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.

Later this quarter Dash is expected to complete its acquisition of LiquidPoint, Convergex’s options brokerage and technology business, thus giving the combined firm 13 percent of the equity options and index options market volume. That’s more than double the current marketshare Dash Financial has quickly built since it launched in 2011

Read the rest of the column here.

Lead Stories

Record Equity Investor Calm Means It’s Cheap to Hedge Trump Risk: Bank of America
Sid Verma and Lu Wang – Bloomberg
Batten down the hatches. Investors should dive into the options market while it’s cheap to hedge against potential shocks under Donald Trump’s presidency, as global equity volatility remains at record low levels despite surging policy risks, Bank of America Corp. strategists warn.

Thesys to run massive U.S. securities markets trade depository
John McCrank – Reuters
Thesys Technologies LLC has been chosen to build and run a massive stock and options trading database ordered by the U.S. Securities and Exchange Commission aimed at helping regulators police the increasingly fast, fragmented and complex markets. Thesys was selected in a vote by all U.S. stock and options exchanges, including Intercontinental Exchange Inc’s New York Stock Exchange, Nasdaq Inc, and Bats Global Markets, as well as the Financial Industry Regulatory Authority, the group said in a statement on Tuesday.

****SD: Other news outlets on this development: MarketWatch, PR Newswire release, Waters Technology, Finextra, Traders Magazine, the FT and the WSJ.

CBOE Holdings Stockholders Approve Share Issuance In Bats Merger
At a special meeting of stockholders of CBOE Holdings, Inc. (NASDAQ: CBOE) held today, CBOE Holdings stockholders voted in favor of a proposal to approve the issuance of shares of CBOE Holdings common stock pursuant to the previously announced Agreement and Plan of Merger, dated as of September 25, 2016, by and among CBOE Holdings, two wholly-owned subsidiaries of CBOE Holdings and Bats Global Markets, Inc.

****SD: FOW on the approval here.

The case for smarter regulation of centrally cleared markets
Craig Donohue – FTSE Global Markets
In light of the new administration in Washington OCC Executive Chairman and CEO Craig Donohue shares his thoughts on how highly prescriptive regulations in the derivatives markets could have unintended consequences.

****SD: “IOSCO’s new approach would eliminate virtually any discretion that a CCP currently possesses to tailor its risk management framework to the business and the services it provides. This interferes with a central counterparty’s ability to continue to successfully manage its unique credit, liquidity, operational and business risks.”

How Trump Crushed Millions of Dollars in Oil Options Trades
Alex Longley – Bloomberg
A corner of the oil market has been in a frenzy about potential tax-reform plans favored by House Republicans. Now, some who study the market say comments by President-elect Donald Trump have poured cold water on those plans, devaluing millions of dollars in options trades.

****SD: Well this is pretty karmic given another recent story – Top Oil Traders Disclosed Trump Campaign Donations of Just $168

Convergex Prime Brokerage Services Added New Clients With Over $1 Billion In Assets During 2016
PR Newswire
Convergex, an agency-focused global brokerage and trading related services provider, is pleased to announce that in 2016, its Prime Brokerage business added new clients with a collective total of over $1 billion in assets and continues to see a steady increase in its international client-base. Enhancements to Convergex’s Prime Services product offerings, including expanding its futures execution and clearing services and adding fully-paid for lending capabilities, helped generate additional interest and growth from both the U.S. and Europe.

****SD: I wrote about the outlook from Convergex at the beginning of December.

Exchanges and Clearing

ISE to Introduce Dedicated SQF Server Offering for INET Platform
As part of the ISE migration to Nasdaq’s INET technology, we are pleased to announce that we will begin to offer ISE Primary Market Makers (“PMMs”) and Competitive Market Makers (“CMMs”) with the ability to enable their SQF ports on a dedicated server (“Dedicated SQF”) in the Nasdaq Data Center, pending filing with the Securities and Exchange Commission (SEC). This unique offering provides a dedicated environment for customers’ logical ports.

Indian market regulators making constant efforts to mitigate trading and settlement risks
India Infoline
The National Commodity and Derivatives Exchange (NCDEX) has adopted a new trading and surveillance system- NextGen that is expected to increase the speed of order execution by up to 5 times and can handle complex trading strategies.

Taiwan futures exchange embraces another record-breaking year in 2016
Sophia YangTaiwan News
Despite the gloom of financial markets in 2016, the Taiwan futures exchange still recorded a whopping 242 million contracts, the second highest in the history.

