Observations & Insight

How we talk
Jim Kharouf – JLN

My column yesterday, What Just Happened about the election of Donald Trump as the next president of the United States struck a chord with readers. We received more reader feedback on this column than we have in some time, some negative, some supportive. Here are a few.

“Thanks for this insightful OpEd. You articulated so many feelings I’m still trying to process.”

And this:
Wow, what an ignorant, cheap shot to smear nearly 60 million Americans that way. Deplorables, right? As a life-long New Yorker, I’ve watched Trump in action for 30-plus years, and I never liked him. In fact, I detest him, and I therefore didn’t support or vote for him. But you seem to have forgotten that there was someone else in this race, and she was equally loathsome. (In fact, in the last polls, for whatever they may be worth, she was running neck and neck with Trump in the race to the bottom for most “unlikeable.”). Are there haters among the Trump supporters? No doubt. But the same could be said for some percentage of Hillary’s backers (see Huff Post, Twitter, etc.)…”

And this:
“Your article was wrong. This is not about racism, this is about Americans (white, black, Hispanic) wanting something better, not wanting more Washington DC corruption…
Plus your article feeds into Europeans’ view that this country is all slack jawed racist yokels.”

And this:
“THANK YOU. You wrote exactly what I feel. I couldn’t put the words to my feelings like you did. I fully plan on plagiarizing you. I hope you don’t mind. Right now my anger is focused on Hillary’s campaign. It undoubtedly will go down as the worst in history.”

There were more as well. In fact, those that did bother to tell me how much they disagreed with my point of view were gracious enough to actually have a dialog with me after the initial note. Which brings me to the point here. We may firmly disagree with one another, but we need to continue the conversation, as painful as that may be.

This country has fallen into a trap of defining others simply by the candidate they support. Somehow, Trump supporters are labeled as haters, racists, xenophobes and misogynists. And while we’re at it, are supporters of Bill Clinton or even Hillary misogynists, or liars, or criminals? Of course not. That part of the conversation needs to be dissected and discussed. Each candidate this season had parts you supported and parts you loathed but none are your equivalent.

To move this ahead, it is worth finding what we have in common, and where we find common ground. That must extend to our leadership in Washington. I doubt it will, but it must, lest the divide among us grows wider.

Lead Stories

Volatility slump defies election shock
Helen Bartholomew – Reuters
Against all expectations, the election of Republican candidate Donald Trump as US president calmed markets during European and US trading hours. The VIX volatility index briefly edged below 15 in US morning trading, shedding over a third of its value after pushing above 21 in early European trading hours. The S&P 500 traded slightly up at 2,160 by mid-morning in the US, adding to the 3% rally since last Friday’s close after markets responded positively to a growing lead in the polls for Democrat nominee Hillary Clinton.

****SD: It was stunning how quickly investors/traders/the robots were able to flip their collective switches from panicked to pleased.

Independent US oil producers increase hedges for 2017
Ed Crooks – Financial Times
US independent oil producers have taken advantage of the recent bump in crude prices to lock in future revenues, building up derivatives positions for 2017. In third-quarter earnings reports over the past three weeks, several US exploration and production companies said they had hedged significantly more of their expected oil sales for the coming year than they had done at the equivalent point of 2015 in preparation for this year.

Profiles in Uncertainty: Election Night Lesson in Market Dynamics
Dan Rosenberg and Doug Ashburn – The Ticker Tape
Donald Trump’s surprising presidential victory can offer investors a great lesson about how the stock market works, one they can take with them way beyond the election. Capital markets are, for the most part, resilient. But one thing they cannot stand is uncertainty. As election night unfolded, uncertainty reigned, and markets reeled. Once a victor emerged, uncertainty diminished, and the markets recovered, at least for the moment. Going forward, investors can learn from this by remembering to tread prudently during volatile times, and by understanding that once uncertainty eases, volatility tends to retreat.

