Observations & Insight

Getting The View From the Top
By Jim Kharouf, JLN

Today we begin our annual Exchange Leaders Series – video interviews shot at the FIA Boca 2017 conference last week. We unofficially led off with CME’s Terry Duffy before the conference (part 1 here and part 2 here).

ICE Chairman and CEO Jeff Sprecher leads off our series with his thoughts about where the industry is going in terms of data and analytics. This is a company that has invested billions into the data and analytic space in the past few years, culminating with the $5.2 billion purchase of Interactive Data Group at the end of 2015. Last year, ICE reported revenues of $2.4 billion from its data and listings division, up 7 percent from a year earlier.

Now that much of the integration has happened, ICE is poised to roll out new data and analytic tools for its customers. It sees a huge opportunity in this space from a revenue standpoint, which intrigues shareholders and concerns some customers who worry about where data prices are going to go. Data and listings revenues were higher than trading and clearing revenues of $2.1 billion in 2016, for the company.

For ICE, this is the time when data and analytics services intersect with the advances in technology, the returning focus on trading strategies rather than speed and the need for new tools that will help the industry innovate.

Take a look at our video, beautifully shot and edited by our own Patrick Lothian.


JLN Exchange Leader Series 2017: Jeff Sprecher Says ICE Ready To Roll Out Data and Analytics To Meet The Demand For More Info

The Intercontinental Exchange underwent some dramatic changes in 2016. With the purchase of Interactive Data at the end of 2015, ICE spent last year integrating that company along with several others, giving the exchange a major footprint in the data, analytics and research space. ICE Chairman and CEO Jeff Sprecher sat down with JLN at the FIA Boca 2017 Conference to speak about that push as well as what’s next for the exchange.

Read the rest and watch the video »

Lead Stories

US Options Volume Slips in February as Volatility Retreats Further
TABB Group Options LiquidityMatrix
US listed options volume retreated slightly in February as traders remained frustrated with the lack of volatility. Volume totaled 323.4 million contracts in February 2017, a 1.6% decline from January’s 328.6 million contracts.

‘Crisis fatigue’ on show as hedging absent in face of stock shock
Reuters via Times of India
Yesterday’s jolt to U.S. stocks, the worst in months, did little to drive up options market hedging. “Hedging and buying volatility have been absolutely painful trades in 2017. We believe many investors are suffering from ‘crisis fatigue’ as every (recent) macro shock has been bought,” says Alex Kosoglyadov, director of equity derivatives at BMO Capital Markets.

****SD: Fatigue is a good way of putting it.

Suddenly, stock-market investors fear Trump will drop the fiscal-policy baton
William Watts – MarketWatch
Remember how 2017 was going to be the year that fiscal policy took over from monetary policy in fueling economic growth and, presumably, corporate profits? It took a while, but that central expectation is now subject to growing doubt, and some investors say that’s why stocks are finally suffering a long overdue pullback.

****SD: Or from the Financial Times – Trumponomics is unlikely to sustain the bull market.

Investors Are Turning Bearish on the Dollar
Lananh Nguyen and Robert Fullem – Bloomberg
Dollar bears are back from the wilderness. The currency slid to the lowest since November on Wednesday, and options show investors are becoming more pessimistic on the greenback versus the euro and yen. The dollar has almost erased its gains from the so-called Trump Trade, as pro-growth policies from the presidential administration have yet to materialize.

****SD: I’m long the dollar until I see how the redesigns for 2020 look. If they mess up Harriet Tubman on the $20, the new fiver or the suffragette montage on the $10, I’m out.

Volatility May Be Low, But VIX Trading Is All the Rage
Ben Eisen and Gunjan Banerji – WSJ
Volatility has been unusually quiet this year. But volatility traders haven’t been. That was on display Tuesday as the S&P 500 sold off more than 1%. Open interest in options on the CBOE Volatility Index, or VIX, hit roughly 12,270,000 contracts on Tuesday, the highest since at least March 2015, Trade Alert data show.

****SD: But mommm, all my friends are doing it!

SEC May Regret the Day It Allowed Leveraged ETFs
Jared Dillian – Bloomberg View
The only thing better than getting rich slow is getting rich quick. That bit of truism is all you need to understand the rapid rise in leveraged exchange-traded funds, which were created in 2006 as a way for investors to double their exposure to stock indices. More were created later tied to bonds, commodities, currencies and just about anything else that fund issuers could dream up.

