Observations & Insight

Bits & Pieces
By John J. Lothian

This morning we present the first of our MarketsWiki Education World of Opportunity videos from Stockholm. Peter Fredriksson of Baymarkets is the first up with a story about Stockholm.

My phone experienced a series of text messages yesterday as NYSE Arca Equities had electronic trading problems late in the day. Here is the System Status page with the details on the problem.

It was ten years ago when I went to the FIA Boca Raton conference with an idea: MarketsWiki. It was there I pitched various firms about the idea. I hired Jon Matte and he and I would launch the MarketsWiki development project on August 1, 2007. This morning MarketsWiki sits at nearly 96 million page views.

It was good to see so many friends, colleagues and sponsors down in Boca. It is the best conference for us to connect with so many people. The JLN team shot a lot of video interviews, including our Boca Exchange Leader series. Expect to see those videos soon.

Walt Lukken really did a great job at Boca with his FIA team. This was the first Boca without Mary Ann Burns at the controls and it went very well. It was terrific to see Mary Ann honored with the FIA Hall of Fame membership.

Lastly, congratulations to Thom Lant on completing his 300 mile trek in support of MND, re-enacting a 1936 workers’ protest march from the North East of England to London. You are a good man, Thom! You can still give to support Thom’s walk here.


Peter Fredriksson, Baymarkets – Stockholm: The Origin and Global Leader of Transaction Technology


“The market has moved from transaction to a lot of other parts of the transaction chain – to pre-trade, post-trade, clearing and post-clearing.”

In this MarketsWiki Education video, Peter Fredriksson, CEO of Baymarkets, says OM, the company that eventually became Nasdaq OMX, basically invented transaction technology. In his view, Stockholm and more broadly, Sweden, have been pioneers in automating the financial markets and making them more efficient.

Stockholm was even early in the exchange merger and acquisition space, paving the way for OM to acquire the Stockholm Stock Exchange. And that led to industry innovators like ORC (now Itiviti), Sungard (now FIS) and TriOptima (now part of NEX Group) to grow. The next FinTech boom will be in “RegTech,” Fredriksson says, as firms grapple with US and European regulations after the 2008 financial crisis. He also sees opportunities across the whole transaction chain: pre-trade, post-trade and clearing.

Watch the video »

Lead Stories

Sterling Trading Tech to Acquire CBOE’s Livevol X Trading Platform
Sterling Trading Tech (STT) announced today the acquisition of Livevol X, a trade execution platform for U.S. equities and options, from CBOE Livevol, a subsidiary of CBOE Holdings, Inc.

****SD: Now to be known as “Sterling VolTrader.”

Teza sells high-speed trading as lucrative business sours
Gregory Meyer in New York – Financial Times
Teza Technologies, a pioneer of electronic markets, has sold its high-speed trading business to Quantlab Financial after conditions soured in the once-lucrative sector. Quantlab, based in Houston, acquired Teza’s proprietary trading business on Monday night, said Cameron Smith, its president. A person familiar with the transaction said Quantlab paid between $20m-$30m, a figure Mr Smith declined to confirm.

****SD: Another speed-related domino falls — just last week Virtu bid more than $1b for KCG and earlier this month Interactive Brokers exited the options market making game. Timely article from the WSJ today – High-Frequency Traders Fall on Hard Times; Once-lucrative business is now fighting unfavorable market conditions, brutal competition and rising costs

Placid markets mask investor fear that equity turmoil looms
Joe Rennison, Eric Platt and Nicole Bullock – Financial Times
Investors are preparing for renewed turmoil in the high-flying US equity market as key measures of volatility across asset classes have eased in the wake of this month’s Federal Reserve meeting. Against the backdrop of slumbering implied volatility for equities, commodities, bonds and currencies, some investors have sought insurance against the risk of an unexpected stock market shock. That has propelled the CBOE’s Skew index, which reflects market tail risk, or the chance of a dramatic slump in the S&P 500, to its highest level since the UK voted to leave the EU in June.

****SD: MarketWatch on Skew – A popular stock-market ‘black swan’ gauge is at a record

Euro Rescued by Macron, Dutch Poll Finds Echo in Options, Charts
Vassilis Karamanis – Bloomberg
The euro is approaching its strongest level this year, supported by a change in the European Central Bank’s rhetoric, a less hawkish-than-expected Federal Reserve and easing concerns over populist sentiment across the currency bloc. A read-out of some key gauges that measure investor sentiment, together with options positioning, technical charts and flows, suggests greater resilience may be in place.