****SD: Doug!

Teza Technologies to withdraw from prop trading arena
Automated Trader
Teza Technologies, the Chicago-based high-frequency trading firm founded by Misha Malyshev, is planning to re-invent itself as a hedge fund with a quantitative slant. The firm is pursuing this change in strategy in order to be able to take on additional risk capital, presumably a sign that it wants to increase the holding periods of its positions. The hedge fund part of its business, Teza Capital Management, was started two years ago in October 2014 and already contains a sizeable 1.5 billion USD.

****SD: How many other prop shops will be squeezed out of their current business model(s)?

China’s Dalian urges regulator to approve soybean meal options
China’s Dalian Commodity Exchange (DCE) has urged regulators to approve the launch of soybean meal options and said it plans to introduce a hog futures contract, expanding its agricultural product offering.

****SD: India is almost done with their decades long about-face on derivatives (specifically options of late), leaving China as the last giant frontier for options.

VIX Nov. Futures Shot Up by 55% on Election Night, but Later Retreated After Conciliatory Speech
Matt Moran – VIX Views
Four charts with big price moves over the past two days are presented in this blog. On the Tuesday election night in the United States, the reported prices for the November futures on the CBOE Volatility Index (VIX) rose from a low of 15.10 at 8:07 p.m. E.T., to a high of 23.46 at 10:27 p.m. E.T., an amazing rise of 55% over a 140-minute period (source: Bloomberg). Reported volume for VIX futures during non-U.S. trading hours was 235,141 contracts on June 24 (Brexit) and an estimated 263,663 contracts (a new all-time record) during the November 9 trading session (which technically began at 3:30 p.m. C.T. the day before.

U.S. Election

FIA Special Report: Election aftermath – what to expect from the transition
Although the results of the Nov. 8 U.S. elections are not yet complete, all major news outlets have declared Donald Trump to be the winner of the presidential election, with Republican majorities in both the House of Representatives and the Senate. As President-Elect, Donald Trump’s next task will be to pivot from running a campaign to running the government. Under the leadership of Chris Christie, the Trump campaign has an active transition team gathering information and developing recommendations for each department and agency. This includes prioritizing an inventory of the major issues and rulemakings before each agency.

GOP Election Sweep Heralds Postcrisis Turning Point for Financial Regulation
Ryan Tracy – WSJ
The Republican electoral sweep on Tuesday heralds the peaking and likely reversal of the rising tide of financial regulation by Democrats after the 2008 financial crisis. Many financial lobbyists have welcomed the elections results and are moving quickly to take advantage of the emerging new Washington landscape. But prospects for change may be a mixed blessing for big banks, which remain politically unpopular, and could still end up facing fresh burdens.

****SD: Also see SEC Widely Expected to Ease Postcrisis Rules During Donald Trump’s Administration

Fed to proceed with December U.S. rate rise despite Trump upset: Reuters poll
A stunning upset by Republican Donald Trump in the U.S. presidential election may have set off a few tremors in markets but the Federal Reserve is on course to raise interest rates next month, a Reuters poll of economists showed.

****SD: I’m supposed to believe a poll after all that’s happened?

Dollar tipped to reach parity with euro following Trump win
David Reid – CNBC
The U.S. dollar is being tipped to rise to euro parity on belief that President-elect Donald Trump will ditch current policy in favor of a high-spend, low-tax regime. This week the US Dollar Index, which measures dollar value against six major currencies, has risen more than 1 percent.

A President Trump likely won’t mess with the fiduciary rule
Robert Powell – MarketWatch
Reports of the death of the Labor Department’s rule to protect retirement investors may be greatly exaggerated. Yes, President-elect Donald Trump’s campaign strategists have said he will repeal a new federal rule that requires all who provide retirement investment advice to plans such as 401(k)s, plan fiduciaries and IRAs to abide by a “fiduciary” standard — putting their clients’ best interest before their own profits.

