SIFMA on Strike Listing Procedures; SocGen Closes Commodities Desk; Spoofing Trial Coverage

Apr 10, 2019

Observations & Insight

Hung Jury in Trial of US v Thakkar
Thom Thompson – John Lothian News

The trial of Jitesh Thakkar for aiding and abetting two instances of spoofing – which were executed by the convicted mega spoofer Navinder Sarao, whom Thakkar never met – ended Tuesday afternoon at about 4:30 when Judge Robert Gettleman dismissed the hopelessly locked jury.

Gettleman praised the jury for its conscientiousness and thanked them warmly. He invited them back to his chambers, where he thanked them individually and told them that they were free to discuss the case as they wished. They were told they could return to the courtroom and speak with the attorneys, or not.

The three jurors who came back to the courtroom all seemed to have been in favor of acquittal.

Read the rest of this commentary here.


The Great Migration – Rick Lane, Trading Technologies

Trading Technologies announced the sunsetting of its X_Trader platform at the end of 2018, which means that a large part of 2019 will be spent migrating its remaining user base to the new TT platform. But that’s not the only thing Trading Technologies has in the works. In this video from JLN’s Industry Leader Series, Trading Technologies Chairman and CEO Rick Lane talks about revitalizing an entrenched product, TT’s order management system, and the decision to offer infrastructure-as-a-service.

Watch the video »


WFE IOMA 2018 Derivatives Report
This report focuses on trends in derivatives against this backdrop and examines how market participants responded to shifts in the underlying market. In this high volatility environment , 2018 saw record high volumes of trading in derivatives. For the first time in the period under review (since 2005), overall volumes exceeded the 30 billion mark with 30.1 billion contracts traded in 2018. This was a 20.9 % increase in volumes on 2017.

****SD: I like the ways they break out options from futures. Compared to FIA’s presentation of last year’s derivatives volumes, the WFE’s has different granularity and graphical representations.

Lead Stories

Options Market Structure: Proliferation of Listed-Options Series Available for Quoting and Trading
The Listed Options Trading Committee of SIFMA sent a letter to propose working collectively with the Securities and Exchange Commission, The Options Clearing Corp. and the U.S. Options Exchanges to create a uniform set of strikes listing rules.
SIFMA believes that 1) the current strikes listing procedures could be improved due to inconsistencies in the individual exchange rules; 2) the industry would benefit from a uniform set of rules; and 3) that strikes listing is a non-competitive issue.

SocGen Is Latest Bank to Shutter Commodities as Profits Bite
Catherine Ngai – Bloomberg (SUBSCRIPTION)
Bank Shutting OTC commodities business, trading subsidiary; Comes after BNP shut its U.S commodities derivatives desk
Add Societe Generale SA to the list of banks and financial institutions to take a big step back from commodities amid a slump in trading profits.

****SD: It’s not just those trading desks – Societe Generale axes 1,600 jobs as part of major cost cutting scheme.

Speed Bumps: Anti-Latency Arbitrage Mechanisms Make Markets Better
Matt Clarke, XTX – TABB Forum
Clearly, certain market participants are willing to go to great lengths and considerable cost to gain the ultimate speed advantage. But there are occasions when latency arbitrage activity has a negative effect on outcomes for long-term investors, and, as such, it may be beneficial to curb this activity through implementation of thoughtfully designed anti-latency arbitrage mechanisms.

****SD: CTC is another firm open to bumps.

Liquidity `Illusion’ Has These Funds Making Stock-Doomsday Plans
Cecile Gutscher and Yakob Peterseil – Bloomberg (SUBSCRIPTION)
Denver investor preps options strategy for next flash crash; Watch out for when algos ‘switch off their machines’
A small band of humans is taking up arms against the rise of the machines.
Fund managers who ride big sell-offs in stocks are relishing fresh Wall Street warnings that robots and the like are leaving the bull market more vulnerable to explosions in volatility and crashes in liquidity.
You’ve reached you

Should Software Engineers be Criminally Liable for Trader’s use of their code?
Tayloe Draughon – via LinkedIn
I sat in stunned silence as I listened to the closing arguments in the case of the US vs Jittesh Thakkar, as the prosecution distorted the professional world that I live in.