Rise in new form of ‘portfolio insurance’ sparks fears
Robin Wigglesworth – Financial Times
On Wall Street, bad ideas rarely die. They often go into hibernation until resurrected in a new form. And portfolio insurance — a leading contributor to the 1987 “Black Monday” crash — is, for some, making a return to markets.Institutional investors are allocating billions of dollars to “risk mitigation” or “crisis risk offset” programmes that are designed to act as a counterweight when markets are in turmoil. They mostly comprise long-maturity government bonds and trend-following hedge funds, which tend to do well when equities plummet.

Always A Change Of Storms With Volatility ETFs
Russell Rhoads – ETF.com
I’m writing this because two of the short VIX-related exchange-traded products, the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) and the ProShares Short VIX Short-Term Futures ETF (SVXY), will be at the top of many performance lists—barring a huge spike in volatility in the form of higher VIX and VIX futures over the next few weeks.

The VIX Signal Flashing for the First Time in a Decade
Schaeffer’s Research
Following a sharp post-election selloff in early November — which coincided with a broad stock market surge — the CBOE Volatility Index (VIX) has spent nearly all of 2017 bouncing between 11 and 13. According to data from Schaeffer’s Senior Quantitative Analyst Rocky White, last week marked the 10th straight in which the VIX did not make a 10% move in either direction — a relatively rare phenomenon. In fact, this has happened just 12 other times going back to 1990, with the most recent occurrence in November 2006.

****SD: Cover up VIX! Public indecency can get you in trouble.

Volatility underlines the dangers of stop-loss orders
Paul Golden – Euromoney Magazine
Risk management of any resting orders left at particular price levels depends on market participants’ ability to assess how and when that limit might be triggered. An obvious concern during periods of heightened volatility associated with reduced liquidity is that limits might be unexpectedly triggered outside of what might be considered normal market behaviour.

Rookie Currency Traders Are Causing Big Problems
Lananh Nguyen – Bloomberg
It’s been something of a common lament among Wall Street veterans for a while now. And it goes, more or less, like this: All these darn twenty-something-year-olds around here have no idea what they’re doing.

****SD: A while? Haven’t greenhorns been around to annoy the old timers with their stupid ways since the dawn of time? This isn’t just us millennials messing everything up. Or is it?

Profile: DRW’s Don Wilson on thirty years at risk
Michael McCaw – Risk.net
The founder of DRW – the Chicago-based proprietary trading firm – is careful about what he says these days. It’s not an unreasonable stance for someone awaiting judgement accused of market manipulation. The CFTC holds that Wilson and DRW posted artificially inflated bids for an interest rate futures product that no-one else would nibble close to at the end of trading sessions – a practice known as ‘banging the close’.

Exchanges and Clearing

NYSE Arca says systems normal after software glitch
Chuck Mikolajczak – Reuters
NYSE Arca said on Tuesday that all systems were functioning normally after a technical issue in the prior session prevented some symbols from completing a closing auction.

****SD: Reuters story about the outage here.

Amendments To MIAX Options Rule 518, Complex Orders
MIAX Options recently filed with the Securities and Exchange Commission to establish a new price protection feature, the Complex MIAX Options Price Collar. The MIAX Options Price Collar prevents complex orders from automatically executing at potentially erroneous prices by establishing a price range outside of which a complex order will not be executed.

Mandatory Usage Of MIAX Options Order Monitor Protections
MIAX Options filed a proposal to amend MIAX Options Rule 519, MIAX Order Monitor, to require MIAX Options Members to use certain risk protections, which will become effective on March 27, 2017.


Credit Suisse outsources structured products business to Delta Capita
European bank Credit Suisse has appointed Delta Capita to manage its structured products business across Europe, the Middle East and Africa (EMEA). The London headquartered financial services consultancy will serve as service provider for issuance and product governance of Credit Suisse’s structured offerings.

Regulation & Enforcement

Trading in Sprouts Farmers Market ahead of report on merger raises eyebrows
Saqib Iqbal Ahmed – Reuters
Trading in Sprouts Farmers Market Inc’s (SFM.O) shares and options surged last week ahead of a report that the natural-foods retailer was the subject of merger talks, raising questions about whether news of a possible deal was leaked.