Franc Knocked by Trump Win as Populism Piles Pressure on SNB
Marianna Duarte De Aragao – Bloomberg
If there’s one country with reason to resent the rise of populist movements, it’s Switzerland. Twenty-two months after it abandoned its 1.20-per-euro exchange-rate cap, the Swiss National Bank still finds the franc in focus every time there’s a major event that threatens to upset markets. Donald Trump’s ascendancy to the White House pushed the currency to the strongest level since the wake of June’s Brexit vote, and options prices suggest more gains are likely

Phillip Capital CEO makes astonishing personal attack on US President Donald Trump
Andrew Saks-McLeod – FinanceFeed
Phillip Capital’s co-CEO Lynette Lim makes a scathing and damning personal attack on President Donald Trump, lambasts America’s decision and plays the race card. In my 25 year career, I have never seen such diatribe from a senior executive, and analyze it accordingly

****SD: Well, this is interesting. In what circumstance is it worth biting the hand that feeds you?

Donald Trump Not Seeking Janet Yellen’s Resignation, Economic Adviser Says
Kate Davidson and Greg Ip – WSJ
An economic adviser to Donald Trump on Wednesday said the president-elect isn’t seeking Federal Reserve Chairwoman Janet Yellen’s resignation, despite a swirl of speculation in recent weeks that he might pressure the central bank leader to step down.

Economists React to Donald Trump’s Win: ‘Volatility Should Remain High’
Jeffrey Sparshott – WSJ
Donald Trump won the 2016 presidential election while the GOP held the House and Senate, surprising markets and potentially pushing U.S. economic policy in a new direction. Economists and observers are now trying to sift through Mr. Trump’s campaign promises, the priorities of congressional Republicans and the new administration’s likely priorities on taxes, regulations, trade, immigration, health care and a raft of other key issues.


Banks and exchanges enjoy ‘Trump bump’ trading surge
John McCrank – Reuters
Banks, stock exchanges and brokers enjoyed a surge in trading volumes on Wednesday after a surprise victory for Republican presidential candidate Donald Trump sent investors scrambling to reposition their portfolios. The “Trump bump” set U.S. equity markets on track for one of their highest volume days of the year as institutional and retail investors bought financial stocks and pharmaceutical companies on the expectation that a Republican-controlled government would loosen regulations governing those industries.

****SD: Also see the FT’s Volumes soar on futures exchanges after Trump win

CME Group Volume Reaches All-Time Daily High of 44.5 Million Contracts on November 9
CME Group, the world’s leading and most diverse derivatives marketplace, reached a record high in single-day volume with 44,516,949 contracts traded across all asset classes on November 9, 2016, breaking the previous record of 39,567,064 contracts set on October 15, 2014.

NASDAQ’s U.S. Equity Options Volumes Continue Growth Momentum; European Volumes Dip
In contrast to the declining trading volumes in the first half of the year, NASDAQ OMX Group (NASDAQ:NDAQ) saw a reversal in trend in the second half in its U.S. equity options volumes, with 26% year-over-year growth in October and 14.5% year-to-date growth. With equity derivatives trading contributing to about 30% of markets services revenue and 17% of the overall revenue for the exchange, growth in trading volumes is likely to boost the company’s top-line.

VIX Futures Volume in Non-U.S. Trading Hours Sets New Daily Record
CBOE Futures Exchange, LLC (CFE) today announced record volume was set in futures contracts on the CBOE Volatility Index (VIX Index) traded in non-U.S. trading hours with an estimated 263,663 contracts changing hands. This record surpasses the previous single-day record of 235,141 contracts set during the overnight session on June 24, 2016, when U.K. voters decided that Britain should leave the European Union, an event also known as “Brexit.”

India Commodity Options: A Game Changer for Indian Farmers? A Speculator’s Playground
Centre for Research on Globalization
In a major push to widen the scope of commodity derivatives market in India, Securities and Exchange Board of India (SEBI) has recently allowed options trading on commodity exchanges. On September 28, 2016, SEBI issued an official notification allowing exchanges to launch options contracts in commodity derivatives market. Currently, trading in commodity futures contracts is only allowed in exchanges such as Multi Commodity Exchange of India (MCX) and National Commodities and Derivatives Exchange (NCDEX).

Phillip Capital Adds ICE Futures Europe to Growing List of Exchange Memberships
Press Release
Phillip Capital Inc. (“Phillip Capital”), a member of the Singapore-based PhillipCapital Group (“the Group”), is proud to supplement its list of exchange memberships with the newest addition of ICE Futures Europe. Home to futures and options contracts for crude and refined oil, interest rates, equity derivatives, natural gas, power, coal, emissions and soft commodities, ICE Futures Europe is currently home to 50% of the world’s crude and refined oil futures trading.

