Observations & Insight

Hungry for more: Dash Financial Sees Opportunity In A New Broker Landscape
Jim Kharouf – JLN
For some firms today, being young has its advantages. Dash Financial might just be one of those young and agile companies that can take advantage of the currents that are pushing and pulling the industry.

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

Lead Stories

Options on ETFs Are Too Big to Ignore
Mary Savoie, Executive Director, OIC – OCC
Some facts are too big to ignore and some trends too dramatic to dismiss. When you look at the growth of options on ETFs, the numbers speak for themselves. According to OCC, the world’s largest equity derivatives clearing organization, options on ETFs accounted for nearly 41% of all U.S. options volume in 2016. This is a 6.7% increase from 2015. When you look at the volume growth of options on ETFs over the last 11 years, 2016 was the second highest year for growth, with more than 1.6 billion options contracts cleared by OCC. In fact, since 2006, U.S. volume for options on ETFs has more than quadrupled.

****SD: And that options volume is concentrated in a select number of ETFs — EEM, IWM, GLD, QQQ, USO, VXX, GDX, XLF, TLT being some of the All-Stars. As has been noted before, there are some 6,500 ETFs available globally, but approximately a third of those have assets under $10m, and some two thirds sport AUM of less than $100m.

Trump-triggered trading bonanza looks set to continue
Jamie McGeever and Anjuli Davies – Reuters
Donald Trump’s surprise U.S. presidential election victory sparked a frenzy of trading and hedging late last year that boosted top U.S. banks’ revenue by 26 percent, according to Reuters calculations, and looks set to keep driving activity.

****SD: A Chicago daily today had an image that encapsulates the situation well: It was the Donald’s head on a matchstick. So, yeah, when an incoming president has a reputation that is inflammatory in nature, and volatility begets volume, bet on trading. (Especially since he’s going to keep on tweeting.)

Demand for Disaster Protection Increases as CBOE SKEW Index Hits a Six-Month High
Matt Moran – VIX Views
Today the CBOE SKEW Index (SKEW) closed at 143.43, its highest value since June 2016. CBOE SKEW Index values, which are calculated from weighted strips of out-of-the-money S&P 500 options, rise to higher levels as investors become more fearful of a “black swan” event — an unexpected event of large magnitude and consequence.

****SD: Current estimates are in the ballpark of 900k people attending the inauguration. Law enforcement is planning on some 60 different groups of varying sizes – from dozens to tens of thousands – to attend and protest. Two of the ones that caught my attention – gay rights activists holding a dance party by Pence’s place (complete with biodegradable glitter) and legal marijuana activists handing out joints to fire up (obviously, they were planning on handing out 4,200, but recently I’ve seen the number upped by 1k).

Ivy Schmerken – Traders Magazine
Competitive forces are at play in the OMS and EMS markets where vendors are expanding their capabilities at both ends to build the coveted OEMS.

****SD: This title took me back to my discrete mathematics class in college. Thanks to the professor, to this day I hate math with letters.

Sebi prepares to allow options trading in commodity bourses
Business Standard
Market regulator Sebi Thursday came out with draft norms that seek to allow options trading in commodity bourses as part of efforts to deepen the nascent commodity derivatives market.

S. Korea’s derivatives market in protracted slump
South Korea’s derivatives market shows no signs of bouncing back, data showed Thursday, amid criticism that strict regulations continue to damp investors’ appetite. The country once boasted the world’s largest derivatives market, but it has suffered a sharp decline in trading over the past several years.

Yellen Says Economy Near Goals Warrants Gradual Rate Hikes
Craig Torres – Bloomberg
Federal Reserve Chair Janet Yellen said the U.S. economy is “close” to the central bank’s objectives of full employment and stable prices and she’s confident it will continue to improve.

Trump’s policy plans and dollar hopes a paradox: ex-IMF adviser
U.S. president-elect Donald Trump failed to see the connection between his policy plans and the strength of the dollar when he expressed his favor of a weaker currency earlier this week, a former policy adviser of the International Monetary Fund said.

What’s in Store for 2017? Animus, Acrimony and Change – a lot of Change
Larry Tabb – TABB Forum
The new Trump administration’s agenda is likely to largely define 2017 for capital markets participants, as deregulation of the banks will be the key legislative push for the new president. Meanwhile, Europe will begin to deal with the pain of Brexit. The turmoil may create challenges for investors, but it will be good for the industry, as active management and hedge funds will make a comeback.

****SD: And I heard they’re rebooting the show “Will & Grace.” So there’s that too.

Trump, the inauguration and market gyrations — INFOGRAPHIC

Exchanges and Clearing

The New York Stock Exchange is fighting back against its critics
Matt Turner – Business Insider
The New York Stock Exchange is fighting back in a fierce debate over the cost of accessing the market. The war of words is the latest in a long-running battle over the cost of data, connectivity and colocation, and was triggered by the Big Board’s request to change the fees it charges for certain connectivity services.

