Push for MiFID II Delay; Libor settlement; Bond volatility

Oct 13, 2017

Observations & Insight

The Kooky News for Friday the 13th
Spencer Doar – JLN

Befitting the day, there are indeed some weird happenings in our markets.

First, recall the release in Observations yesterday – TradingScreen Majority Shareholders Initiate Criminal Legal Action Against Giampiero Grandi, Board Chairman, For Misappropriation Of Corporate Assets. TradingScreen responded to that release with a statement, saying the allegations made were: “false, baseless, and meritless, and has been propagated by the company’s disgruntled former CEO [Philippe Buhannic], who was fired by the Board for cause last year after intentionally hitting an employee in front of numerous witnesses and attempting to cover it up, as well as for other corporate malfeasance. This individual neither is a majority shareholder of TradingScreen nor does he represent a majority of shareholders or even speak for the majority of shareholders. Thus, the standing he claims is totally false. Just because he claims it, does not make it so.”

Then there is a marvelous tale of ineptitude and insider trading from the Minneapolis Star Tribune (it’s also listed in our Regulation section). Apparently, this fellow Shane Fleming worked for Life Time Fitness and stumbled across some non-public information which he knew was an opportunity to make money. The problem? He didn’t know how to execute.

That led to him placing a call to his brokerage firm, asking “If you are trading, and I’ve heard of … companies that are trading and eventually they sometimes are bought and they go private and the company will buy out all of the existing stock that is outstanding, you know. So how does that work? Like, say for example if I had, if I had just bought options on a stock …” Wow. Making matters even stranger is that he passed the info along to associates who then paid him for the tip. In one instance, the tip was paid for with “at least 10 pounds of marijuana.”

Also worth noting in today’s newsletter is the release about Dimon Exchange, a planned cryptocurrency derivatives exchange about to have an ICO. It’s notable mostly for the firm’s disdain for Jamie Dimon. The website includes commentary like “Why call it Dimon? Just so that every morning Mr. Jamie Dimon will hear and see the cryptocurrency he inspired to create. The Ticker Symbol is DIM” and “[Dimon] is the master of media manipulation and has managed to avoid any and all backlash by the general population, resulting in extra bonuses and increase in income and now he is a BILLIONAIRE.” There’s quite a bit more along those lines included.

Then we have ANOTHER hurricane – a record setting 10th straight. Making it more anomalous, this hurricane, Ophelia, is projected to potentially hit Europe. Europe?!

Weird goings-on for sure.


Lead Stories

Industry pushes for a second Mifid II delay
Lucy McNulty – Financial News
Banks, exchanges and market infrastructure firms are quietly lobbying European regulators to slightly delay sweeping changes to Europe’s trading rulebook amid last-minute panic that the reforms will cause “a Y2K event”.

****SD: Check out this letter to the Financial Times – Commission has created a monster in Mifid II. Makes the point that it is such a “sprawling and dense” piece of regulation – it has 1.5m paragraphs – that few players will have the resources to fully understand it.

Citi, Deutsche Bank, HSBC agree to pay $132 million to settle Libor claims
Brendan Pierson – Reuters
Citigroup Inc, Deutsche Bank AG and HSBC Holdings Plc have agreed to pay a combined $132 million to settle a U.S. class action brought by futures traders accusing them of manipulating the Libor benchmark interest rate, according to a U.S. court filing on Wednesday.

****SD: The WSJ story on this settlement specifies that the settlements would go to people who transacted in eurodollar futures OR options on eurodollar futures.

Bond funds brace for volatility
Frances Yoon – Nasdaq
Global investors are positioning for an end to the bull run in credit markets as the US Federal Reserve prepares for another interest rate increase as early as December.
Some of the world’s biggest fixed-income managers, including Pimco, Invesco and Aviva Investors, are buying options or reducing risk to safe-proof their credit portfolios against a faster-than-expected rise in US interest rates.

Swedroe: Low Vol In Perspective
Larry Swedroe – ETF.com
One of the significant problems for the first formal asset pricing model developed by financial economists, the capital asset pricing model (CAPM), was that it predicts a positive relationship between risk and return. However, empirical studies have found the actual relationship to be flat, or even negative.

There’s Little Reason to Be Bearish on Stocks
Michael Kahn – Barron’s
With all the potentially scary news out there, stocks continue to edge higher. We’ve seen fresh all-time highs in most of the major indexes from the Dow Jones Industrial Average to the Dow Jones Transportation Average. Lesser known indexes like the Standard & Poor’s 100 mega-cap index and Russell 2000 small-cap index have also rallied, although it has been five trading days since the peak in Russell 2000.

Regulation & Enforcement

SEC invites comments on CBOE plans to offer electronic-only order type
Maria Nikolova – FinanceFeeds
On Thursday, October 12, 2017, the United States Securities and Exchange Commission (SEC) posted a notice about a regulatory submission made by Chicago Board Options Exchange, a subsidiary of CBOE Holdings, Inc, regarding a new order type the Exchange plans to introduce.
The Exchange proposes a rule change to create an electronic-only order type.

Top EU banking supervisor warns against relaxing rules
Vivek Ahuja – Financial News
The European Union’s top banking sector supervisor has warned national regulators against competing with each other by either relaxing or tightening their standards while negotiations over the UK’s exit from the bloc are ongoing.
In an opinion paper addressed to European and national regulators published on Thursday on issues related to Brexit, the European Banking Authority said the “unprecedented situation” of Brexit and the possibility of UK-based finance firms looking to relocate to EU bases had prompted the regulator to issue guidance.