****SD: Chicago Tribune on the case here.

Options Market in a Fairly Precarious State (Radio)
Bloomberg (AUDIO)
Steve Sosnick, Chief Strategist, Interactive Brokers, joined Rishaad Salamat and Doug Krizner on Daybreak Asia. He starts on mean reversion, saying the question is: to what mean are we reverting? He moves onto volatility and what to be aware of.

Pound Traders Brace for Witching Hour News From EU Brexit Summit
Charlotte Ryan – Bloomberg (SUBSCRIPTION)
Neil Jones is leaving his Mizuho office in the City of London at the usual time on Wednesday. But the potential for Brexit headlines in the currency market’s witching hour means he will be staying up late, glued to screens for news, prices and his hedge fund clients.

****JB: From Reuters – Sterling rises as EU set to grant Britain a second Brexit delay

Exchanges and Clearing

A Closer Look at Intercontinental Exchange’s Trading Revenues
Trefis – Forbes
Intercontinental Exchange is one of the largest exchange operators in the world, and runs seven cash exchanges and five futures exchanges across the globe. Since its establishment in 2000, ICE has evolved from a primary focus on energy trading to acquiring the world’s largest stock exchange in 2013, and finally to a focus on its data services business more recently. The company’s stock has seen a steady increase in the last decade, growing consistently at a CAGR of 6%.

Nasdaq Publishes Blueprint to Advance Markets for Main Street Investors and Companies of all Sizes
Nasdaq today launched TotalMarkets: Blueprint for a Better Tomorrow, which proposes structural changes to the U.S. equity markets to modernize regulations that benefits all investors and issuers. The proposal calls for updating regulations to reflect the evolution of the markets and technology advances that have occurred in the years since major market structure reform was enacted, and for enabling greater issuer choice in how issuers and investors interact within capital markets.

****SD: From Greenwich Associates – Examining Nasdaq’s Blueprint for the U.S. Equity Market.

SGX reports market statistics for March 2019
Derivatives volume hit record high during first quarter of 2019, reaching daily average volume of more than 1 million contracts per quarter for the first time

Deutsche Boerse acquires analytics provider Axioma for $850 million; Deutsche Boerse will combine its own index business with Axioma to form a new company.
Hayley McDowell – The Trade
Exchange operator Deutsche Boerse has moved to bolster its index and risk analytics business through the acquisition of Axioma for $850 million.

Regulation & Enforcement

Renaissance Explores Settlement as IRS Seeks Billions in Taxes
Zachary Mider and Miles Weiss – Bloomberg (SUBSCRIPTION)
Long-running tax dispute centers on flagship Medallion’s gains; Founder James Simons among executives who may bear the costs
Hedge fund giant Renaissance Technologies is in talks to resolve a dispute with the Internal Revenue Service over a tax maneuver that saved its owners billions of dollars.

****SD: At the center of it all? Some clever options moves that allowed Renaissance to make short term gains look like long term returns.

U.S. bank CEOs face off with Congress for the first time since financial crisis
Imani Moise – Reuters
Chief executives of some of the largest U.S. banks appeared before Congress on Wednesday, giving lawmakers their first opportunity to grill the lenders since the 2007-2009 financial crisis.

Derivatives Are Still Too Dangerous
Editorial Board – Bloomberg (SUBSCRIPTION)
Financial regulators have done a lot to reform the derivatives markets that helped turn the financial crisis of 2008 into a global disaster. But their work is unfinished — and there’s even a danger that, in one way, they might have made things worse.

****SD: TL;DR – Clearinghouses need more skin in the game.


FIS Named a Best Place to Work for LGBTQ Equality for Second Straight Year
Business Wire via Yahoo Finance
FIS, a global leader in financial services technology, announced that it has been named a “Best Place to Work” for lesbian, gay, bisexual, transgender and queer (LGBTQ) equality by the Human Rights Campaign Foundation. It was the second straight year that FIS received this designation.

FlexTrade joins forces with OpenFin on buy-side application interoperability
John Brazier – The Trade
Execution and order management systems specialist FlexTrade has announced a new partnership with financial markets operating systems vendor, OpenFin.

