Observations & Insight

November Options Exchange Marketshare via OCC
MWE Europe 2016


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.

****SD: In case you missed it yesterday.

Lead Stories

OCC Names New CFO, Treasurer, and Chief Compliance Officer
OCC, the world’s largest equity derivatives clearing organization, today announced three additions to its senior management team. Amy Shelly, a former Chief Financial Officer with Optiver U.S. LLC, a global participant and market maker on major U.S. derivatives exchanges, who has over 20 years of financial services management experience, has been named Senior Vice President and Chief Financial Officer. She replaces Kim McGarry, and will start in her new role on December 5th. Shelly will be responsible for finance, accounting, strategic sourcing and facilities, as well as a new treasury function. James Pribel, formerly Executive Director and Treasurer at CME Group, has been named First Vice President, Treasury, which is a new position in the organization. Pribel’s appointment is effective immediately.

Volume on Oil Derivatives Hits Record as Traders Eye $60 a Barrel
Gunjan Banerji – WSJ
OPEC’s landmark deal to slash oil production triggered record trading of futures and options based on the commodity. U.S. crude futures rallied 3.3% on Thursday to $51.06 a barrel, extending gains from Wednesday when the Organization of the Petroleum Exporting Countries struck an agreement to cut output by 1.2 million barrels a day. Volumes of energy options and futures offered by CME Group shattered records on Wednesday, as traders and investors rushed to the derivatives market to express their views on the 14-member cartel’s decision.

OPEC Deal Upends Everything in Oil Market, Not Just Prices
Alex Longley – Bloomberg
No matter where you look in the oil market, key markers watched by traders have been going haywire since Wednesday — and they show little sign of letting up. Whether it’s a futures curve suddenly suggesting concerns that supply is shrinking or record trading of contracts designed to protect against price fluctuations, OPEC’s first output cut in eight years has sent the market into a spin.

Traders keep bets on Fed rate hike later this month
Traders of U.S. short-term interest-rate futures kept bets on Friday that the Federal Reserve will raise interest rates later this month, after a government report showed the unemployment rate in November fell to a nine-year low.

Budget to pave way for MFs and FPIs in commodities market
The finance ministry may allow entities such as mutual funds and foreign investors in commodities derivatives trading, two people with direct knowledge of the matter said. The moves, part of a second round of reforms being considered for the commodities market, could be announced in the budget, the people said on condition of anonymity.

Who’s buying all those wheat options?
Farm Futures
When it comes to trading volume wheat generally takes a back seat to corn and soybeans. But that wasn’t the case with the most popular wheat options contracts, those for the soft red winter class. Their volume exploded on Thursday, when nearly 35,000 new positions were opened, with total volume topping both corn and soybeans.

****SD: The spirit of Ceres is alive and well.

Exclusive – Barclays to close down energy business within Macro trading division: memo
Barclays (BARC.L) will close the energy business within its ‘Macro’ trading division, the bank said in an internal memo on Thursday obtained by Reuters, in a move that will affect dozens of jobs at the British lender.

Exchanges and Clearing

CME Group Reached Record Average Daily Volume of 20.9 Million Contracts per Day in November 2016, up 52 Percent from November 2015
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that November 2016 average daily volume (ADV) reached a record 20.9 million contracts per day, up 52 percent from November 2015. CME Group November 2016 options volume averaged 4.3 million contracts per day, up 63 percent versus November 2015, with electronic options averaging a record 2.4 million contracts per day, up 74 percent over the same period last year.

****SD: Trump may not be good for international trade, but he’s real good for trading.

Rule breakers face bigger possible fines from CME Group
Tom Polansek – Reuters
CME Group Inc (CME.O) plans to strengthen efforts to deter wrongdoing in markets by raising the maximum possible fine for rule breakers, the company said on Thursday, further raising the stakes for rogue traders following the first U.S. criminal convictions for the manipulative practice known as spoofing.