Hong Kong’s Securities And Futures Commission Concludes Consultation On Position Limit Regime
The Securities and Futures Commission (SFC) today published conclusions to a consultation to expand the scope of the position limit regime (Note 1).

****SD: FOW here.

Binary Brokers Rush to Add FX Platforms
Oleg Lax – Finance Magnates
Most binary options brokers have to operate their businesses in an increasingly tightening environment. Authorities in many countries have a tendency to oppose binary options businesses, however there is not only a financial aspect to this.

Active Management and Insider Trading
Matt Levine – Bloomberg
Leon Cooperman is fighting civil insider trading charges, and I’m sort of impressed that his lawyers are really pinning their hopes on this theory

****SD: The options insider trading part is the second portion of Levine’s column. Reuters on Cooperman here.

FIA responds to recovery tools proposed by Indian clearinghouse
On 15 March, FIA (jointly with ISDA) responded to proposed recovery tools issued by The Clearing Corporation of India Limited (CCIL).

Will Donald Trump Keep His Campaign Promise To Reinstate Glass-Steagall?
Eleanor Bloxham – Fortune
During a press briefing earlier this month, White House Spokesman Sean Spicer said the administration remained committed to a Trump campaign promise to restore Glass-Steagall, which effectively prohibits commercial banks from engaging in investment banking. The law was created in 1933, but most of it was rescinded in 1999. However unreliable Spicer has shown himself to be, bringing back the law would be a welcome move for anyone hoping to get tough on Wall Street’s continuing risks.

****SD: Will it happen? Dunno, maybe. Will a Trump administration do it? Nope.


FX Options Update: Euro vols rising on French elections
Dan Juhl-Larsen – Tradingfloor.com
The first round of the French presidential elections hove into view next month and there has been some interest in two-and three-month options in EURUSD. In the meantime, one-week EURUSD has risen 1% after the Federal Open Market Committee decision to raise interests a further 0.25% last week had clipped its wings.

When and When NOT to Listen to Others
Bob Lang – CBOE Options Hub
I read the other day that some experts predicted the markets were going to be in trouble and start falling if the 10 year bond rose above 2.6%. Listen, I believe there is a technical reason here, a price channel that would be penetrated from the start of about thirty years ago – hence, a long term trend breaking. In addition, I also heard the recent rally was phony, something like the term ‘fake news’ being tossed around daily. The rally is going to fail, it’s only a matter of time; ‘get out now while you can’, they say.

****SD: I listen to everybody. Doing what they say is a different matter entirely.


Report from FIA Boca 2017: Clear Skies and Sunshine
Elise Fleischaker – Trading Technologies
Another FIA Boca conference (#FIABoca) is in the books. Despite a snowstorm that hit the midwest and east coast, creating travel challenges for many, about 1,100 attendees from a record 25 countries eventually made it to the historic “pink resort” to gain insight from industry thought leaders, network with connections old and new, and soak in the Boca Raton scene and sun.

****SD: It’s really hard to get accustomed to the old folks playing croquet wearing their all-white getup in the morning and afternoon while retreating inside for lunch and mahjong.


China urged to play bigger role in setting global commodity prices
Laura He – South China Morning Post
As China pledges to internationalise its futures markets, the country should open commodity futures trading to foreign participants and play a bigger role in setting global prices for metal, energy, and agricultural commodities, according to industry players and analysts.

What the Biggest Banks Are Planning as May Sets Brexit Timing
Gavin Finch – Bloomberg
Big investment banks will begin the process of moving some London-based operations into new hubs inside the European Union within weeks after U.K. Prime Minister Theresa May set a date to trigger the formal mechanism for quitting the bloc.

The US head at one of the top trading firms in the world says he’s cracked a Wall Street riddle; Societe Generale Slawomir Krupa interview
Matt Turner – Business Insider
How do you do more with less? It’s a question just about every business head on Wall Street has had to ask themselves over the last five years. A tough trading environment for fixed income, currencies and commodities, coupled with increased costs, has forced banks to pick which businesses to cut, and which to invest in. Business Insider recently sat down with Slawomir Krupa, the head of Societe Generale Americas, and asked how the bank had tackled this conundrum.

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