****SD: More potential for jurisdictional arbitrage. From FOW – [https://goo.gl/icB3wb|[Mifid II equivalence regime “suboptimal” for Brexit relocation]].

Automated-Trading Supervision Should Target ‘True Risks,’ CFTC Official Says
Gabriel T. Rubin – WSJ
The Commodity Futures Trading Commission needs to take a fundamentally different approach to regulating automated trading than the course pursued under the Obama administration, Republican Commissioner Brian Quintenz said in an interview.

Trading case tied to former Life Time exec hits investing neophytes
Lee Schafer – Star Tribune
It’s easy to imagine that illegal insider trading is mostly a game played by slick bad guys or aggressive traders who sometimes cross the line.
The story that federal prosecutors tell in the recent indictment of former Life Time Fitness Vice President Shane Fleming and eight others is a lot different. What’s striking is the very ordinariness of the people involved. They include a mortgage broker, a Realtor and an employee of a real estate development company.

Special Report: CFTC’s Giancarlo testifies at Congressional hearing
The House Agriculture Committee held a hearing on Oct. 11 to receive an update from Chris Giancarlo, the chairman of the Commodity Futures Trading Commission, on the CFTC’s agenda. Giancarlo’s testimony covered a wide range of issues and initiatives at the CFTC, including cybersecurity, fintech, enforcement, Project KISS, swap trading and reporting rules, clearinghouse supervision, and cross-border issues.

Exchanges and Clearing

Nasdaq’s future lies in tech, data and analytics, says chief
Nicole Bullock and Philip Stafford – Financial Times
To many Nasdaq has a clear identity — the eye-catching, fast-paced equities exchange on business TV that hosts the pioneers of the US technology industry, such as Microsoft, Google and Apple.
However, as even the company admits, this perception is a little dated. When equities profit margins were squeezed it long ago diversified into markets such as options and selling trading technology.

Deutsche Boerse CEO discussed merger with FinMin before share purchase: document
Tom Sims, Hans Seidenstuecker – Reuters
The head of Deutsche Boerse met with the German government to discuss a possible merger with London Stock Exchange before he made a share purchase that sparked an insider trading investigation, according to excerpts of a document reviewed by Reuters

Dimon Exchange Launches its ICO Pre-Sale
Dimon Exchange Ltd. announced today that it has launched its initial coin offering pre-sale for its utility Dimon Coin, symbol (DIM).
According to the company, the ICO pre-sale will last for a period of 30 days, and it is offering a 20% bonus to contributors. The ICO seek the sale of 3,520,000 DIM at a price of 1 ETH for 35 DIMs with the aim to raise a total of approximately US$31 million.

Chinese Trading Muddles a Popular Signal of Global Growth
Amrith Ramkumar – WSJ
Shanghai is encroaching on London as the hub of the metals-trading world—a shift that investors say threatens to erode the reliability of copper, zinc and aluminum prices as a read on the health of the global economy.
Trading volume on the Shanghai Futures Exchange nearly tripled in the period between April 2013 and July 2017, data on averages compiled by IHS Markit show. Metric tons traded in Shanghai have climbed each year since 2013.

How introduction of options will affect commodity markets
India Infoline
Finally, the wait is over for Commodities Market as MCX is all set to launch Options in Gold in the month of October. This will be a game changer for the commodities market as it will result in the participation of new players in the market as it carries low risk with it as compares to Futures.


Data Centers Everywhere Via Fiber
Mattias Fridstrom – Data Center Knowledge
It is now almost as easy to set up a 100 Gbps or faster optical connection across hundreds to a thousand kilometers or more as it for a short few hundred meters between racks at an interconnect point.


California fire: Traders cranking up hedges on Constellation Brands
Joe Ciolli – Business Insider
Constellation Brands, the biggest wine company in the US and a major producer of brands like Robert Mondavi, has a lot at stake right now as wildfires decimate California’s wine country.
And that fact is not lost on stock traders. Their nervousness around the situation has caused a surge in hedging costs on the stock.

****SD: Another story about an industry getting hammered via Bloomberg – Marijuana Growers Risk Being Wiped Out by California Fires

Bets Against the Nasdaq 100 Are Surging in This Leveraged ETF
Cecile Vannucci – Bloomberg
Investors are doubling down on bets against U.S. tech shares. They’ve pushed the number of options to a one-year high for a leveraged exchange-traded fund that rises when the Nasdaq 100 Index falls, with more than five calls outstanding for each put.


E*TRADE to Host Education Day in Chicago
E*TRADE Financial Corporation today announced it will host an Education Day at the Marriott Marquis Chicago in Chicago, IL on Saturday, October 21, 2017 from 8 a.m. to 5 p.m. The event offers a number of complimentary sessions for investors and traders interested in learning from financial professionals.


Global oil market seen balanced in 2018, even with rising output: IEA
Amanda Cooper – Reuters
Global supply and demand for crude oil will be largely balanced next year, as growth in consumption helps erode a three-year-old overhang of unused fuel and should mostly offset a steep rise in output, the International Energy Agency said on Thursday.

ECB to Consider Cutting QE Purchases in Half Next Year
Carolynn Look and Jana Randow – Bloomberg
European Central Bank officials are considering cutting their monthly bond buying by at least half starting in January and keeping their program active for at least nine months, according to officials familiar with the debate.

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