Observations & Insight

The View from Convergex: Reinvention, Options and Market Structure
Spencer Doar – JLN

It may come as a surprise that Convergex, the agency brokerage with headquarters in New York, has a hand in approximately 20 percent of all options routed through U.S. listed options exchanges and actually executes some 8 percent of daily options volume.

The company has been reinventing itself over the last two-and-a-half years under the leadership of Eric Noll, who became CEO in the wake of a 2013 settlement. Convergex’s reputation took a hit when it admitted it had defrauded customers by inflating its fees. The firm settled criminal and civil charges to the tune of $151 million. Noll brought in new blood and refocused the business on its strengths — best execution and customer service. By maintaining those as its priorities, Convergex avoids conflicts of interest. It does not trade against customer order flow, does not offer investment banking and does not offer research, for example.

Read the rest here.

Lead Stories

OCC Cleared Contract Volume Increased 20 Percent in November
OCC, the world’s largest equity derivatives clearing organization, announced today that cleared contract volume in November was up 20 percent from November 2015 with 393,515,089 contracts, making it the highest November ever for options volume on record. Average daily volume at OCC is down one percent in 2016 with 16,582,994 contracts. OCC cleared futures volume was up 109 percent in November with 10,313,172 contracts, making it the third highest month ever for cleared futures volume at OCC. OCC’s stock loan program reported strong volume numbers up 35 percent in November and year-to-date activity up 38 percent from 2015.

Citi Said to Weigh Derivative Desk Move to Frankfurt on Brexit
Gavin Finch and Nicholas Comfort – Bloomberg
Citigroup Inc. is considering moving some of its London-based equity and interest-rate derivatives traders to Frankfurt after Brexit is triggered, according to people with knowledge of the matter.

Traders are betting that volatility is about to spread
Luke Kawa, Bloomberg via Chicago Tribune
A measure of volatility for longer-term U.S. Treasuries recently hit its highest level since July 2015 as traders begin to price how President-elect Donald Trump’s potential fiscal policies could prove game-changing for inflation and growth.

CFTC takes Chicago firm, founder to trial over manipulation claims
Nate Raymond – Reuters
The U.S. Commodity Futures Trading Commission took a Chicago-based trading firm and its prominent founder to trial on Thursday over claims they manipulated the price of a futures contract, illegally earning nearly $13.5 million.

****SD: Did not know this: it’s the first non-jury trial for a CFTC market manipulation in eight years. (Usually they don’t go to trial.) And yes, it’s not an options issue, but who doesn’t want to keep up on DRW?

J.P. Morgan Forecasts a Calm U.S. Stock Market With Volatility Spikes for 2017
Gunjan Banerji – WSJ
Strategists at J.P. Morgan Chase & Co. predicted the tranquility that prevailed in equity markets during 2016 will persist into next year, while investors will also continue to see periodic spikes in volatility. After Brexit and the U.S. Presidential election shook markets this year, market volatility rapidly subsided, a team of strategists led by Dubravko Lakos-Bujas and Marko Kolanovic wrote in a note dated today. That contrasts to 2015 when it took several weeks for turbulence to taper after the August 2015 sell-off. This combination made strategies that involved selling volatility attractive amid an environment of low and negative bond yields.

****SD: The real determinant of calm: is the sky red in the morning or red at night?

Commodity derivatives, options trade soon
Rajesh Bhayani – Business Standard News
The BSE stock exchange proposes to launch commodity derivatives trades, including in options, in non-agricultural commodities at its international bourse coming up at Ahmedabad-based GIFT City. The exchange will be inaugurated on January 9 by Prime Minister Narendra Modi. Other products would include rupee and equity derivatives, as well as derivatives in indices developed by S&P, Indian or international.

Hangover Awaits as OPEC Celebrates Its Biggest Accord in Years
Javier Blas – Bloomberg
Let OPEC celebrate. For now. The oil club is dizzy with its own success after a harmonious meeting in Vienna, where it surprised the world by agreeing to its first production cut in eight years. Oil prices up 10 percent? Check. Saudi Arabia and Iran in agreement? Check. OPEC and Russia working together? Check. After being left for dead, OPEC pulled it off once again.

Exchanges and Clearing

Election Drove Higher Volumes, Volatility In November
Teresa Rivas – Barron’s
Given the uncertainty swirling ahead of the election last month, it’s not surprising that markets saw higher volumes and volatility in November.

ISE Gemini OTF Available for Participant Testing
On December 5, the ISE Gemini Option Test Facility will become available to participants. To support development and testing for the broad range of market participants from different time zones, the OTF environment is available 19 hours a day from Monday to Friday, 4:00 a.m. to 11:00 p.m. ET. Technical support will be available during normal working hours from 8:30 a.m. to 5:30 p.m. ET.

Retail investors: Bourse Direct improves Best execution with Euronext’s Best of Book
Bourse Direct, a leading provider of online brokerage services in France and a direct member of Euronext markets, has signed up for Euronext’s Best of Book to offer its customers best execution.

NSE extends currency derivative concession scheme till Dec 31
The National Stock Exchange (NSE) has extended its concession scheme ‘NSE MORE’ in the transaction charges for the currency derivative segment till December 31.

MIAX Options – Connectivity To All MIAX Interfaces Was Delayed Until 07:33 A.M.
Please be advised that connectivity to all MIAX Interfaces was available later than scheduled this morning. All interfaces were available at 7:33 A.M.

