Observations & Insight

D is for Data
Jim Kharouf, John Lothian and Spencer Doar – JLN

The sold-out FinTech Exchange conference, hosted by Barchart, was largely about data – what to do with data, how exchanges are capturing new data and how to trade it. That, on its surface, isn’t particularly new.

But the infrastructure to capture all kinds of data is now developed. The CME Group’s Julie Armstrong Menacho colorfully outlined how the exchange has migrated all of its historical data onto the cloud, giving customers greater access to it, along with a growing list of partners who provide alternative data sets like satellite images of oil storage facilities or social media sentiment. CBOE’s Catherine Clay also pushed the idea of not just more data for customers but a suite of services that help customers use it and trade it. Barchart, for its part, is adding more such data as well, particularly in the grains space, where customers can view grain production indexes from one county to the next. And there were a slew of companies telling the audience what they could do with it.

The fintech bug has caught on with regulators too. FINRA is firmly in the cloud and new CFTC Acting Chairman Christopher Giancarlo has signaled his desire to make the agency a more technologically adept and cloud-centric institution. Also, the SEC’s Consolidated Audit Trail is a cloud endeavor.

This conference, now in its third year, could be called the “Dudes in t-shirts, jeans and sport coats.” It attracted 500-plus attendees. Slick events such as this in the fintech space are helpful because, as CBOE’s John Deters pointed out, innovation is no longer concentrated at large centralized corporations, making it harder to know what is being developed and where. It’s also difficult due to the all encompassing nature of the word “fintech.” The term encapsulates everything from platforms analyzing credit risk to options analytics software.

As more exchanges move further into the data space, there is a good news and bad news story. As speed continues to remain important, traders are looking for more sophisticated ways to trade using data. The Intercontinental Exchange has made a multi-billion dollar bet on it. But there are limits, as highlighted in today’s FT piece on CME which pointed out that large customers were consolidating data screens to save money, thus lowering data revenues by 5.5 percent in Q1.

In short, big data and alternative data and new tools are great but there is only so much the market is willing to pay for them.

Lead Stories

One hundred days of Donald Trump have left investors sanguine
John Authers – Financial Times
If ever markets defied explanation, it is now. For the past 100 days, the world’s attention has turned to the presidency of Donald Trump. As events in Washington have generated such excitement and controversy, the tendency is to look to the president when searching for an explanation for a hectic few months on global markets. But the market narrative does not fit the political narrative.

****SD: The sanguinity (actually a word) in markets is definitely odd — after all, it’s not every presidency where scientists stage massive protests. As one sign from the March(es) for Science said, “You know things are serious when the introverts arrive.” Does anybody else think it’s funny that a president who does not use a computer is “responsible” for a market that features record highs for the FANG complex this week and a more than 10 percent gain for XLK (SPDR tech ETF) on the year?

Vix ‘fear gauge’ closes at 3-year low
Robin Wigglesworth – Financial Times
Wall Street’s “fear gauge” closed at a three-year low on Thursday as the stock market has regained its footing this week, rewarding investors who bet on volatility staying subdued with another week of eye-catching returns.

Brexit Overshadows Election Boost for Pound as Funds Skeptical
Anooja Debnath – Bloomberg
Allianz uses recent rally to short pound, foresees hard Brexit; Options signal sterling gains versus euro may be limited
U.K. Prime Minister Theresa May’s call for a snap election has done little to inspire confidence among portfolio managers on the pound’s prospects.

Trump drove forex trade surges in first 100 days: CLS study
If anyone doubted how closely traders need to watch U.S. President Donald Trump’s public words or actions, data on Thursday showed trading volumes on the world’s biggest financial market have routinely jumped on-year after some of his most high-profile comments.

****SD: The irony is that as president, Trump literally cannot drive. In a Reuters article today, Trump says he thought being president would be easier than his old life, he lamented that fact.

Spring’s Blooming Int’l Equity Markets (2017)
Rick Rosenthal – CBOE Options Hub
Spring has arrived and our home town Chicago baseball teams (Cubs & White Sox) lead their respective Central Divisions. Likewise the Chinese and Emerging equity markets have also taken an early lead in the global economic recovery this year.

