Observations & Insight

JLN Exchange Leader Series 2017: By Leveraging Bats’ Technology, CBOE’s Tilly Wants To Expand Footprint


CBOE Holdings arguably had its biggest year in history in 2016 with the purchase of Bats Global Markets for $3.2 billion. The deal expanded CBOE’s footprint in the securities space in the US and in Europe, plus forex as well. It also provided a new technology platform to keep CBOE competitive.

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CloudMargin gains traction: Remote processing and storage is here to stay in financial services
Spencer Doar – JLN

There is no more room for doubting the cloud. Regulators have become acclimated to the concept of remote processing power and clients have been reassured as to its safety. Now the value proposition is laid bare and the current rate of adoption appears to be entering exponential mode.

For 3-year-old collateral management firm CloudMargin — whose offering handles margin requirements across multiple counterparties for multiple asset classes — the embrace of cloud technology helped it grow its client base by 50 percent so far in 2017 to more than 30 asset managers, insurance agencies, banks and brokers, utilizing a network of more than 20 exchanges.

“People are much more comfortable with the cloud than they were six months ago and even more comfortable than they were 12 months ago. It’s definitely a trend,” said CloudMargin CEO Steve Husk. “I talk about dinosaurs and mammals. I think the dinosaurs are really those institutions that still want to build walls around IT centers and make sure everything is kept in-house.”

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Lead Stories

Trump Healthcare Fail Is Making Wall Street’s ‘Fear Index’ Soar
Jeff Bukhari – Fortune
Wall Street’s leading measure of investor jitters is at its highest level of the year. The CBOE Volatility Index, a.k.a. the VIX, a.k.a. the “fear index,” spiked nearly 15% at the opening of trading Monday before pulling back for a mid-afternoon gain of 6%.

‘Trump disappointment trade is now in full swing’ — analysts on global stock selloff
Victor Reklaitis – MarketWatch
Markets worldwide are starting off the week spooked by Republican-controlled Washington’s failure to repeal and replace Obamacare.
That has dented confidence in President Donald Trump’s ability to muster enough political support to deliver on his promises of reform, seen as helping drive the recent rally for equities.

****JB: Turns out devising a national health care plan is hard. Who knew?

Dow Poised for Longest Losing Streak Since 2011
Riva Gold and Kenan Machado – WSJ
Stocks around the world fell Monday, putting the Dow Jones Industrial Average on track for its longest losing streak since 2011 as doubts percolated about the Trump administration’s ability to push through on campaign promises.

Move Over Golden Goose
Peter Tchir – Forbes
Who needs a Golden Goose to lay Golden Eggs when you have Inverse VIX?

A Correction Now Might Not Be So Bad, Some Investors Say
Aaron Kuriloff, Corrie Driebusch and Akane Otani – WSJ
Investors don’t typically root for stocks to fall, but some now think a period of declines might be healthy.

This bull market’s final wave: Get ready to move from ‘buy the dip’ to ‘sell the rip’
Shawn Langlois – MarketWatch
Vast technical disconnects. Structurally high debt loads. A huge sentiment shift. Valuations bursting well above the mean. Perhaps that’s all a bit wonky, but you don’t need to be a market technician to get the sense Sven Henrich is feeling bearish about things.

These Charts Show Alarm Bells Ringing on the Trump Trade
Eric Lam and Adam Haigh – Bloomberg
Maybe the bet on “unified government” wasn’t such a great one after all.
Investors on Monday further unwound trades initiated in November resting on the idea that the election of Donald Trump and a Republican Congress meant smooth passage of an agenda that featured business-friendly tax cuts and regulatory changes. The idea now looks flawed after the president and Republican legislators failed to proceed with health-care reform Friday.

The Most Peculiar Positioning Buildup Since U.S. Election
Prodipta Ghosh – Seeking Alpha
Last week’s S&P sell-off was apparently a big news. We had some serious analyses why it happened, like here, and of course the usual noise about end of Trump trade and reflation trade. Also the indomitable cottage industry of the permabears quickly felt a sense of vindication. However, the real surprise was why it took so long for S&P 500 to suffer a 1% down day. If we have only one 1% down day since October (roughly say 100 trading days), it is equivalent to an approx. 7% annualized vol.

Trading VIX Update – Are Markets Rigged?
Seeking Alpha
This particular update I will devote to the issue of markets being rigged. Over the past several years the idea of markets being rigged has become very prevalent among mainstream population and particularly among individual traders. I believe it was zerohedge, which propagated this concept day in and day out and like many other fears that above-mentioned website successfully “promotes” to keep its reader base, the idea of “rigged” markets has an army of devoted followers.

US small cap equity volatility index hit multi-year low
FTSE Russell
The November 8 US presidential election ignited a sharp increase in US small cap stock market performance and volatility. The US small cap Russell 2000 Index rose 14.2% between election day and year-end relative to a 5.6% return for the US large cap Russell 1000 Index for the same time period. And the CBOE Russell 2000 Volatility Indexsm, which measures perceived volatility levels of US small cap stocks, reached an elevated closing high of 22.1 on November 8 and was at 19.4 on December 30, an indication that investors perceived the US small cap market as risky going into 2017.


Societe Generale boosts derivatives execution with algo adoption
The Trade
Societe Generale is planning to enhance its electronic execution capabilities by bolstering its use of algorithmic trading technology. The move from the French bank reflects the general shift of trading derivatives and other asset classes electronically as a result of regulation.

Exchanges and Clearing

Several options exchanges declare ‘self-help’ against the CBOE
Several U.S. options exchanges, including those run by Nasdaq Inc and The New York Stock Exchange, declared “self-help” alerts against CBOE Holdings Inc’s CBOE Options Exchange on Monday, signaling problems processing trades.

***JB: This was resolved by 11:48a EDT.

Regulation & Enforcement

Traders used poker to make a killing and cover it up, then AI found out
Arjun Kharpal – CNBC
Over the course of a few evenings in 2013, the heads of trading from major investment banks got together for some poker nights. It was a bit of relaxation from their hectic schedules. But what their seemingly-innocent hands of Texas Hold’em revealed was a story of traders gone rogue.

****SD: Well, there goes my old saying: “What happens at poker night, stays at poker night.”

A Strong Regulatory Framework Must Precede the Opening Up of India’s Commodity Derivatives Market
Kavaljit Singh – The Wire
SEBI should put its own house in order before embarking on measures aimed towards greater financial-isation of the commodities derivatives market.

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