Observations & Insight
Build or Buy? Exchanges Continue to Branch Out For Revenues Through Acquisition
Jim Kharouf – JLN
Exchanges are continuing to look at two areas for revenue growth – consolidation and acquisition of non-exchange service firms, according to a new report from Burton Taylor. –
The report, presented at the World Federation of Exchange’s General Assembly and Annual Meeting in Athens and authored by Andy Nybo, shows that ICE topped exchanges in revenue in 2017 with $4.6 billion, followed by CME with $3.6 million, Deutsche Boerse with $2.7 billion, LSE Group with $2.5 billion and Nasdaq with $2.4 billion. Global revenues from the 15 top exchanges totaled $30.7 billion last year, up 8.1 percent from 2016.
****SD: Jim has been quite the busy man in Greece this week.
ESMA Keeping Tight Leash On EU Trading Venues
Jim Kharouf – JLN
Steven Maijoor, chair of the European Securities and Markets Authority (ESMA), said MiFID II rules launched in January are indeed living up to expectations of pushing more trading onto exchanges, but more work may be required.
In remarks before the World Federation of Exchanges annual meeting in Athens, Maijoor said less trading volume is flowing to dark pools and onto exchanges and so-called systematic internalisers (SIs), used by banks and algorithmic trading firms to fill customer orders. The use of ongoing periodic auctions for contracts, however, is coming under greater scrutiny, Maijoor said. These millisecond auctions may not being adhering to the rules set out in MiFID II.
Trump Engaged in Suspect Tax Schemes as He Reaped Riches From His Father
David Barstow, Susanne Craig and Russ Buettner – The New York Times
President Trump participated in dubious tax schemes during the 1990s, including instances of outright fraud, that greatly increased the fortune he received from his parents, an investigation by The New York Times has found.
Mr. Trump won the presidency proclaiming himself a self-made billionaire, and he has long insisted that his father, the legendary New York City builder Fred C. Trump, provided almost no financial help.
****SD: The talk of the town. Now reports indicate NY tax authorities are looking into the matter. CNN’s Brian Stelter spoke with the NYT’s Susanne Craig, who said, “We had thousands of documents. Hundreds of tax returns. Piecing all that together, understanding what they did, was beyond hard. We triangulated documents. Compared tax returns to financial statements and bank statements. And then talked to sources on it. Today we put it into one story, all explained. But it started with piles sitting in the corner of our room.” And it wasn’t just any room – it was a locked room with only three keys for the three reporters working on the story. The story fills up eight special pages in the print edition of the NYT today. Also in presidential news, the first presidential wireless test alert will come to your phone today.
OCC default fund shrinks $3 billion
Louie Woodall – Risk.net (SUBSCRIPTION)
Clearing members of the Options Clearing Corporation (OCC) saw their required contributions to the central counterparty’s default fund shrink in the three months to end-June, for the first time since 2016.
****SD: We’ll have a better idea of the impact of the updated clearing contribution methodology come Q3 disclosures.
Moving the goalposts: EU fights over prop trader rules; French proposals could drive larger non-banks out of fixed income futures and options
Philip Alexander – Risk.net (SUBSCRIPTION)
France has an abundance of many things – beautiful coastline, good food and large-scale industrial action, for example – but when it comes to principal trading firms, the country is a desert. Only two prop shops are headquartered in France, and both are subsidiaries of banks.
Regulators to take close look at power of exchanges
Hazel Bradford – Pensions and Investments
The long-simmering concerns of institutional investors and other market participants about the power of exchanges are finding an increasingly receptive audience in Washington, with regulators preparing to take a closer look. Investor concerns range from rising exchange access fees and perceived disparities in the dissemination of market data and connectivity to the need for more transparency and disclosure in general.
From sukuk to warrants, Iran works to deepen capital markets
Bernardo Vizcaino – Reuters
Iran is developing a range of new financial products, from Islamic bonds to warrants and insurance-linked securities, in an effort to give local firms more funding options as sanctions put pressure on the economy.
