Observations & Insight
August 2018 Options Exchange Marketshare via OCC
Spencer Doar – JLN
Market participants have until September 14 to comment on a Nasdaq proposal “to codify the definitions of the current protocols that Participants can use to enter quotes and orders on the Exchange and introduce a new protocol.” If you’re not a market maker, consider yourself excused from reading that. Pretty much the protocol formerly known as “OTTO” is going to be “QUO.” And the old “OTTO” is going to replaced by a new, revamped “OTTO.” Got that?
Cboe is continuing its rebranding efforts, moving to rename “Extended Trading Hours” as “Global Trading Hours” in its rulebook.
I managed to miss the first post on Optiver’s new tech blog last week. You can find that in our technology section.
An interesting bit from EEX’s monthly numbers: “For the first time, trading volumes in EUA Options accounted for more than half of the total emissions volume.” (EUA stands for EU Allowances, the proper name for European carbon credits.)
Reports indicate that Goldman hit the pause button on a bitcoin trading desk. It is no surprise then that a number of cryptocurrencies took a dive today.
If any of you drama fans looking for an alternative, I recommend this week’s Congressional hearings. Social media + Kavanaugh = whoa, Nelly.
New CyrusOne Tower Colocation Service Offers Wireless Access for Trading Firms on Aurora Financial Data Center Campus
CyrusOne, a premier global data center REIT, announced today the availability of colocation services for trading firms on a new tower on the company’s data center property in Aurora, IL. Service is anticipated to begin early in the fourth quarter of 2018. The tower offers the first on-campus wireless access for trading firms and will support both microwave and millimeter wireless antenna colocation. The CyrusOne Aurora I data center houses the world’s leading and most diverse derivatives marketplace.
****SD: Who would have thought decades ago that Aurora (or any number of other locations of large data centers) would gain this much importance in finance? Before this job I would have guessed Mahwah was the sound a baby made.
2 Investors Drop Claims In Volatility Index MDL In Ill.
Rachel Graf – Law360 (SUBSCRIPTION)
Two investors voluntarily dismissed themselves Friday from multidistrict litigation in Illinois federal court alleging manipulation of the Chicago Board Options Exchange’s volatility index, or VIX.
Saudi stock exchange to launch options after stock index futures – CEO
The Saudi stock exchange will launch options at an unspecified time after the launch of stock index futures, its chief executive Khalid al-Hussan said on Wednesday.
****SD: Bloomberg has some more color, Saudi Bourse Steps Up Reforms With Derivatives Market in Sight, as does Reuters, Saudi bourse says IPOs to increase, futures to aid foreign funds.
The Government’s New Strategy to Crack Down on ‘Spoofing’
Peter J. Henning – NY Times
The Justice Department has tried to crack down on traders who try to move markets by entering and quickly canceling orders, conduct that goes by the catchy moniker “spoofing.” But the government’s early prosecution of the crime has faced a big setback. In just the second trial for spoofing, which the Dodd-Frank Act outlawed, a Connecticut jury acquitted a former trader at UBS of spoofing this spring. That raised questions about whether prosecutors can pursue these cases.
****SD: Spoofing is far from a futures-only issue, though futures still represent most cases and media coverage.
Emerging-Market Selloff Looks Like A Growing Crisis
Mark Gongloff – Bloomberg
Financial crises are sort of like snowflakes: No two may be exactly the same, but they sure look enough alike that you can tell what they are.
Emerging-market currencies and stocks tumbled again today, part of a long selloff that increasingly has a crisis-y feel. Satyajit Das lays out all the hallmarks of a standard EM crisis: “a large dose of debt and an associated domestic credit bubble, including misallocation of capital into uneconomic trophy projects or financial speculation. Then add: a weak banking sector, budget deficits, current-account gaps, substantial short-term foreign-currency debt and inadequate forex reserves. Season with narrowly based industrial structures, reliance on commodity exports, institutional weaknesses, corruption and poor political and economic leadership.”
Exchanges and Clearing
Miami International Holdings Reports August 2018 Trading Activity for MIAX
Miami International Holdings, Inc. today reported the August 2018 trading activity for its two fully electronic options exchanges – MIAX Options and MIAX PEARL (together, the MIAX Exchange Group). The MIAX Exchange Group collectively executed over 37.6 million contracts in August 2018 for a combined average daily volume (ADV) of 1,636,650 contracts, representing a total U.S. equity options market share of 9.80%.
****SD: In August, the MIAX family crossed the 1 billion contracts traded mark.
Why CME wants to buy its way to a slimmer board; It’s part of CEO Terry Duffy’s drive to turn the 170-year-old Chicago exchange, formerly owned by traders and now the world’s largest futures market, into an even bigger international, electronic juggernaut.
Lynne Marek – Crain’s Chicago Business
CME Group CEO Terry Duffy expects to welcome a big new shareholder to the company’s board soon, thanks to a $5.5 billion acquisition of London-based NEX Group. He also aims to usher out six old-guard directors.
CME Group Averaged 15.9 Million Contracts Per Day in August 2018, Up 18% from July 2018
CME Group, the world’s leading and most diverse derivatives marketplace, reached average daily volume (ADV) of 15.9 million contracts during August 2018, in line with August 2017 and up 18 percent from the prior month. Open interest increased 3 percent from the end of August 2017 and 13 percent from year-end 2017, respectively, to 122 million contracts. Open interest represents the total number of outstanding positions held by participants across all CME Group markets at the end of August 2018.
Market Expect options contract to touch 60-80 percent of underlying volume, says MCX
Multi Commodity Exchange of India (MCX) is expecting options contract to touch 60-70 percent of underlying volume, said Mrugank Paranjape, managing director and CEO of the independent commodity exchange.
