the euro is set for a repeat performance in 2018, according to forecasters.

Traders Are Bracing for ‘Explosive’ Moves in the Rand
Colleen Goko – Bloomberg
Currency’s implied volatility at highest since 2008 crisis; Market may be too optimistic about Ramaphosa victory: RMB

Whither the Vix
Helene Meisler – TheStreet
With the VIX having ticked over 10 on Wednesday the question I have been asked, is if this is enough over 10 for it to now reverse back down. Let’s have a look.


Interactive Brokers says it will now accept bets that bitcoin will tumble
Mark DeCambre – MarketWatch
A major online broker, Interactive Brokers Group Inc., says it will allow investors to bet against, or short, bitcoin, on its trading platform, shifting an earlier stance to only provide trading access to customers to bitcoin futures making outright long investments in the bubblicious cryptocurrency.

****SD: Peterffy was so adamant about the dangers of rushing to launch bitcoin futures…

INTL FCStone Inc. Reports Fiscal Fourth Quarter and 2017 Annual Financial Results
INTL FCStone Inc., a diversified global financial services organization providing execution, risk management and advisory services, market intelligence, and clearing services across asset classes and markets around the world, today announced its financial results for the fiscal fourth quarter and full fiscal year ended September 30, 2017.

****SD: Commercial hedging revenues up 24 percent.

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