Observations & Insight
Bits & Pieces
By John J. Lothian
Sorry to start with the sad, but former CME President & CEO Clayton Yeutter has passed away at the age of 86. Yeutter was CME CEO when I started my post-collegiate career and I was lucky enough to cover a speech he gave about the Farm Bill of 1984 and the impact that would have on commodity prices.
In happier news, I turned 56 on Saturday and my neighbors threw a parade a couple of blocks from my home in Elmhurst that attracted thousands of people wearing my favorite color, green. Now some said it was the St. Patrick’s Day Parade, but I know better. It was not St. Patrick’s birthday or his day. It was mine.
The JLN trio returned home from Stockholm on Friday after a quick trip to put on a MarketsWiki Education World of Opportunity event. We had about 200 hungry KTH students and friends at the event, which featured eight speakers. I say hungry because they devoured six bags of sandwich wraps and another four of pastries.
Thank you to Veronica Augustsson, Rolf Andersson, Johan Toll, Peter Fredriksson, Karl Hagerman, Pierre Nyquist and Stefan Carlsson for participating in the program. Thank you also to CME Group as our Global Premier Sponsor and Cinnober, Nasdaq and KTH Finance Society for being event sponsors. The KTH Finance Society did an incredible job of hosting the event.
So it is a week of back to normal in Chicago before members of the JLN team head to Boca Raton for the FIA’s annual International Conference. I am hoping my international friends don’t have any problems getting into the country.
Lastly, MarketsWiki has passed the 95 million pageview mark. One hundred million, here we come.
Have a good week!
LSE-DB Merger Storylines
For good reason, the meltdown of the LSE-Deutsche Boerse merger has garnered much attention. There are tons of stories out there about the apparent failure of merger talks. We’ve pulled some of the key storylines together below:
Financial Times – Cursed affair: How LSE and Deutsche Bˆrse’s merger unravelled; Series of shocks undermines attempt to link Europe’s two most powerful financial capitals
Financial Times – LSE chief executive confirms likely end of Deutsche Boerse deal
Reuters – Deutsche Boerse blames Britain for failed LSE tie-up: chairman in paper
Reuters – Deutsche Boerse CEO says work on LSE merger still ongoing
Bloomberg – LSE on the Rebound
Financial Times – LSE raises dividend by 20% as tie-up plan unravels; Payout is latest sign UK group expects failure of EUR29bn Deutsche Bˆrse merger
FOW – Not directly related to the merger but about the LSE’s new(ish) venture, but here’s LSE’s CurveGlobal makes play for NLX open positions
Is Risk Really as Low as You Think?
The uncertainty has many potential sources. What will be the impact of Trump’s policies? Will we see more populist uprisings? Will central banks reverse course? Forecasts from Axioma’s risk models concurórisk seems unusually low and, in fact, has fallen fairly steadily over the last 12 months, with just a few hiccups related to the Brexit vote and the US election. However, to Mangle a Metaphor, the Falling Tide of Market Risk Has not Dropped All Boats.
What, the Fed Again?
John D’Antona Jr. – Traders News
What’s old is new again in the equities trading markets – talk of what the Federal Reserve will do at its upcoming policy meeting. After months of the Trump rally, talk of tweets and executive orders, the Fed and potential interest rate hikes had faded into relative obscurity as share prices and valuations moved higher on economic optimism. But now the focus has turned back to the Fed and what might come at the upcoming March 14-15 meeting.
Opportunity in volatility
Greater financial market volatility presents an opportunity for banking operations as businesses seek to counter added risks, says Werner Steinmueller, chief executive officer for Asia Pacific with Deutsche Bank. Global fund flow volatility is expected to increase this year given uncertainties over US President Donald Trump’s policies and expectations that the US Federal Reserve will raise interest rates as the US economy improves.
Hedge funds trim record bullish position in oil: Kemp
John Kemp – Reuters
Hedge funds have trimmed their bullish position in crude oil by the largest amount since OPEC announced its decision to cut output in November.
London Financial Jewel Brightens Even as Brexit Reckoning Looms
John Detrixhe – Bloomberg
One of London’s crown financial jewels — a business sought after by the rest of Europe — is shining brighter than ever before. The U.K. capital’s LCH clearinghouse is the world’s biggest for interest-rate swaps, a market where trading has marched steadily higher in every survey since 1995. Last year, LCH’s swap clearing business enjoyed a 25 percent jump in volume to $666 trillion. And the regulatory incentives giving those operations a tailwind are just getting stronger.
Japan Moves to Highest Alert Level After North Korea Fires Missiles
Kanga Kong – Bloomberg
Japan moved to the highest possible alert level after North Korea fired four ballistic missiles simultaneously into nearby waters, the latest provocation from Kim Jong Un’s regime.
Shale whacks struggling Brent
For a bunch of crude oils that collectively produce about a million barrels per day, the Brent, Forties, Oseberg and Ekofisk streams that collectively form the Dated Brent benchmark sure have a huge influence on global crude prices. Used as a reference point in about two-thirds of global oil deals, it underpins billions of dollars in futures, options and other derivatives. Not bad for a little corner of the world where oil production is declining.