OCC sees sec lending growth in November
Securities Lending Times
OCC’s securities lending central counterparty (CCP) activity was up 35 percent in new loans in November.

****SD: OCC rather quietly building this side of their business.

MIAX Options Reports November 2016 Trading Activity; Remains #1 in Time at NBBO for Both All Option Classes and Penny Pilot Option Classes for October 2016
MIAX Options Exchange today announced that over 19.2 million contracts were executed on MIAX Options in November 2016, equating to an average daily volume (ADV) of over 900,000 contracts. The November volume represents a 3.1% increase from the 18.7+ million contracts executed in October 2016 and an 8.9% decrease from the 21.1+ million contracts executed in November 2015.

Monthly Report – Eurex boosts capital efficiencies for KOSPI 200 investors
Eurex – Europe’s largest derivatives exchange – has allowed investors in Korea’s equity benchmark KOSPI 200 Index to more easily hedge their options exposures, by using Eurex Mini KOSPI-200-Futures as a hedging tool via the same trading platform. “This may also result in capital efficiencies, since market investors only need one clearing house”, said Michael Peters, Deputy CEO of Eurex, when presenting the monthly derivatives trading statistics of Deutsche Borse Group (see annex).

BSE to launch commodity derivative trades at GIFT City
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.

Presidential Election Boosted Trading Volume
Retail daily average revenue trades were likely up significantly month-over-month in November.

Regulation & Enforcement

Derivatives luminary Donald Wilson at centre of courtroom battle
Gregory Meyer – Financial Times
An ice storm, an email suggesting regime change and the mechanics of thinly traded futures markets have emerged as central points of contention in the market manipulation trial of one of the world’s biggest traders in financial derivatives. Donald Wilson and DRW, the trading group he leads from Chicago, are fighting civil charges they distorted the price of an interest rate futures contract. They went on trial in a New York federal courtroom this week.

Senators to Wall Street Top Cop: Don’t Rush Rules Before Trump
Elizabeth Dexheimer and Benjamin Bain – Bloomberg
Don’t try to pull a fast one on the way out. That’s the message the incoming and outgoing Republican chairs of the Senate Banking Committee are sending to Mary Jo White, who plans to step down as head of the Securities and Exchange Commission in January. Senators Richard Shelby and Mike Crapo sent a letter dated Nov. 30 to White, urging her to freeze any unfinished rules related to the Dodd-Frank Act until president-elect Donald Trump takes office next year, according to a copy of the letter obtained by Bloomberg News.

CFTC relief allows consolidated risk disclosure statements
The CFTC’s division of swap dealer and intermediary oversight on Nov. 30 issued no-action relief to FCMs and introducing brokers that streamlines the process for providing risk disclosure statements to non-institutional customers.


Speed Bumps: Down the Slippery Slope
John Comerford, Instinet – Tabb Forum
After the SEC approved IEX’s 350-microsecond speed bump, it was just a matter of time before another exchange implemented its own speed bump. On cue, the Chicago Stock Exchange has applied to impose a 350-microsecond speed bump on liquidity-taking orders while proposing to allow unencumbered alteration of posted liquidity. But approval of this proposal would fundamentally dilute the value of quotes across the entire market.


How Investors are Playing the Italy Referendum, in Eight Charts
Christopher Whittall and Jovi Juan – WSJ
Investors are bracing for Italy’s referendum on constitutional reform Sunday, which many expect Matteo Renzi’s government to lose. Here are some of the ways they are positioning ahead of the vote.

VIX Peaks: A Trend Reversal Is Finally Here
Seeking Alpha
Despite the post-elections plunge in the value of the volatility index, VIX futures and market sentiment indicate an increasing possibility of another spike occurring in the coming weeks. Investors shorting VIX ETFs might reconsider their positioning in the coming weeks. The aim of this article series is to produce a thorough analysis of VIX movements and provide actionable insight on VIX ETFs.

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