Nasdaq Now Offers Additional Multicast Addresses for the Proprietary Equity and Options Data Feeds in Chicago
Available now, Nasdaq offers additional multicast IP addresses for the proprietary equity and options data feeds in Chicago, known as the “Chicago B” Feeds.

SGX reports 2Q FY2017 net profit of $88 million
Derivatives revenue declined $2.7 million or 3% to $75.0 million ($77.6 million), accounting for 38% (40%) of total revenue.

Volatility ETF Twice Nominated for 2016 ETF.com Awards
Russell Rhoads – CBOE Options Hub
We all have our morning rituals and one of mine involves checking the daily ETF.Com email I receive at CBOE. The top story was the nominations for the annual ETF.Com awards ceremony which is scheduled for March 30th in New York. I went through the list of nominees highlighting partners of CBOE and was delighted to see the REX VolMAXX Long VIX Weekly Futures Strategy ETF (Ticker: VMAX) recognized with a nomination in two categories.

****SD: Seeking Alpha has a bit on VMIN today.

HKEX Lays Out Its 2017 Work Plan
Improvements to the listing regime, an expansion of the Connect scheme, new products and enhanced platforms are the four themes of Hong Kong Exchanges and Clearing Limited’s (HKEX) key initiatives in 2017, according to a presentation today by Chief Executive Charles Li at the bourse operator’s annual media lunch.

Bats Global shareholders approve $3.2 billion CBOE buyout deal
Mark Davis – The Kansas City Star
Shareholders of Lenexa-based Bats Global Markets Inc. accepted the planned $3.2 billion buyout by a Chicago-based exchange operator.

****SD: In case you missed the news yesterday.

U.S exchanges rent helicopter, drape banner in pursuit of Snapchat IPO
Lauren Hirsch, Liana B. Baker and Olivia Oran – Reuters
This past November, Nasdaq Inc hired a helicopter to film Manhattan’s skyline using Snapchat’s new video-camera sunglasses and sent the aerial footage to its social media followers.

****SD: Below story related.

NYSE drops initial fees for switching companies in listings war
The New York Stock Exchange has waived the first partial year of annual listing fees for companies that transfer their stock to the Big Board from another exchange, a move that could help it poach more companies from rival Nasdaq.

Regulation & Enforcement

Giancarlo Maps CFTC Course
Rob Daly – MarketsMedia
Speaking at the Sefcon conference in Midtown Manhattan, Commodity Futures Trading Commission Commissioner Christopher Giancarlo set forth an aggressive agenda for his tenure as Acting CFTC Chair, which begins on January 20.

New CFTC head to ease March 1 deadline for new derivatives rule
John McCrank – Reuters
The top U.S. derivatives and commodities regulator will take steps in the coming weeks to ease a March 1 deadline for financial firms to post cash to cover uncleared derivatives transactions, the incoming acting chairman of the agency said on Wednesday.

Wall Street Braces for Cybersecurity Reporting
As early as March 1, financial institutions that fall under the purview of the New York Department of Financial Services will face a new cybersecurity regulation that aims to protect nonpublic customer information from hackers.

The BIG Interview: FIA
Joe Parsons – The Trade
The TRADE speaks to the Futures Industry Association (FIA) head of Europe Simon Puleston Jones on the current state of the clearing industry, MiFID II, and the impact of Brexit.

The DOL Fiduciary Rule Is Wealth Management’s Burning Platform
Mike McDonald – Dealbreaker
Investment managers could be forgiven for thinking they have fallen into Charles Dicken’s A Tale of Two Cities. It is the best of times and the worst of times for the profession. Even as the market sits near all-time highs, the threat of the DOL’s new Fiduciary Rule looms over the industry, threatening at its extreme to destroy many advisors’ businesses. The Fiduciary Rule is the burning platform issue of many investment firms right now, and it is time advisors came up with a plan to put out that fire.

Brussels races to amend rules that hurt pensions industry
Jim Brunsden in Brussels and Philip Stafford – Financial Times
Brussels is seeking to defuse a regulatory time-bomb facing Europe’s pensions as the retirement industry warns that EU derivatives rules scheduled for 2018 could cost savers billions.

FIA welcomes Myriam Condon as Vice President of Member Services and Business Development
FIA is pleased to announce the appointment of Myriam Condon as Vice President Member Services and Business Development.

CFTC’s Enforcement Division Issues New Advisories On Cooperation
The U.S. Commodity Futures Trading Commission’s (CFTC) Division of Enforcement today issued two new Enforcement Advisories outlining the factors the Enforcement Division will consider in evaluating cooperation by individuals and companies in the agency’s investigations and enforcement actions.