Exchanges and Clearing
CBOE Holdings Reports February 2017 Trading Volume
CBOE Holdings, Inc. (NASDAQ: CBOE) today reported February monthly trading volume and average revenue per contract (RPC) data on its website under the Quotes & Data section.
CME to Change FX Option Expiry Process
Profit & Loss
CME Group says it will change the exercise and assignment rules for all options on FX futures contracts. On March 24, CME will amend how it handles options that end up precisely at the money on expiry. Currently, CME options that are at least one tick in or out of the-money at expiration are automatically exercised or assigned, and if the final underlying price happens to occur exactly at a strike price, both calls and puts at that strike are also expired without exercise.
CME’s new chief is in a big, big hurry
Lynne Marek – Crain’s Chicago Business
What does Terry Duffy want? Results. When does he want them? Today. CME Group CEO Terry Duffy sometimes sings softly to himself as he swivels in his black leather executive chair, but don’t mistake him for a laid-back leader. Perched four floors above the Chicago River, which once flowed with grains that formed the basis of CME’s commodity markets,? Duffy says he has a different approach to? spending and investing from that of his predecessor, Phupinder Gill, who exited abruptly last year.
EEX set to acquire 100% ownership of US Nodal Exchange
The European Energy Exchange (EEX) and the owners of US-based Nodal Exchange Holdings, LLC have reached an agreement under which EEX will acquire 100% of the equity in Nodal Exchange for a low triple digit million US-Dollar investment. As a result, Nodal Exchange will become part of EEX Group.
ICE trading slumps as CBOE, HKEx grow
Merle Crichton – Futures & Options World
The Intercontinental Exchange has become the latest major derivatives hub to report a drop in trading volumes for February, while rival the Chicago Board Options Exchange announced positive results. US exchange giant the Intercontinental Exchange (ICE) reported a 5% drop in futures and options trading for last month to a total of 5.81 million contracts for February 2017, down from 6.10 million in the same month last year.
CME Group’s (CME) Average Daily Volume Decreases in February
Shares of CME Group Inc . CME lost 2.3% after it reported average daily volume (ADV) for Feb 2017, on Mar 2. ADV of 18.4 million contracts per day dipped 1% year over year. Of this, Options volume inched up 9% year over year and averaged 3.8 million contracts per day, while electronic options surged 17% year over year and averaged 2.2 million contracts per day. The company witnessed declines in three of its six product lines.
HKEX Incurs Yearly Decline in Derivatives, Securities Volumes
Jeff Patterson – Finance Magnates
Hong Kong Exchanges and Clearing Limited (HKEX) has reported its market statistics for the first two months of 2017 – the latest figures constituted a decline on a year-over-year basis as various assets and business segments incurred drops in volumes.
In terms of HKEX’s securities market, the average daily turnover for the first two months of the calendar year came in at $69.7 billion, justifying a decline of -6.3 per cent from $74.4 billion over the same period in 2016.
TMX Group Consolidated Trading Statistics – February 2017
TMX Group Limited today announced February 2017 trading statistics for its marketplaces – Toronto Stock Exchange, TSX Venture Exchange, TSX Alpha Exchange (Alpha), MontrÈal Exchange (MX) and NGX. MX achieved a new open interest record for Options on Three-Month Canadian Bankers’ Acceptance Futures (OBX) of 315,410 contracts on February 17, 2017.
Intercontinental Exchange Announces Election of Ann Cairns and Duriya Farooqui to ICE Board of Directors
Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today announced that its Board of Directors has elected Ann Cairns and Duriya Farooqui as new Directors effective March 3, 2017.
Intercontinental Exchange Reports ICE & NYSE February 2017 Volumes
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today reported February 2017 trading volume and related revenue statistics, which can be viewed on the company’s investor relations website at http://ir.theice.com/ir-resources/supplemental-information in the Monthly Statistics Tracking spreadsheet.
Euronext announces volumes for February 2017
Euronext, the leading pan-European exchange in the Eurozone, today announced trading volumes for February 2017.
Regulation & Enforcement
Wall Street Cops Reined In as SEC Braces for Trump Budget Cuts
Matt Robinson and Benjamin Bain – Bloomberg
When Wall Street bond dealmakers congregated in Las Vegas last week for their annual get-together, one group of folks was conspicuously absent: SEC enforcement officials.
For years now, they’ve been crashing the marquee event, trying to, somewhat awkwardly, mingle and make industry contacts while sniffing around for their next big case. But those plans were scuttled this year when word came down from SEC headquarters recently that there was no room in the budget for investigators to attend.
SEC’s Piwowar and Scaramucci Slam Fiduciary Rule
Financial Advisor IQ
The SEC’s acting chairman has attacked the Department of Labor’s fiduciary rule, calling it a “terrible” rule not designed to protect investors, the Wall Street Journal writes. Speaking at an Investment Adviser Association conference, Michael Piwowar said the rule is “a terrible, horrible, no good, very bad rule” that would drive up profits for trial lawyers, according to the paper. He added that the rule, which requires retirement brokers to put clients’ interests first and was initially scheduled to go into effect in April, was “highly political,” the Journal writes.