****SD: Don’t you hate it when math gets in the way of a fun idea?

Vietnam to start futures trading in May to lure foreigners
Gulf Times
Vietnam plans to start trading in its new derivatives market in May with an initial offering of stock-index and government-bond futures contracts, according to a Hanoi Stock Exchange official, as the country seeks ways to appeal to offshore investors. Long-term plans include options contracts, Nguyen Anh Phong, deputy general director at the Hanoi exchange, said in an interview. The bourse will manage the trading of the new venue and two indexes are being considered, he said, though the government has yet to make a decision on which one will be used at first.

Another ‘Black-Box’ Strategy Disappoints Investors
Paul Jacobs – Wall Street Pit
There is a good chance you haven’t heard of the Catalyst Hedged Futures Strategy Fund. But this mutual fund, which manages over $3 billion for its investors, just provided a painful reminder on the importance of understanding what you’re buying.

****SD: Alternative way to look at the much-talked-about fund from a month back. Funnily enough, I just saw this press release regarding another of the firm’s funds – Catalyst/Millburn Hedge Strategy Fund (MBXIX) Nominated by Investors Choice Awards 2017 Americas.

FX Options Update: French election hits 1-month EURUSD front view
Dan Juhl-Larsen – TradingFloor.com
Front National presidential candidate Marine Le Pen has been riding high in the polls, but as the April 23 first round of the French presidential elections comes into the one-month options view, her stock has slipped after rival Emmanuel Macron strengthened his position as likely president-in-waiting.

Exchanges and Clearing

Brazil approves $3.9 billion BM&FBovespa-Cetip tie-up
Leonardo Goy and Guillermo Parra-Bernal – Reuteres
Brazil’s antitrust watchdog Cade on Wednesday approved financial bourse BM&FBovespa SA’s (BVMF3.SA) takeover of rival clearinghouse Cetip SA Mercados Organizados (CTIP3.SA), and will not require any antitrust measures beyond those the firms proposed themselves.

ICE to offer first U.S. Gulf Coast LNG futures contract
Scott DiSavino – Reuters
With the United States about to become a net exporter of natural gas for the first time in 60 years, Intercontinental Exchange Inc said on Wednesday it would begin trading the first-ever U.S. liquefied natural gas futures contract in May.

NSE to counter BSE in GIFT with weekly settled Nifty options
Economic Times
National Stock Exchange (NSE) may kick-off its operations at GIFT (Gujarat International Finance Tech) city with weekly-settled derivatives contracts on the Nifty index. The bourse is likely to start operating in GIFT from the second week of April and weekly settlement cycle is being tried to counter BSE’s first mover advantage in Gujarat, sources close to the development told ET.

Any questions on our Weekly Options on Euro-Bund Futures? We have the answers.
More precision in hedging your exposure means less cost for you. Don’t miss our Weekly Options on Euro-Bund Futures which complement our standard Euro-Bund Options (OGBL) offering.

ISE Conformance Scripts and Nasdaq Test Facility (NTF) Guide Updates
Market Participants developing FIX, SQF, and OTTO for INET must conduct a conformance test in the OTF environment in order to access the INET production environment. The conformance scripts for each protocol are now available at the link below:


LSE Curve to part ways with COO Hamilton
Julie Aelbrecht – FOW
CurveGlobal was launched in September 2016 as an alternative to ICE and Eurex
LSE Group’s CurveGlobal’s chief operating officer Steven Hamilton is set to leave the exchange platform, marking the latest change of senior management at the firm. Hamilton had been a consultant on CurveGlobal from January last year, as the London Stock Exchange prepared to launch the rates trading platform to rival ICE Futures Europe and the Frankfurt-based Eurex exchange. He became chief operating officer in July, three months before the launch date.

****SD: Regarding Curve – There is a season, churn, churn, churn.

Nex Traiana parts ways with FX head Jill Sigelbaum
Luke Jeffs – FOW
Joanna Davies became Traiana’s managing director and head of product in January
Nex Traiana has parted ways with its long-standing head of foreign exchange, marking the latest senior management change at the post-trade business owned by the firm formerly known as Icap. Traiana, a division of Nex Optimisation, the post-trade arm of Nex, parted ways in recent weeks with Jill Sigelbaum, its global head of FX since 2003, according to sources that said she has not been replaced.