****SD: I did not know much about Iran’s capital markets until I read this piece. From the story: “‘The derivatives market has a lot of room to grow. Options were introduced in 2013, but the first trades were done in 2016,’ said Payam Afzali, managing partner and head of investment banking at Tehran-based Kian Capital Management.”
Scholes’ strategies for compound returns
Sarah Rundell – Top 1000 Funds
Investors need to be patient and harvest the power of compound returns, urged Myron Scholes, the Frank E. Buck Professor of Finance, emeritus, at Stanford University, and a Nobel laureate in economic sciences. Speaking at the Fiduciary Investors Symposium at Stanford University, Scholes also urged investors to use option prices as a source of information about risk to enhance compound returns. He said many investors ignored this valuable data that exists in the market.
****SD: It will always be a bit weird to read certain comments from Scholes given his LTCM involvement. For instance, “The tails, or things that happen in the extremes, are where investors should focus; Scholes said tail distribution was where ‘the action is’ rather than ‘the middle’ and that ‘focusing on the extremes has the most value for everyone.'” I guess the Asian and Russian markets of ’97-’98 have left their mark on him? (The piece overall is kind of oddly written, but it does sum up the talk.)
Multiple Cos. Dropped From VIX Manipulation MDL, For Now
Bryan Koenig – Law360 (SUBSCRIPTION)
Cboe Global Markets Inc. will face multidistrict litigation over alleged manipulation of its volatility index largely alone after investors dropped virtually all other defendants from their case in Illinois federal court…
****SD: So here’s the thing with Law360 – the firm deploys a bot to scrape the PACER database, a giant repository of court filings, which is what allows them to provide these constant updates on cases before anyone else. Apparently they’ve got a bit of a monopoly on this sort of thing.
Lake Bluff fire department captain, former village trustee William Hart dies at age 75
Daniel I. Dorfman – Chicago Tribune
Lake Bluff officials and his family are remembering William “Bill” Hart as an avid sailor, a leader of the village’s fire department and a dedicated servant to his adopted hometown.
****SD: Besides a 38-year stint trading at the Cboe, Hart owned a 1947 Ford fire truck.
Exchanges and Clearing
Intercontinental Exchange Reports September and Third Quarter 2018 Statistics
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today reported September and Third Quarter 2018 trading volume and related revenue statistics
****SD: Equity options average daily volume for the quarter was up 31 percent year-over-year; for the month of September it was up 33 percent year-over-year.
The World Federation Of Exchanges Admits Six New Members
At the 58th General Assembly in Athens today, the World Federation of Exchanges (“WFE”), the global industry group for exchanges and CCPs, admitted six new members taking the total number of full members to 70, an historic high.
ErisX Announces New Exchange for Digital Asset Investors and Traders
ErisX today announced plans to launch a derivatives exchange (DCM) and clearing organization (DCO) that will include fully regulated digital asset futures and spot contracts on one platform.
This new venture is backed by both new and existing investors spanning the traditional capital markets and digital asset markets including DRW Venture Capital, Valor Equity Partners, TD Ameritrade (AMTD), Virtu Financial (VIRT), NEX Opportunities, Cboe Global Markets (CBOE), CTC Group Investments, Digital Currency Group, Nico Trading, Pantera Capital and Third Stone Partners. ErisX is proud to launch with the support of CMT Digital, Susquehanna International Group, XR Trading, C2 Capital Management and ED&F Man Capital Markets Inc. who also participated in the investment round.
****SD: Now we have the answer to what the folks of Eris Exchange have been up to while their swaps product shifted to the CME. Also, look at some of these investors – more evidence to bolster the theory presented in the FT story earlier this week Chicago’s sharp traders are natural hunters in wild crypto markets.
Regulation & Enforcement
Fed Rethinks How to Define a Big Bank Central bank may change criteria it uses to apply rules for the biggest U.S. lenders; critics worry it would weaken moves to prevent another financial crisis
Ryan Tracy – WSJ (SUBSCRIPTION)
The Federal Reserve is developing new rules that would change how it defines a big bank and potentially lower regulatory costs for a broader number of financial institutions. As part of a series of rule changes under consideration, the Fed is preparing to revise asset size and other thresholds in its capital and liquidity rules, according to people familiar with the matter.