CME Group Declares Dividend
CME Group Inc., the world’s leading and most diverse derivatives marketplace, today declared a fourth-quarter dividend of $0.60 per share, payable December 28, 2016, to shareholders of record as of December 9, 2016.

Trading of commodity derivatives on SGX rises 4% on month in October
S&P Global Platts
Trading activity for commodity derivatives on the Singapore Exchange rose 4.04% month on month in October to 1.22 million transactions, SGX data showed Thursday.

Regulation & Enforcement

The importance of the regulatory bigger picture
Futures & Options World
Firms should ensure deadlines do not distract them from strategic initiatives
Complying with regulatory deadlines shouldn’t be the only driver for improvements in collateral management practices, writes Ted Leveroni, chief commercial officer, DTCC-Euroclear Global Collateral. Nothing concentrates the mind like a deadline, especially one set by a regulator that could prevent you from serving your clients if you miss it. But no matter how important, no single deadline can be treated in isolation – any regulatory deadline is just one representation of a longer process of change.

‘Flash crash’ trader pleads guilty to spoofing, wire fraud
Tom Polansek – Reuters
A London-based trader on Wednesday became the second person convicted of criminally spoofing U.S. futures markets, after he pleaded guilty to federal charges that he contributed to Wall Street’s 2010 “flash crash” by using the manipulative trading practice.

Why the CAT Is a Bad Idea
Kelvin To, Data Boiler Technologies – TABB Forum
The SEC may not have any alternative other than to approve the multibillion-dollar Consolidated Audit Trail on Nov. 15. But the CAT’s hype is likely to be better than reality.

O’Malia: renegotiate VM docs now to avoid March mayhem
Peter Madigan – Risk.net
Market participants should already be negotiating with counterparties to embed the mandatory exchange of variation margin (VM) in derivatives documentation or face a repeat of the turmoil that blighted the US implementation of mandatory initial margin (IM) posting on bilateral swaps in September.

Amsterdam, Frankfurt, London, Paris & Zurich are now “Fit for MiFID”
Eurex Group
Deutsche Börse called and more than 300 people all over Europe followed and joined our workshops covering the ongoing MiFIR/MiFID II regulations. In some of Europe’s most attractive cities and selected locations, the participants were provided with an updated overview of the regulatory timeline as well as the scope and impact it will have on the key markets Eurex & Xetra.

The Battlegrounds of Binary Options Part 3
Yael Warman – Finance Magnates
In our previous article, we took a look at the different moves made by various EU country regulators, including that of the Israeli, ISA regulator. In this article we consider the range of alternatives available to Israeli-run binary option brokerages, who wish to survive this period of tightening on binary regulations.


REDI and S3 team up on data analysis
Securities Lending Times
REDI Global Technologies has partnered with S3 Partners to bring its trading platform’s clients access to S3’s Blacklight data analytics tools.

FT Explainer: US stocks and circuit breakers
Nicole Bullock and Philip Stafford – Financial Times
Donald Trump’s victory in the US presidential race has rattled investors and left traders nervously eyeing how the country’s equities and derivatives markets will open in New York on Wednesday morning.

EP: 96 Ex-HFT Trader and MIT-Grad Tackles Spoofing (AUDIO)
Today we talked to a man who has been ahead of the technology curve an entrepreneur since he was 12. He graduated MIT at the age of 19 and his latest technology is now changing the trading industry. His name is David Widerhorn, CEO of Neurensic.


Forget the election — earnings could be a big tailwind for stocks
Rebecca Ungarino, CNBC via Yahoo
The presidential election has rocked the market over recent weeks, with optimism about a Clinton victory leading to a pre-election-day rally, before a surprise Trump win led to an overnight cratering in the futures market, which yielded dramatically to a post-election bounce for stocks. Of course, in the long run, the value of stocks ultimately comes down to expectations and future earnings. And at least when it comes to the quarter that just ended, earnings have looked surprisingly good.

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