Observations & Insight

Are You Registered?

If you haven’t registered for our Trading Chicago event, a joint effort between John Lothian News and FOW, now is the time. The one-day event is set for June 28th at the Swissotel in Chicago.

You can register HERE and see the agenda for the conference. The program is packed with great topics and speakers. We’ll be leading off with a keynote from Craig Pirrong from the University of Houston and a debate over Dodd-Frank between Leslie Sutphen and Gary DeWaal.

Other panels cover trading derivatives in the age of populism, trading fixed income, customizable technology and the push into data, the options market structure and what US-based traders should know about Mifid II. We have two TED-style presentations as well.

The program is free to CTAs, hedge funds, prop firms and asset managers. It’s well worth your time to hear about these timely subjects and hear from top professionals in their fields. There’s a networking event after the program as well.

Why attend? There’s a ton of relevant information about how this industry is changing, evolving and growing. You will walk away with information that helps your trading, your clients or your firm.

Thanks for supporting the event. We look forward to seeing you there.


Montréal Exchange’s CEO Focused on Structural Adjustments

“The world is looking to trade more and more Canada and the fact that we’re only open during our own time zone is a bit prohibitive for some of the international clients.”

Last year, Montréal Exchange launched single stock futures and it turned out to be its best product launch in a decade based on rapidly growing open interest. The exchange also revamped its 5-year bond contract in order to make sure all points on the curve are accessible. With those changes in place, 2017’s goals center around structural change.

MX is altering its own rules to open its market making programs for more types of firms. But the biggest lift for MX, according to President and CEO Luc Fortin, is extending the exchange’s hours to align with London open. Partnering with an exchange in Asia to list MX’s products is also a possibility for the future. On top of that, clearing consolidation is in the works with an outside party and the group is looking at the best means of building a new trading system.

Read the rest and watch the video »

Lead Stories

Traders test OPEC ‘whatever it takes’ resolve to defend oil price
Henning Gloystein and Dmitry Zhdannikov – Reuters
When OPEC leader Saudi Arabia pledged in May to do “whatever it takes” to defend world oil prices, it didn’t expect the market to be testing its resolve just one month later.
As the Organization of the Petroleum Exporting Countries extended oil production cuts, oil prices fell 18 percent in just 20 days. OPEC members appear determined not to rush into deeper output curbs despite market pressure.

****SD: Related from Reuters today – United States Oil Fund options volume jumps as oil slips

The VIX is not a Fortune-Teller
Crystal Kim – Barron’s
DoubleLine Capital’s Jeffrey Gundlach said that low-volatility markets won’t continue for long in a webcast last week. But those who took that as a cue to place a bet on volatility were definitely not rewarded.

****SD: Seeking Alpha has a recap.

‘Vol’-Apalooza: A Handy Reference Guide To Low Volatility Regimes
Seeking Alpha
Let’s talk about volatility some more. In a previous post, I mentioned that Goldman was out on Tuesday evening with what one might call their “magnum vol-pus” (get it?) or, their crowning achievement in long-winded diatribes about the low volatility regime.

Emerging Market ‘Risk’ Has Never Been Lower, But…
Zero Hedge
As global central bank exuberance suppresses equity volatility, emerging markets are catching up (or down).
Expected uncertainty in Emerging Market Equities has never been lower… (in fact EEM implied vol is now less than half its lifetime average of 29.7%)

Exchanges and Clearing

IEX says stock exchanges should disclose more on data revenue
John McCrank – Reuters
Regulators should require stock exchanges to disclose more about the money they earn from market data sales to help shed light on rising industry costs and potential conflicts of interest, an executive at exchange operator IEX Group said on Wednesday.
The cost of market data has long been a contentious issue within the trading industry and more public information about how much exchanges earn from specific data products would help inform the debate, John Ramsay, chief market policy officer at IEX, said in a blog post.

Dubai DME Secures CFTC Approval on Trading by Direct Access From the US
Finance Magnates
The US commodities regulator, the Commodity Futures Trading Commission (CFTC), has issued an order of registration to Dubai Mercantile Exchange Limited (DME), the premier energy-focused commodities exchange in the UAE and home to the world’s third crude benchmark.

****SD: Not sure if any of you trade options on the third crude benchmark, but here you go.

Regulation & Enforcement

Key U.S. Banking Regulators Say They’re Ready to Roll Back Rules
Jesse Hamilton – Bloomberg
Top U.S. banking regulators are sprinting to ease the Volcker Rule, stress tests and other constraints on Wall Street after the Trump administration issued a long list of proposals last week for rolling back post-crisis financial rules.

SEC Wants Briefs On CBOE Reviews Of Disciplinary Actions
Jon Hill – Law260
The U.S. Securities and Exchange Commission asked Tuesday for the Chicago Board Options Exchange Inc. and member clearing firm ABN AMRO Clearing Chicago LLC to weigh in on whether a deferential standard of review should apply in internal appeals of disciplinary actions.

Quant fund is concerned about CFTC getting its software code
Kevin Dugan and Carleton English – New York Post
Renaissance Technologies, the $65 billion hedge fund, is pushing back against federal regulators’ interest in highly-technical trading software out of concern that their source code wouldn’t be secure in the government’s hands, The Post has learned.
The Commodity Futures Trading Commission is interested in digging into the software at so-called “quant” funds, which use highly-secretive algorithms to execute trades.