Exchanges and Clearing

CME spooks investors with warning on market data
Gregory Meyer – Financial Times
Futures exchange operator CME Group has encountered headwinds in efforts to sell more market data to customers seeking to cut their costs. Shares in Chicago-based CME, the largest exchange company by market value, tumbled 4 percent to $115.25 on Thursday after executives reported an unexpected decline in revenue from market data in the first quarter and predicted no growth in data sales through 2017.

Deutsche Boerse eyes takeovers outside core exchange business
Deutsche Boerse is on the lookout for takeovers, albeit not in the area of core stock exchanges after its latest failed merger attempt with the London Stock Exchange, Chief Financial Officer Gregor Pottmeyer said on Thursday.

OCC Approves Member and Public Directors at 2017 Shareholders Meeting
OCC, the world?s largest equity derivatives clearing organization, today announced the election of three Class I Member Directors and one Class II Public Director to its Board of Directors. The vote took place at OCC?s annual shareholder meeting on April 26.

MIAX PEARL – May 1, 2017 Fee Changes
Effective May 1, 2017, pending SEC approval, the MIAX PEARL Fee Schedule will be amended.

Regulation & Enforcement

RegTech 2020 and Beyond
Gareth Evans and John Mason, Thomson Reuters – TABB Forum
In an uncertain macroeconomic and financial environment, applying RegTech could make an important contribution to increasing the profitability and efficiency of financial institutions, while improving their effective compliance with financial regulations. With this trend gaining momentum, it’s of the utmost importance to understand how RegTech will change your business now and in the future.

Commodity derivative options to spur farmer participation
Financial Express
The Securities and Exchange Board of India’s (Sebi) decision to allow options trading in commodity derivatives comes as a shot in the arm for farmers, who can now look to a wider portfolio of derivatives to hedge risks in their produce better.


Chicago-Based FinTex Launches New Innovation Center, Currency
Jeff Patterson – Finance Magnates
The Chicago fintech association, FinTex, has launched a new center called ‘Currency’, which will be dedicated exclusively towards the collaboration, research and sharing of best practices in one of the largest fintech hubs in the world, according to a recent group statement.


Amazon stock options traders defying history
Tomi Kilgore – MarketWatch
Wall Street’s oddsmakers appear to be tempting fate, as the market for Amazon.com Inc. stock options is predicting once again a much smaller investor reaction to the e-commerce giant’s quarterly report than history would suggest.

****SD: Defying history worked out. The AMZN straddle priced in a 4.2 percent move — AMZN beat expectations and did pop, but the highest it got was about a 3.5 percent uptick. AMZN has come back to earth since, up about 1.7 percent.

A Cheap FireEye Trade to Make Before Earnings
Steven M. Sears – Barron’s
The recent implosion of the CBOE Volatility Index, or VIX, in reaction to France’s election is more meaningful to investors than generally understood. A low VIX — it plunged 25% on Monday and is now around 10 — suggests the options market is mispricing equities during one of the most volatile times of the year for many stocks: earnings season. This disconnect creates opportunity.

One portion of the Trump trade is alive and well, and investors are betting it has further to run
Joe Ciolli – Business Insider
The smallest companies in the US stock market have gotten the biggest boost from President Donald Trump’s proposed corporate tax cut, and investors see no end in sight for the rally.


What Traders Need to Watch in the Canada Dairy Dispute
Shelley Goldberg – Bloomberg
Last week, President Donald Trump accused Canada of taking advantage of U.S. dairy farmers. The behavior of the U.S.’s northern neighbor “is a disgrace,” he told reporters.

Introduction of interest rate options: A changing market paradigm
Forbes India
Classical textbook models which speak of a zero lower bound interest rate were rendered obsolete as central banks in Europe and Japan drove benchmark rates into negative territory to stave off deflationary threats. It is against this backdrop that the Reserve Bank of India (RBI) introduced interest rate options (IRO) on December 29, 2016. Interestingly, this comes at a time when inflation outlook in the US and Europe vis-à-vis India is moving in opposite directions and interest rate arbitrage will likely reduce.

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