Observations & Insight

Deep Breath
Jim Kharouf, JLN
Upon our return from Washington DC last week, there was the unanswered question still hanging in the air: “What will become of Dodd-Frank?”

Of course, no one really knows just yet. All the hyperbole from politicians in DC make for big headlines. But as the Wall Street Journal piece Republicans Get Ready to Roll Back Dodd-Frank Law pointed out, passage of new laws in the Senate will require 60 votes, and Replublicans hold 52 seats.

Will we see a rollback of Dodd-Frank? A rollback at Walmart means that dish detergent that was priced at $1.50 is now just a $1.25. Such is likely the case with Dodd-Frank. We may see some regulatory relief in areas that make sense, but in total, this may be more about tweaks than trashing the whole thing. There were certainly areas of the CFTC’s push of Reg AT that were considered alarming to many in the industry, if not worthy of a court challenge. There are dozens of other rules and areas that could use some attention depending on whom you ask.

Will we see cooperation and compromise in Washington on this? It’s probably best to take a deep breath and see how this process begins to unfold.

Lead Stories

Where Has the Stock Market’s Volatility Gone?
Steven M. Sears – Barron’s
There must be more volatility. But it’s nowhere to be found.
Some think volatility is a natural byproduct of President Trump’s governing style. He is the most powerful person in the world, but he sometimes acts in ways that raise questions about his suitability for high office.

U.S. stocks under pressure as investors turn cautious
Anora Mahmudova and Barbara Kollmeyer – MarketWatch
Wall Street stocks were trading modestly lower Monday as the main indexes pulled back amid mixed earnings. Weakness in European equities due to upcoming polls in France and Germany may have dampened the mood, according to analysts.

Five Charts That Say All Is Not Well in Markets
Tracy Alloway and Isobel Finkel – Bloomberg
A former TV star as U.S. president doesn’t seem to have injected markets with much of a ”fear factor.” But digging beneath the surface of an eight-year bull run exposes subtle signs that hint at an uneasy optimism.

We’re in the volatility phase of the Trump rally — here’s what’s next, according to Mohamed El-Erian
Yahoo Finance
The so-called Trump rally in stocks is in “phase three,” and investors better buckle up, noted economist Mohamed El-Erian told CNBC on Monday, arguing this is “overwhelmingly, a policy-driven” market.
“Phase one was a surge when people priced in the possibility of a changed paradigm for pro-growth policies” such as deregulation , tax cuts and infrastructure spending, the chief economic advisor at Allianz said on “Squawk Box.”

America’s Asia Allies May Face Biggest Currency Reversal
Lilian Karunungan and Yumi Teso – Bloomberg
Asia’s top two performing currencies so far this year are unlikely to enjoy prolonged gains, with the new U.S. administration’s increasing turn toward protectionism set to hit the economies of South Korea and Taiwan.

50% Correction Is Impossible! Really?
Zero Hedge
There is little doubt currently that complacency reigns in the financial markets. Nowhere is that complacency more evident than in the Market Greed/Fear Index which combines the 4-measures of investor sentiment (AAII, INVI, MarketVane, & NAAIM) with the inverse Volatility Index.

Citi sees oil majors carving out modest role in hedging
Citigroup said investment banks will remain the main players in hedging energy products even though oil majors are carving out a role in the sector as some banks cut their exposure.

****SD: Missed this story last week. Also, the Financial Times had a story in October that plays into this theme – ExxonMobil eyes setting up large-scale trading division

50% Correction Is Impossible! Really?
Zero Hedge
There is little doubt currently that complacency reigns in the financial markets. Nowhere is that complacency more evident than in the Market Greed/Fear Index which combines the 4-measures of investor sentiment (AAII, INVI, MarketVane, & NAAIM) with the inverse Volatility Index.

Exchanges and Clearing

Euronext Announces Volumes for January 2017
Euronext, the leading pan-European exchange in the Eurozone, today announced trading volumes for January 2017.

****SD: Ouch – ADV for equity index derivatives down 25.9 percent YoY, individual equity derivatives down 18.3 percent YoY and commodity derivatives down 25.3 percent YoY.

HKEX Monthly Market Highlights
The average daily turnover in January 2017 was $57.2 billion, a decrease of 30 per cent when compared with $82.2 billion for the same period last year. The average daily turnover of futures and options in January 2017 was 646,892 contracts, a decrease of 31 per cent when compared with the 941,648 contracts for the same period last year.