****SD: I was at the annual Puerto Rican People’s Parade last weekend in Chicago and there were a lot of tuned up motor vehicles that participated. Usually when people drive a sick car around with the hood removed it is to expose their non-stock supercharged mechanical beast, but there was this one Toyota Prius with the hood off and it was just a stock engine. Kind of makes me wonder how many firms’ secret sauce is just salt, pepper, chili powder, paprika, and garlic and the je ne sais quoi is just secrecy.

Fed official: banks must recover from cyber attack in two hours; “If you’re waiting for us to give you regulation, you’re behind the curve,” says Fed’s Ferlazzo
Steve Marlin – Risk.net
Financial institutions should be capable of a two-hour return to operations (RTO) following a cyber attack, a senior banking supervisor said on Tuesday (June 20).

****SD: I can understand the reasoning behind Ferlazzo’s comment but by the same token how can market participants read regulators’ minds?


Corporates drive impressive growth in FX algo use
Solomon Teague – Euromoney Magazine
FX algo use is steadily rising, according to a report by Greenwich Associates, with the most dramatic rises seen among corporate traders scrambling to demonstrate best execution, as stipulated by the FX global code of conduct.

The cross-office machine intelligence revolution
Up until recently, machine intelligence could only be used by large sell-side institutions and sophisticated quantitative trading groups to improve how they operated in the marketplace. But as technology advances continue to push the depth and breadth of machine learning capabilities, it is allowing financial firms of all shapes and sizes to improve their compliance and trading capabilities.


The big bet on a big move for Chinese stocks
Alex Rosenberg – CNBC
ne trader appears to be staking the better part of $2 million on a big move for the iShares China Large-Cap ETF (FXI).
On Wednesday, one of the biggest ETF options trades of the day was the apparent simultaneous purchase of 40-strike FXI puts expiring in July and 40-strike FXI calls also expiring in July.

Corn futures sizzle, then fizzle under heavy supply: Braun
Karen Braun – Reuters
Speculators axed a massive short position in the corn market within 11 days earlier this month. And what do they have now to show for it? Lower prices.
Specs, usually hesitant to become buyers in such an oversupplied market, bought nearly 1 billion bushels of corn in the form of CBOT futures and options – equivalent to 200,000 contracts – between June 6 and June 16.

How to Trade Amazon With Shares Near $1,000; This options strategy may appeal to well-heeled investors who want to collect big premiums.
Steven M. Sears – Barron’s
It’s time to go shopping for Amazon.com in the options market.
As Amazon (ticker: AMZN) focuses on buying Whole Foods Market (WFM), and investors dissect the deal, Amazon’s stock should remain firm. This makes selling cash-secured puts an attractive strategy for well-heeled investors who want to collect big premiums.


Swim Lessons: Options on Futures Introduction
Scott Connor – The Ticker Tape
While a good chunk of our Swim Lessons episodes feature equity options— options on stocks and stock indexes— we also like to feature options on futures from time to time.

Adjusted and Nonstandard Options from Corporate Actions
Peter Klink – The Ticker Tape
It seems like each month or so there’s a major company announcement—a mega-merger, acquisition, stock split, or a special dividend—but these are just the big ones we hear about. In actuality, such events, commonly referred to as “corporate actions,” occur pretty much every day, at companies big and small.


Sixth Annual CBOE RMC Europe Set for London in September
Russell Rhoads – CBOE Blog
Today may be the longest day of the year, but I’m already looking forward to a post-Labor Day event, specifically the 6th Annual European version of CBOE’s Risk Management Conference which will be held September 11th through 13th. This year we will be visiting a new location just outside London, The Grove Hotel which appears to be an ideal setting for discussing all things derivatives and volatility.


Ethereum price crashed from $319 to 10 cents on GDAX after huge trade
Arjun Kharpal – CNBC
The price of ethereum crashed as low as 10 cents from around $319 in about a second on the GDAX cryptocurrency exchange on Wednesday, a move that is being blamed on a “multimillion dollar market sell” order.

****SD: This is turning into a pretty fun little corner of the market to watch price action, eh? Apparently, the crash happened because 800 stop loss orders were triggered (in a less than liquid market). ZeroHedge has a slightly different take – Ethereum Flash Crashes By 96% After Status ICO Clogs Network. Also see this research from VOX – Price manipulation in the Bitcoin ecosystem

Nomura Wants to Charge Clients $134,000 for Premium Research
Stefania Spezzati – Bloomberg
As the European ban on bundling research with brokerage services looms, Nomura Holdings Inc. has proposed that clients pay as much as 120,000 euros ($134,000) a year to access their favorite analysts.

****SD: Holy schnikes!

Citadel Deepens Reach Into Wall Street’s Bond-Dealing Stronghold
Liz McCormick – Bloomberg
Electronic market-maker to trade more off-the-run Treasuries; Move is expansion of foray into client-to-dealer market
Citadel Securities is ratcheting up its head-to-head fight against the world’s largest banks as it seeks to handle a greater share of investors’ trades in the $14 trillion Treasuries market.

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