Regulation & Enforcement

Europe adopts final Mifid standards
Julie Aelbrecht – Futures & Options World
Rules for position limits and ancillary activities were expected in early November.
The European Commission has finally signed off the last remaining parts of Mifid II just 13 months before the controversial trading reforms are set to take effect across Europe. The Commission adopted the last remaining regulatory technical standards — for position limits and commodity derivatives trading for non-financial firms — on Thursday. The two final regulatory technical standards (RTS), which were expected to be released in the first half of November, complete the rulebook of secondary measures under sweeping regulatory directive Mifid II. RTS 20 and RTS 21 cover ancillary activities and position limits for commodity derivatives respectively.

****SD: Financial News’ take here and Traders Magazine here.

Kay Swinburne – Time To Stop Political Point Scoring On Position
Today, the European Commission has adopted the final rules on the regulation of commodities markets and position limits. The package completes the rulebook of secondary measures under the revised Markets in Financial Instruments Directive, known as MIFID II, and gives market participants time to prepare for its application, as of 3 January 2018.

Trump’s plans to dismantle Dodd-Frank unlikely to be realised, says TABB Group
John D’Antona Jr. – The Trade
President-elect Donald Trump’s plans to dismantle the Dodd-Frank Act are unlikely to be fully realised, with over 70% of rule-making requirements already approved and finalised, according to new research.

Former CBOE Member Fined $21.8m for Fraudulent Activities in Ponzi Scheme
Rosemary Barnes – Finance Magnates
The US Commodity Futures Trading Commission (CFTC) has obtained a $21.8 million default judgment against Alvin G. Wilkinson and his entities, Chicago Index Partners (CIP) and Wilkinson Financial Opportunity Fund (WFOF), in connection with a commodity pool fraud which victimised 30 investors.


Hidden risks of defensive investing
Seth Weingram – Pensions & Investments
Eight years into a U.S. bull market, valuations are elevated and with them, the risk of U.S. stocks moving into bubble territory. In response, many investors have begun pouring assets into defensive approaches such as dynamic risk-based allocation strategies. However, could these defensive strategies actually be responsible for intensifying risk rather than mitigating it?

The On/Off Ramp, Pt. 2: Navigating the Holding Period
The Ticker Tape
Now that you have your trade on, what’s next? Start sweating? Log in and stare at the screen for hours at a time? Let’s hope not. Rather, consider these ideas for navigating the time between the entry and exit of a trade.

Trader makes 1 million dollar bet that the retail run is done
Heidi Chung – CNBC
Despite a huge rally in November and a strong start to the holiday shopping season, one options trader is making a big bet that the retail run could be coming to an end. The XRT retail ETF surged more than 9 percent this month in its biggest monthly gain since October 2011. The move comes after what’s been a relatively volatile year for the space.

Momentum investing is back, and investors should take advantage
Nicholas A. Vardy – MarketWatch
With all four major U.S. stock index averages hitting record highs in recent weeks, momentum is back in the stock market. Banks and small-cap stocks are up by double digits since the presidential election, and investors who have been sitting on the sidelines are tempted to jump on the momentum train. Yet many potential market players will resist that temptation. That’s because many investors are deeply suspicious of momentum investing.


Ripple appoints CME man to grow XRP into a viable currency
Ripple is proud to announce another addition to our team: Miguel Vias, head of XRP markets.
In his new role, Vias will utilize his considerable expertise building liquidity for new financial products by working with market makers, traders, investors and exchanges to strengthen the XRP markets and set the stage for large-scale institutional adoption.


2016 CBOE Risk Management Conference Asia
CBOE Options Hub
Kicking off the start of Day Two of CBOE RMC Asia 2016 in Hong Kong, CBOE Holdings CEO Edward Tilly updated conference attendees on CBOE Holdings’ planned acquisition of Bats Global Markets and on CBOE’s ongoing development of new products, services and tools.

Long Volatility Discussion at CBOE RMC
CBOE Options Hub
Govert Heijboer from True Partner Advisor and James Murray from NSW Treasury Corporation split the duties for a discussion titled Implementing Long Volatility Exposures for Hedging and Alpha today in Hong Kong.

Short Volatility Strategies Discussed at CBOE RMC
CBOE Options Hub
Tanuj Dutt, CFA from Nikko Asset Management and Selim Piot from Barclays Capital teamed up to deliver a session on Implementing Short Volatility Strategies at the 2nd Annual CBOE RMC in Hong Kong today.

Discussion of Market Dislocations at RMC Asia
CBOE Options Hub
The keynote speaker this morning for the 2nd Annual Risk Management Conference Asia was Rebecca Cheong who is Head of Americas Equity Derivatives Strategy for UBS Securities. She also grew up in Hong Kong so this was a special treat for her as well as the attendees.

Volatility Panel Discussion at CBOE RMC
CBOE Options Hub
The final session at the 2nd Annual CBOE RMC Asia featured a panel discussion hosted by Steven Sears from Barrons.


What’s Next After Italy’s Referendum?
John Follain – Bloomberg
If Matteo Renzi loses Sunday’s referendum on constitutional reform, he’ll most likely be making his way up Rome’s Quirinale hill the next morning to work out what to do next in talks with President Sergio Mattarella.

****SD: The implosion of the EU?

Naga Group And Deutsche Börse Form The Joint Venture Switex
Press Release
Hamburg-based FinTech firm Naga Group AG and Deutsche Börse Group are to launch the first global exchange for virtual gaming products. The two companies have set up the joint venture firm Switex GmbH which will launch the world’s first neutral, secure and reliable platform for the exchange and trade of in-game items. The management team of Switex will comprise the founders of the Naga Group, Yasin Qureshi and Benjamin Bilski, who will serve as Managing Directors of Switex. Christoph Brück from Naga Group, Victor Hugo Gomez from Deutsche Börse and Nikolay Kolev from Deloitte Digital Ventures will join the advisory board.

****SD: My inner nerd rejoices. Kind of surprised no one thought of this before – YUGE market to tap ($46 billion!) We’ll see if gamers are interested…

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