Global Business Value Of Artificial Intelligence In Banking To Reach $300 Billion By 2030, IHS Markit Says
Artificial intelligence (AI) is revolutionizing the banking sector by detecting fraud in financial transactions on the basis of a pre-defined set of rules. In 2018 AI in banking business was estimated to be $41.1 billion, which includes the cost savings and efficiencies of introducing AI technology compared to keeping existing infrastructures and processes. With the projected increase in the number of AI projects that are launched and become commercially deployed, the business value of AI in banking is projected to reach $300 billion by 2030, according to global business information provider IHS Markit (NASDAQ: INFO).


Means, Medians and Mistakes
Euan Sinclair – Talton Capital Management
The mean is the average value of a sample and the median is the 50th percentile value, the middle number.
The difference is straightforward and is known by anyone with a high school education. But a lot of traders, particularly option traders, seem to misunderstand what it means in practice.

Market Volatility Is Up. So Are Stocks. What Does That Mean?
Crystal Kim – Barron’s
The fear of missing out on the next stock rally appears to be greater than the fear of a downturn, despite the latest tariff trouble. The Cboe Volatility Index, also known as the fear gauge, has been bopping around in the mid-teens for most of the year. Volatility usually rises when stock prices falter, and right now the fear gauge doesn’t seem to likely to rise sharply in the near-term. That means investments that track the VIX—such as the VelocityShares Daily 2X VIX Short Term ETN (TVIX) and the iPath Series B S&P 500 VIX Short-Term Futures ETN (VXXB)—aren’t likely to be winning propositions anytime soon.

Portfolios and Investing: If/When “Winter is Coming”?
Erik Norland – CME Group
The Northern Hemisphere, home to 90% of the world’s population, is celebrating the arrival of spring. But, be warned: “winter” is coming, and not just for fans of HBO blockbuster Game of Thrones. After a multi-year Federal Reserve (Fed) tightening cycle that turned the yield curve flat, an investment winter might be coming in stocks and U.S. Treasuries. If this Fed-induced investment winter is similar to the previous three, it could bring sharply positive returns for bond investors, especially at the short-end of the yield curve, and mediocre or even negative returns for equities.

`Barbell’ Strategy Is Best as Volatility Set to Climb, DBS Says
Joanna Ossinger – Bloomberg
Volatility is likely to rise in the months ahead, and the best way to be prepared is to take concentrated bets at both ends of the risk spectrum, according to DBS Group Holdings Ltd.
Price swings across assets are currently low, but the advanced stage of the market cycle, moderating global economic growth and political uncertainty particularly in Europe hint at higher volatility to come, Hou Wey Fook, chief investment officer of Southeast Asia’s biggest lender, said by email Tuesday. He’s sticking with a “barbell strategy,” using both growth-oriented and more conservative investments, to outperform at such times.

****SD: Somewhere Nassim Taleb is nodding his head.

A ‘Not So Rosy’ Outlook Might Actually Be Good for Stocks, Analyst Says
Nicholas Jasinski – Barron’s
Uncertainty on several fronts—Federal Reserve policy, trade wars, and economic growth, to name a few—brought the S&P 500 to the brink of a bear market in late 2018. But as those overhangs have begun to be resolved largely in investors’ favor, there’s room for stocks to trade at higher valuations, according to Jonathan Golub, chief U.S. equity strategist at Credit Suisse.


IMF warns on risk of rapid exit from emerging market assets
Steve Johnson – Financial Times (SUBSCRIPTION)
The seemingly inexorable rise of passive, index-driven investment could have “destabilising effects” on emerging markets in the event of a sudden dash for the exits, the IMF has warned.

Hong Kong Overtakes Japan as World’s Third Largest Stock Market
Will Davies – Bloomberg (SUBSCRIPTION)
Bragging rights to Hong Kong, for now.
The city’s equity market has overtaken Japan to be the world’s third largest in value, behind only the U.S. and mainland China, courtesy of a rebound in Hong Kong stocks after their worst year since 2011.

If this ‘relentless bid’ dries up, investors could face ‘gruesome nightmare’
Shawn Langlois – MarketWatch
The corporate buyback binge has reached historic proportions, with repurchases by S&P 500 companies in the last three months of 2018 marking the fourth straight quarterly record high.
That’s never happened before.

ECB under pressure to spell out further stimulus options
Claire Jones – Financial Times (SUBSCRIPTION)
Pressure is building on the European Central Bank to set out how it would respond to a further deterioration in the eurozone economy, after the IMF sharply downgraded its forecast for the bloc’s performance.

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