The old-school lobbyists may well want to force all OTC FX on exchange, but what if you are a Swiss Bank?
Andrew Saks-McLeod – FinanceFeeds
Switzerland’s vault-like reputation and notorious disdain for interference from outside may well be its savior should the exchange lobby attempt to revamp OTC derivatives onto listed venues. When was the last time anyone argued with a Swiss bank or its regulator? That’s right. Never

Regulation & Enforcement

CFTC’s Massad, Giancarlo to make crucial NYC speeches
Luke Jeffs – Futures & Options World
CFTC chair and commissioner due to speak at a conference on Wednesday
The current and likely future leader of the US derivatives regulator are to make speeches in New York early on Wednesday, in the latest messages by the current Commodity Futures Trading Commission regime before Trump’s Friday inauguration casts the future of their agency into doubt. Timothy Massad, the chair of the CFTC since June 2014, and Chris Giancarlo, the outspoken CFTC commissioner tipped to replace Massad, are due to speak at the start of a conference on Wednesday morning in New York.

Departing SEC Chair Mary Jo White Blasts Congress on Way Out the Door
Reuters via Fortune
Outgoing U.S. Securities and Exchange Commission Chair Mary Jo White had some harsh parting words for Congress on Tuesday and a plea to the incoming administration to ensure the regulator remains independent and insulated from political pressures.

50 Phrases to Run From
The Reformed Broker
There’s a peculiar patois in which the financial charlatan speaks. Below, we collect some of the tropes and tricks of the unhinged market rhetorician.


Lessons from an engineer turned CEO (VIDEO)
Learn how Hazem Dawani turned his passion for building into a multi-million dollar FinTech software company.


Options Market Bracing for Whopper-Sized Swing for Netflix Shares
Chris Dieterich – WSJ
‘s quarterly earnings report regularly produces massive stock swings, and traders expect more of the same this afternoon. Options traders are pricing in expectations for a Netflix price move of 9.5%, either higher or lower, by the end of the week, according to options data provider Trade Alert.

****SD: I don’t care so long as I get to see more Luke Cage, Lemony Snicket, Sense8, Black Mirror (they can kill the Marco Polo series though).

Product Watch: Getting long on VIX
Georgio Stoev – TradingFloor
We all went through the bliss of this past holiday season so determined to finish the year on a high note and even more determined to start the new year on an even one.

Volatile Pound Stokes Life Into Emerging-Market Carry Trades
Natasha Doff – Bloomberg
There’s life in the great emerging-market carry trade yet, although now it comes with a twist. Investors are betting a trade that reaped returns of more than 20 percent last year for borrowing dollars to buy Brazil’s real, Russia’s ruble and South Africa’s rand has further to run — only they’re using the battered British pound to fund long positions in emerging-market currencies. Citigroup Inc. on Monday named shorting the pound against the Russian ruble its top trade of the week.

SamurAI Founder Explains The Risk Profile Benefits Of Buying Long-Term Options Vs. Equity ETFs
Benzinga via Yahoo
Benzinga recently had a chance to speak with Leav Graves, founder of SamurAI, about the advantages long-term options buyers have over equity ETF buyers. SamurAI is devoted to building artificial intelligence technology that can help professionals integrate option trading into their portfolios.

****SD: Graves is doing some interesting stuff over at SamurAI (and he’s a real nice guy). The company was an FIA Innovator this year.

Constructing income-generating strategies for options
Gary Delany – TradingFloor
“There’s no such thing as a free lunch” is a frequently heard commercial saying. When looking at income-generating strategies for equity options, perhaps a better guideline is the relationship between risk and return – what risk am I taking for what return? Am I happy with that level of risk?


BIS Study Casts Doubt on ‘Ultimate Effectiveness’ of QE
Tracy Alloway – Bloomberg
Central banks might have a problem with their policies, according to their bank. A working paper by the Bank for International Settlements found cuts in interest rates and asset purchase programs can help reduce volatility in stocks and bonds and dampen the so-called term premium, or the additional compensation investors receive for holding longer-term government debt.

Interactive Brokers Group Announces 2016 Results
Interactive Brokers Group, Inc. (NASDAQ GS: IBKR) an automated global electronic broker and market maker, today reported diluted earnings per share on a comprehensive basis of $1.19 for the year ended December 31, 2016, compared to diluted earnings per share on a comprehensive basis of $0.62 for 2015.

China’s Yuan Woes Get Worse
Christopher Balding – Bloomberg
In the first week of 2017, the offshore yuan surged by a record amount against the U.S. dollar over two days, interbank borrowing costs soared and volatility intensified. The following week, pretty much everything reversed. It’s a familiar pattern that exemplifies the contradictions bedeviling China’s currency.

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