****SD: Obviously, NEX needs to embrace the “formerly known as” label while they can. Can’t pass up anything Prince-related. If only it had been founded in 1999 instead of 2000…

Banks Trimming Compliance Staff as $321 Billion in Fines Abate
Richard Partington – Bloomberg
Global banks are paring back staff tasked with detecting wrongdoing for the first time since the financial crisis, ending a hiring boom that accompanied $321 billion in fines, as technology replaces employees and penalties wane.

****SD: I don’t like the way this makes my spidey-sense tingle.

Regulation & Enforcement

NYSE urges SEC to reject CHX proposed speed bump; SEC recently delayed its decision on NYSE’s proposal to implement a speed bump on NYSE MKT
Hayley McDowell – The Trade
NYSE has said US authorities should reject the Chicago Stock Exchange’s (CHX) proposal to introduce a speed bump, despite having an application to implement a speed bump on its own venue.

What Trump’s SEC Pick Needs to Explain
Editorial Board – Bloomberg
When Donald Trump announced that he would nominate Wall Street lawyer Jay Clayton to lead the Securities and Exchange Commission, he cited the need to “undo many regulations which have stifled investment in American business.” At Clayton’s confirmation hearing this week, senators should ask exactly what that means.


Lupo Holdings Deploys Rival Risk For Vast Improvement In Risk Management Capabilities
Rival Systems (Rival), an award-winning provider of trading and risk management software, today announced that Lupo Holdings has selected the Rival Risk platform to manage its futures, equities and options trading business. Lupo, which manages multiple trading groups, is using Rival Risk extensively for real-time enterprise risk management, advanced market scenario analysis and optimization of its cross-margining capabilities.


Bearish SPX Spread Trade May Be Targeting French Election Volatility
Russell Rhoads – CBOE Options Hub
I spent the day with my academic hat on at Ohio University in Athens discussing all things VIX, SPX, and RUT along with answering some questions about the Social Media indexes that are quoted by CBOE. There were also some questions about the French Election and the potential impact on the US markets. I noted that VSTOXX futures have been elevated in anticipation of the French election, but that there wasn’t too much going on in the US, yet. Yet is the key word because as I play work catch up I noticed that over 80,000 May 12th SPX Weeklys traded today. That’s multiples of the average volume of 6,000 contracts for this series.

Singing the Low-Volatility Blues? Try Calendar Spreads
Kevin Hincks, TD Ameritrade – The Ticker Tape
In last week’s article, Scott Connor, my Swim Lessons co-host introduced the calendar spread, a risk-defined options strategy involving the sale of a short-term option along with the purchase of a longer-term option of the same type and strike. Scott laid out the basicsó delta, theta and vegaó and explained how they can help us interpret the effects of time and volatility on a calendar spread’s value.

Double Calendars: Is This the Right Strategy for You?
T.J. Neil, Sr., Tradewise – The Ticker Tape
If you are looking for an option strategy that is designed for a lower-volatility environment where the underlying price action gravitates towards either of two different strike prices, the double calendar could fit the bill. A double calendar has a wider break-even range, and therefore a larger probability of making a profit than an individual calendar.


Ray Dalio – Populism: The Phenomenon
Ray Dalio via ValueWalk
Populism is not well understood because, over the past several decades, it has been infrequent in emerging countries (e.g., Ch·vez’s Venezuela, Duterte’s Philippines, etc.) and virtually nonexistent in developed countries. It is one of those phenomena that comes along in a big way about once a lifetimeólike pandemics, depressions, or wars. The last time that it existed as a major force in the world was in the 1930s, when most countries became populist. Over the last year, it has again emerged as a major force.

****SD: It can be frustrating to read about income inequality and “culture threats” and the like from the guy responsible for the oddity that is Bridgewater.

JPMorgan Chase climbs up the prime brokerage rankings
Lindsay Fortado – Financial Times
JPMorgan Chase is moving up the prime brokerage market, beating Goldman Sachs for second place in the rankings of banking advisers to hedge funds. Morgan Stanley held the top spot while Goldman slipped to third, according to a closely followed annual ranking by revenue compiled by Coalition, the industry monitor. JPMorgan, which is aiming to reach the top spot, is prepared to take more risk in the area because it expects prime to bring in “halo revenue” by driving more business to its equities arm and electronic-trading platform.

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