Israeli Court Rules Against Peer-to-Peer Binary Options Exchange
Avi Mizrahi – Finance Magnates
More bad news for any binary options traders in Israel holding onto hope that a way will be found to keep the instruments legally available in the country. An Israeli court has ruled in favor of the Israeli Securities Authority (ISA) which asked to stop the activity of Peer-to-Peer platform Fairtrade, the regulator has announced.
Analysis: Israel’s Binary Options Ban Disrespects Foreign Regulators
Anyone who has followed the financial press in Israel in recent months will have realized that the Israel Securities Authority (ISA) is on the warpath against the binary options industry in Israel, and has every intention of closing it down.
DTCC updates data suite
The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, today announced that the DTCC DataPro product suite, previously known as DTCC Data Products, will be enhanced to include additional data offerings covering major asset classes.
Brokers want ASX blockchain to do more
Australian Financial Review
Stockbrokers have told the Australian Securities Exchange that to justify the costs of moving to a new technology to replace CHESS, a broad range of “system enhancements” should be added to the project, including eliminating paper processes that manage corporate actions and the transfer of securities. The ASX published on Monday its response to months of market consultation on the replacement of the CHESS equities settlement and clearing system, amid reports some stakeholders are unhappy with the process.
Equinix offers a SmartView for enterprises moving to the edge
Equinix is set to roll-out a data centre monitoring software platform, dubbed IBX SmartView, designed to give visibility into distributed infrastructure. – www.cbronline.com
Giving transparency to a global deployment across Equinix International Business Exchange (IBX) data centers, the platform enables enterprises to proactively plan and optimise operations.
Is Clock Synch the CAT’s Fatal Flaw?
Kelvin To – TabbForum
The effectiveness of the Consolidated Audit Trail relies largely on accurate time synchronization across market participants and regulators’ ability to reconstruct market events. But accurate clock synchronization can be challenging and costly – and it might not always be attainable. Is there a better method for active surveillance in the capital markets?
How a $26 Billion Hedge Fund Lures the Beautiful Minds
Nishant Kumar and Katia Porzecanski – Bloomberg
On the warmest February day on record in Cambridge, about 60 students at the Massachusetts Institute of Technology opt to stay inside a dimly lit lobby, crunching data and churning out pages of analysis, rather than enjoy the sunny, summer-like Friday afternoon.
Deutsche Bourse fintech venture fund targets blockchain and AI03 March 2017
Deutsche Bourse’s new dedicated fintech venture fund, DB1, is hoping to make up to five investments this year, focusing on startups that use technologies such as blockchain and machine learning to rebuild the rails on which financial markets are built.
Volatility Trading Digest: Trend or Rotation?
The Options Insider
Any further advance by the S&P 500 Index may be limited without the help of accelerating earnings, while evidence of sector rotation into “Risk Off” groups suggests increasing caution. Sector rotation means paying less attention to the fundamentals while attempting to identify short-term tops and bottoms and remembering the real money comes when aboard a trend. There is more after a brief market update including a comment on the latest crude oil Commitments of Traders report along with a trade suggestion for iShares MSCI EAFE (EFA).
Trading VIX Update – Short Volatility Is Still In The Driver’s Seat
Every week I publish a recap, and every week I provide my most educated opinion to the extent my experience and knowledge of the markets allows me to. Interestingly, some folks believe I’m just throwing out a sorry excuse of an article week after week without any real substance. For some reason, intellectually sophisticated individuals think that in order to generate alpha in the markets, traders/investors must present ideas based on complex quantitative and qualitative research.
What To Buy If The S&P Shaves 200 Handles?
There probably only is a remote possibility that the S&P 500 (NYSE:SPX) topped out as 2,395 on the 1st of March last week as equities, in my opinion, will remain elevated until the FOMC meeting. Equities are now 18 weeks into their current intermediate cycle. Usually, intermediate cycles can stretch all the way up to 30 weeks strong so we could have a possibility here that the S&P 500 could roll over into an intermediate cycle low. In fact, if we look at the last three intermediate lows, which took place in mid-February, late June and early November of 2016, we can see the 200-day moving average came into play in a big way when equities dropped down into these lows.
Weekend Review – VIX Options and Futures – 3/5/2017
Russell Rhoads – VIX Views
The week over week change for VIX and the futures doesn’t tell the whole story last week. Despite falling on a week over week basis, VIX did show some life closing on Tuesday at 12.92 before retreating to close under 11.00 for the week.
Weekend Review – Volatility Indexes and ETPs – 3/5/2017
Russell Rhoads – VIX Views
Textbook and parallel are two terms that come to mind to described the shift in the VXST – VIX – VXV – VXMT curve below. Also, steep comes to mind as the longer dated indexes are pretty elevated when compared to VIX and VXST.
Weekend Review of Russell 2000 Options and Volatility – 2/27/2017 -3/3/2017
Russell Rhoads – CBOE Options Hub
Small cap stocks in the form of the Russell 2000 (RUT) lost 3 basis points last week which I am going to call a flat week. Large caps represented by the Russell 1000 (RUI) was up .77% widening the lead for 2017 to 3.71%.