U.S. regulator enforcement actions jump 25 pct, rebutting Democrat fears
Michelle Price – Reuters
The number of enforcement actions brought by the U.S. swaps regulator has jumped 25 percent compared with the previous administration, rebutting fears the agency would go soft on the financial industry under President Donald Trump.
Finra CEO Robert Cook cautions industry not to take comfort in sharp drop in fines last year
Mark Schoeff Jr. – Investment News
Finra chief executive Robert W. Cook cautioned the financial industry Tuesday not to take comfort in the recent sharp drop in total fines imposed by the regulator. The Financial Industry Regulatory Authority Inc. levied $173.8 million in fines in 2016, but that number fell to $64.9 million in 2017, according to the organization’s statistics.
SEBI may consider circuit filters for F&O segment as stock prices halve; The steep fall in one stock often has a domino effect as players who lose heavily in that stock start unwinding positions in other stocks or futures to make up for the losses
Tarun Sharma – Moneycontrol
The Securities and Exchange Board of India (SEBI) may consider daily price limits — circuit filters in market parlance — even for stocks that are part of the future and options (F&O) segment, a source told Moneycontrol.
Barchart Adds New Economic Data Series and Commodity Statistics to cmdtyStats API
Barchart, a leading provider of market data and technology, is pleased to announce thousands of additional data series available through cmdtyStats – a powerful API that can be used to pull global fundamentals on economic data, commodity statistics, and world trade.
Users can now access key economic releases from the U.S. Census, including Construction Spending, New Home Sales, Durable Goods Orders, Manufacturers’ Shipments, and Wholesale trade through the cmdtyStats API or inside cmdtyView – Barchart’s new platform for commodities professionals.
S3 Launches Trade Surveillance Suite, Providing All-In-One Compliance, Reporting and Analytics
S3 (“the Company”), a financial services software company providing innovative solutions to monitor and analyze trade execution for equities, options, and fixed income securities, today announced the launch of its Trade Surveillance Suite, designed to enable compliance and trading professionals to identify market manipulation and other trading violations. With this expansion, S3, already an industry leader in execution analytics, now offers customers a single solution to address all of their compliance needs.
Eventus Systems Rolls Out Machine Learning for Validus Platform
Eventus Systems, Inc., a provider of innovative regtech software solutions for the capital markets, today announced that it has integrated machine learning (ML) into its Validus surveillance and risk software platform, augmenting capabilities for identifying potential disruptive trading practices such as spoofing and layering.
The Other 80%: Why No One Cares About The Stock Market
Kyla Scanlon – Seeking Alpha
We have been in the longest bull-run ever for over a month now. The market is repeatedly hitting all-time highs, bolstered by strength from stocks like Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Boeing (NYSE:BA). The leading economic indicators, including manufacturing and inventory, are showing incredible strength. The Fed is hiking rates. Everything is pointing to an economic recovery, right?
Not from the viewpoint of the average consumer.
****SD: I thought the average consumer was busy not caring about blockchain.
Oil Puts Rupee on Course to Outstrip Taper-Tantrum Losses
Kartik Goyal – Bloomberg
Indian currency may drop to 74.5/dollar by year-end: Barclays Rupee weakens to a new record low of 73.4150 on Wednesday
Move over taper tantrum. The Indian rupee looks set to outpace losses seen in 2013 as efforts by policy makers to stem its rout fall flat in the face of rising oil prices and relentless foreign outflows.
****SD: India has picked up where Turkey left off. Some more on the rupee from Bloomberg here.
When It Comes to Rates, What Are Central Banks Going to Do Next?
We outline what they’ve done lately and attempt to analyze what might happen in future
Pound Left Cornered as Brexit Bugbears Multiply Beyond No-Deal
Charlotte Ryan – Bloomberg
Risks of second referendum, early election also vexing market; ‘In short, it’s a mess:’ Allianz Global’s Riddell
Suddenly, a no-deal Brexit is just one of the many unknowns pound traders need to contend with.