Enforcement Director Aitan Goelman To Leave CFTC
U.S. Commodity Futures Trading Commission (CFTC) Chairman Timothy Massad today announced that Division of Enforcement Director Aitan Goelman will leave the agency on February 3, 2017. During Mr. Goelman’s tenure, the Division brought a number of first-in-kind cases utilizing the new enforcement authorities created by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

SEC Chief Of Staff Andrew J. Donohue To Leave Agency
The Securities and Exchange Commission today announced that SEC Chief of Staff Andrew J. “Buddy” Donohue will be leaving the agency at the end of January.


Welcome to the Jungle: Understanding Speed in the Capital Markets
Larry Tabb – TABB Forum
Understanding the role of speed in trading is imperative to understanding how to trade and what happens with your order. And understanding what speed means to the trading process requires a knowledge of exchange infrastructure and how speed is employed by the markets.

****SD: I can’t read the phrase “welcome to the jungle” in anybody’s voice but that of Axl Rose.

SIFMA Comment On CAT Processor Selection
SIFMA today released the following statement from Randy Snook, executive vice president, business policies and practices, after the self-regulatory organizations (SROs) selected Thesys Technologies LLC to operate the Consolidated Audit Trail (CAT) system pursuant to the National Market System Plan mandated by the Securities and Exchange Commission:

FINRA Seeks Comment on New Report on the Potential Implications of Blockchain
Richard Kastelein – The Blockchain
Distributed ledger technology (DLT), better known as Blockchain, has garnered significant interest in the securities industry, with many market participants indicating a desire for increased regulatory engagement as they explore the technology and its possible applications.


Hedge Funds: Trump Spurs Extreme Positioning
Johanna Bennett – Barron’s
According to Societe Generale’s monthly Hedge Fund Watch report, hedge fund positions, either long or short, tend to reveal valuable insights on financial markets. So with less than two days to go until Donald Trump takes the oath of office, it appears that the president-elect upcoming ascendancy is “spurring extreme positioning in all asset classes,” writes Alain Bokobza, strategy team head or asset allocation.

****SD: Nassim Taleb approves.

Why Stocks Could Retreat After Trump Takes Office
Andrea Kramer – Schaeffer’s Research
The S&P 500 Index (SPX) performance immediately after a presidential election has been a pretty good indicator for how stocks perform in the six months after Inauguration Day, as Schaeffer’s Senior Quantitative Analyst Rocky White pointed out earlier this week.

Volatility Insights: What Can You Learn From The Big Short Interest In The VIX Futures?
Seeking Alpha
VIX shorts are currently near a 5-year high. Spot VIX has been realizing low volatility. There is a better relationship between the net positioning and the market.

Currency hedging won’t eliminate volatility, risk from your stock portfolio
Anora Mahmudova – MarketWatch
U.S. investors face a prickly conundrum in 2017. U.S. equities top the list of the most expensive assets globally. While extreme valuations are never a good indicator of a market top, high valuations do signal low or negative long-term returns.

Shorting VIX: Whoa Nelly
Greg King – Seeking Alpha
Short volatility strategies are growing in popularity. These short volatility strategies may provide substantial upside, but carry considerable risks. The risks associated with tactical approaches to short volatility investing may argue in favor of extremely active or purely passive approaches to short volatility investing.

Wells Fargo Stock Is Weaker Than Understood
Steven M. Sears – Barron’s
Wells Fargo has generally been treated as a near-messianic stock. But the fake-account scandal has prompted many investors to view one of Warren Buffett’s top holdings with skepticism – and even derision.


Options Fundamentals for the New Year
Whether you are new to listed options or a seasoned pro, this presentation offers concepts that you MUST know with confidence, if you use options. We also will examine key risk/reward factors, and, as always, we will answer your options questions, too.

****SD: This is Jan. 24 at 3:30pm.


Fleeced by Israeli binary options firm, Canadian man dies by suicide
Simona Weinglass – The Times of Israel
Fred Turbide of Edmonton, Alberta, was a devoted husband and father of four who was looking forward to enjoying his retirement with his family. Then the ‘brokers’ of 23Traders got hold of him

Mizuho Bank Adopts Thomson Reuters FX Trading
Leading Japanese bank Mizuho has integrated Thomson Reuters next generation FX desktop, FX Trading (FXT), into their trading workflows. FX Trading brings together all of Thomson Reuters FX transaction venues onto a comprehensive end-to-end platform to streamline workflows and create a single point of access to the industry’s largest collective independent pool of FX liquidity.

KCG’s Q4 Earnings Record Yearly Highs in Revenues, EPS
Finance Magnates
KCG Holdings (NYSE: KCG), an independent securities firm agency and market-making execution services provider, has reported its financial metrics for Q4 2016, which saw an outperformance across key segments, including its revenues and profitability, according to a KCG filing.

Global Risk Briefing
Politics is roiling markets as the Trump era dawns, Chinese leadership turns over and major elections sweep through Europe. Bloomberg’s risk map signals where danger lurks.

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