TMX Group Consolidated Trading Statistics
TMX Group Limited today announced January 2017 trading statistics for its marketplaces – Toronto Stock Exchange, TSX Venture Exchange, TSX Alpha Exchange (Alpha), Montréal Exchange (MX) and NGX.

****SD: January derivatives volume at Montreal Exchange was 7.1m contracts versus 7.9m contracts in Jan 2016.

TOCOM January 2017 Market Summary – TOCOM January 2017 Volume Averaged 107,394 Contracts, Up 7.4%
The Tokyo Commodity Exchange announced today that average daily volume for futures in January 2017 was 107,394 contracts, up 7.4% month-over-month. Volume increased for TOCOM’s largest contracts, including Gold Standard, which was up 10.4% to 27,061 contracts, Gold Rolling Spot, which was up 20.2% to 15,802 and Platinum Standard increased by 27.0% to 15,467 contracts. In addition, Gold Option (calls) rose a significant 304.5% to 273 contracts.

DGCX Sees Strong Start To The Year On The Back Of Continued Global Volatility
The Dubai Gold and Commodities Exchange (DGCX) continued to be a safe haven for investors looking to insure against volatility stirred by a series of significant political events, with the Exchange trading an aggregate 1.37 million contracts in the month of January, valued at US $ 33 billion.

Regulation & Enforcement

Trump Requires DOL to Reevaluate the Fiduciary Rule
Stinson Leonard Street – Dodd-Frank and the Jobs Act – JDSupra
Under current law, stockbrokers are only required to recommend suitable investments to their clients. The Department of Labor has issued a so called “fiduciary rule” which requires brokers, advisors and insurance agents, when providing investment advice for retirement accounts, to act at a higher fiduciary standard. The DOL rule has not yet taken effect.

Industry backs Trump’s regulatory review
Julie Aelbrecht – Futures & Options World
US President Trump ordered on Friday a review of financial regulation
The financial services industry has reacted favourably to President Trump’s plans to review financial regulation in the US. US President Trump signed on Friday an executive order to commence a reform of US financial services regulation. Although the order calls for a review of all existing laws, treating, regulations, guidance reporting and recordkeeping requirements, the order has been interpreted as an attack on post-crisis reforms including the Dodd-Frank Act.

CME Group to broaden rules against wrongdoing after CFTC request
Tom Polansek – Reuters
Futures market operator CME Group Inc plans to broaden its rules against wrongdoing at the request of federal regulators, the company said on Friday, a move that is expected to ramp up disciplinary action against traders.
Traders who engage in the manipulative practice known as spoofing are “the most immediate and likely target” of the rules changes, said Craig Pirrong, a finance professor at the University of Houston.


Blockchain and derivatives: reimagining the industry
Since the first meetings organised by the Technology Advisory Committee of the US Commodity Futures Trading Commission (CFTC) on January 26 and February 23, 2016, on “Blockchain and the Potential Application of Distributed Ledger Technology to the Derivatives Market”, we have seen a lot of activity in this area.

NEX Optimisation Announces That Per Sjöberg, CEO Of TriOptima, Has Decided To Step Down And Will Be Replaced By Stuart Connolly
NEX Optimisation, a NEX Group business which helps clients reduce complexity and optimise resources across the transaction lifecycle, announces today that Per Sjöberg, Chief Executive Officer (CEO) of TriOptima, has decided to leave the business to pursue other ventures.


Volatility Update: Volatility erosion persists — #SaxoStrats
Georgio Stoev – TradingFloor.com
Blame it on post-election results, stronger earnings from corporate America, strong US non-farm payrolls, and so forth — volatility in the market is just barely present at the moment. There are still some earnings ahead of us which could spark some volatility in the market, but it’s likely to be short-lived.

Unexpected and Vicious
Meredith Kelley Zidek – CBOE Options Hub
Today’s saga starts on January 24th, just two days ago but it seems like last week. I had just, the day prior, added to my core short TVIX position to raise the number of shares from 2,000 to 2,500 as you see in the portfolio graphic below. The price for that lot of 500 was $6.26. This will be revisited later in the post.


33rd Annual CBOE Risk Management Conference U.S. 2017
Chicago Board Options Exchange (CBOE) will host the 33rd annual CBOE Risk Management Conference (RMC) U.S. from Wednesday, March 8 through Friday, March 10, 2017, at the Monarch Beach Resort in Dana Point, California.

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