Nasdaq Introduces an Open Orders Combo Report
Nasdaq introduces an Open Orders Combo report for Nasdaq PHLX (PHLX), Nasdaq BX (BX Options), and The Nasdaq Options Market (NOM). This report was previously only available for Nasdaq ISE (ISE), Nasdaq GEMX (GEMX), and Nasdaq MRX (MRX). The report is available on Nasdaq’s report portal, Report HQ.
****SD: Why have multiple reports when you can have one?
The art of designing markets. Part V; Trading outside the public order book
Market design recognizes that well-functioning markets are more than the confluence of supply and demand. They depend on detailed rules. Market designers try to understand the rules and procedures as well as the workings and requirements of particular markets well enough to fix problems or to build completely new markets when they seem promising.
MOEX releases steady volumes in August
…Derivatives Market volumes grew by 15.1% to RUB 8.4 trln (August 2017: RUB 7.3 trln) or 134.5 mln contracts (August 2017: 142.1 mln), of which 128.3 mln contracts were futures and 6.2 mln contracts were options. ADTV was RUB 363.8 bln (August 2017: RUB 315.4 bln).
****SD: There was a bit of a rebound in MOEX’s numbers after headlines took a dent out of activity earlier.
Regulation & Enforcement
Finra Proposes Higher Position Limits for ETF Options Contracts; Nine ETF index options contracts have been selected for a doubling of position limits if SEC approves FINRA’s proposal.
Ginger Szala – ThinkAdvisor
The Financial Industry Regulatory Authority today proposed an increase of position limits on several of the most traded ETF options contracts; these changes, it said, would increase liquidity and add depth to the market.
****SD: Coverage of the FINRA filing we had in our Lead section yesterday.
U.S. Swaps Cop Apologizes for International Rules Overreach
Benjamin Bain and Silla Brush – Bloomberg (SUBSCRIPTION)
The top U.S. swaps watchdog is apologizing for what he says was past overreach by his agency in dealing with international derivatives oversight and calling for more deference to rules governing trading in other countries.
CME iLink and FPGAs
Optiver Tech Blog
Our first series of posts aims to introduce a few high-level principles which guide our thinking. These principles are more a mindset than specific technical recommendations, but they play a large role in and undergird a lot of our thinking. The three we will examine are: Constraints + Discipline = Innovation + Flexibility; Simple Designs; Fear
To illustrate how these play out in practice, the coming posts will examine them through the lens of a major evolution of our trading systems. They will examine a significant upgrade to the Chicago Mercantile Exchange’s iLink Architecture and our incorporation of Field Programmable Gate Arrays (FPGAs) into our trading systems. This post explains the context. What is the CME and why does it matter to Optiver? What were the implications of CME’s previous architecture? Why was this iLink change so important?
****SD: Optiver announced its tech blog in August. FPGAs aren’t introduced by the end of this first post. Note: when the author talks about microseconds, keep in mind the game is played in nanos now.
A Game of Thrones Breaks Out in #BigFinTech
Paul Rowady, Alphacution – Tabb Forum
With the $1.45 billion acquisition of Eze Software by SS&C Technologies a mere 11 days after State Street announced its acquisition of Charles River Development for $2.6 billion, the turf war in ‘Big FinTech’ has heated up to a new level of intensity.
Credit Suisse continues rebuild of US prime division with new senior derivatives expert; Credit Suisse has hired Terry Burke from CME Group as it continues to rebuild its US prime services division.
Joe Parsons – The Trade
Credit Suisse has hired a new US head of prime derivatives services, as it looks to continue rebuilding the division following a string of departures earlier this year.
Citi builds out listed derivatives team with new hires from Goldman Sachs; Citi is building out its futures, clearing and collateral business with two new hires from Goldman Sachs.
Hayley McDowell – The Trade
Citi is expanding its futures, clearing and collateral (FCC) electronic execution and algorithmic trading teams with two new hires from Goldman Sachs.
****SD: Recall the earlier big news – Three senior Citi execs are stepping down, including CFO John Gerspach
Crude Oil Volatility Will Return
Andrew Hecht – Nadex
The price of crude oil has been in a bull market since finding a low at $26.05 in February 2016. Crude oil is the energy commodity that powers the world, and since more than half the reserves are in the Middle East, the price path of the energy commodity has at times been the result of the politics in the turbulent region.
Goldman Sachs Joins Citigroup in Flashing Warnings on S&P 500
Lu Wang – Bloomberg
When investor optimism over U.S. stocks is on the rise, so are Wall Street warnings.
Sentiment has climbed to levels that foreshadowed the year’s worst rout, prompting Citigroup to caution that another pullback may be in the offing. At Goldman Sachs, elevated valuations and a tightening labor market have driven the firm’s bull/bear market indicator to alarming highs.
****SD: Rather than a fear and greed index, Citi uses a “panic/euphoria model.”
Same Old Story: Trade Fears Still Haunt Market As China, Canada In Focus
JJ Kinahan – The Ticker Tape
It may be a new month, but the same trade concerns that have haunted the market on and off all year remain front and center. European and Asian stock fell overnight amid escalating tensions over tariffs, and the pressure appeared to leak into the U.S. as well.
‘No-deal Brexit’ represents ‘biggest bond-market risk,’ says economist
Sunny Oh – MarketWatch
Investors are grappling with the sobering possibility that Britain will leave the European Union without a trade agreement in hand.
The failure to secure a trade deal with Britain’s biggest export partner could trigger a selloff of U.K. government paper, making a so-called no-deal Brexit one of the most significant perils to global bond investors, said Carl Weinberg, chief economist for High Frequency Economics, in a research report published Tuesday.