Observations & Insight
OCC Cleared Contract Volume Up 20 Percent in October
OCC, the world’s largest equity derivatives clearing organization, announced today that cleared contract volume in October was 381,467,272 contracts, a 20 percent increase from October 2016 monthly volume of 318,439,491 contracts. Average daily volume at OCC is up four percent year-to-date in 2017 with 17,070,435 contracts. OCC’s stock loan program reported that securities lending activity was up 30 percent in October and 21 percent year-to-date.
Are you on the right side of Bitcoin history?
By John Lothian of JLN
Shortly after JLN was published yesterday the news broke that the CME Group would be listing bitcoin futures in the fourth quarter of the year, joining the Cboe in such an offering. The price of bitcoin surged to new highs.
Why did the price go up? Because a new group of suckers,…errr, new traders would be reached with this news and want to buy bitcoin.
Why would they want to buy it? Because it is going up, of course. Greed.
Why are the CME Group and Cboe offering bitcoin futures? Because it is 1997 and you have to decide if you want to be on the right side of history with the Internet of money after missing out on the Internet back in 1997.
This is the argument I heard at the FIA Expo. Get with it, or miss out.
For the rest of the commentary, go HERE
****SD: (Let’s not forget about the people that are on the left side of history.)
Bitcoin Futures May Be Coming But Trading Hurdles Remain
Gunjan Banerji – Fox Business
Traders wary of the nascent cryptocurrency market got some welcome news Tuesday: CME Group announced plans to launch bitcoin futures. But longtime participants of derivatives markets say starting up a healthy, thriving market for cryptocurrency futures or options could be complicated. They point to issues like how to value bitcoin derivatives and whether there will be enough traders who can consistently post prices.
****SD: Thinking of issues, check out this Forbes piece – Smart Tax Accounting Moves For Cryptocurrency Traders. The IRS wants its revenues and in 2015 fewer than 900 people reported capital gains or losses on coin transactions. So the agency is coming for the coin.
Options Volume Dips in Q3 as Low Volatility Finally Catches Up with Market
Tom Lehrkinder – TABB Forum
Listed options volume fell 3 percent in Q3 2017 compared to a robust Q2 2017, as the market showed some signs of stress based on the extended period of low volatility. Trading in the period totaled 1.02 billion contracts, compared to 1.05 billion contracts in the second quarter. Volume over the first nine months of 2017 is up 1.8% compared to the same period in 2016.
Industry Preps for Derivatives Transaction Tax
Rob Daly – MarketsMedia
Derivative operations teams have received a one-year breather from implementing much of the Internal Revenue Code’s section 871(m), which aims to collect withholding tax from non-US persons who hold US equity-based derivatives.
Non-US persons will wind up paying a 15% or 30% withholding tax on equity-linked certificates, convertible bonds, indices, repos, securities lending, structured notes, swaps, and warrants depending in which foreign jurisdiction they are located.
****SD: This is another one of those not-so-talked-about issues with potentially huge ramifications. Check out this JLN piece from early last year for more on some of the issues regarding 871(m).
High-frequency traders shift from speed back to strategy
Roger Rutherford – Financial News London (Soft Paywall)
There is a dawning realisation among all asset classes, including foreign exchange, that a focus on speed is no longer enough to stay ahead of the game. Speed is progressively becoming a commodity and there has been a distinct shift away from simply looking for millisecond-advantages to utilising analytics to support smart, rather than just fast, trading decisions.
DRW and High Frequency Trading Firms Cash in on Crypto Volatility
Akshay Makadiya – Bitsonline
The cryptocurrency market’s notorious price volatility is attracting big finance’s highest-risk and volume traders. Not wishing to miss an opportunity to make huge profits off those sharp moves, high tech trading companies like DRW of Chicago are taking a keen interest in bitcoin and other digital assets.
Bitcoin CME futures approval sparks fears of financial crisis repeat
Jeff Cox – CNBC
CME said it would launch bitcoin futures before the end of the year, sending the cryptocurrency’s price above $6,400.
“It reminds me of the financial crisis all over again,” said Themis Trading’s Joe Saluzzi, who worries that bitcoin is still unregulated and thus open to fraud.
Saluzzi fears the futures approval could open the door to an ETF for bitcoin that would put retail investors’ money at risk.
****SD: I too have general knowledge qualms about the product. How many people have a legitimate understanding of Bitcoin? It feels like they are just trading a price and like the trajectory. If you’re trading gold, oil or grain futures/options, any Joe off the street can at least appreciate the underlying, even if it’s just via their jewelry, the gas pump or their grocery. Interest rates and the bond complex, in my mind, are more approachable than Bitcoin. But sometimes I think “Hey, a store of value is a store of value, right? Does it matter if they get the minutiae?”
Federal Reserve Leaves Interest Rate Unchanged as Leadership Change Looms
Ana Swanson and Ben Casselman – NY Times
The Federal Reserve left its benchmark interest rate unchanged on Wednesday and signaled another rate increase remains on track for mid-December. But looming over the meeting was the anticipation of a much bigger change: The nomination, expected tomorrow, of current board member Jerome H. Powell to become the next Fed chairman.
Exchanges and Clearing
CME’s Bitcoin Foray Has Three Plausible Outcomes
Aaron Brown – Bloomberg
CME Group announced plans to offer a bitcoin futures contract this year. This brings it in line with Cboe Global Markets, which announced similar plans in August, and LedgerX, which began trading in bitcoin options and day-ahead swaps two weeks ago. These contracts are important steps toward integrating bitcoin with the global financial system. I see three plausible scenarios, though only one leads to bitcoin becoming more mainstream.
What To Watch For In ICE’s Q3 Earnings
Trefis (Free Registration)
We expect IntercontinentalExchange’s (NYSE:ICE) performance in Q3 to remain subdued, similar to the previous two quarters, when it reports earnings on November 2. The declines in the exchange’s cash equity and equity options trading volumes continued in the second quarter. This was primarily because of a decline in subsidiary NYSE’s market share and an overall decline in U.S. equity trading volumes.
Initial margin, compression volumes and why the time to optimise is now
Chris Barnes – Clarus Financial Technology
CCP disclosures show that total Initial Margin held at CCPs is increasing, mainly driven by increasing IM held by clients.
HKEX To Add Long-Dated Contract Months For Futures And Options From 4 December
Hong Kong Exchanges and Clearing (HKEX) announced today (Wednesday) that it will introduce long-dated contract months for its Hang Seng Index (HSI) and Hang Seng China Enterprises Index (HSCEI) Futures and increase the long-dated contract months for its HSI and HSCEI Options, with maturities up to 5.5 years, on Monday, 4 December 2017.
Japan Exchange Group: Trading Overview In October 2017
…In October 2017, total derivatives trading volume was 28,686,801 contracts, the second highest record for October.
Euronext Enters Into Definitive Agreements For Derivatives Clearing With LCH SA And To Become A Minority Shareholder
Euronext, the leading pan-European exchange in the Eurozone, announces the signing of the renewal of its agreement with LCH SA on the continued provision of derivatives and commodities clearing services for a period of 10 years. This follows the announcement of 8 August 2017.
Regulation & Enforcement
With Two Months to Go, U.S. Faces ‘Mad Dash’ to Adjust to MiFID
Annie Massa – Bloomberg
For thousands of brokers, traders and money managers based in the U.S., time is running out.
A shock wave is about to emanate from Brussels, the capital of the 28-nation European Union. That may as well be the dark side of the moon for some toiling away at financial firms in the U.S. A sweeping set of financial regulations dubbed MiFID II will take hold on Jan. 3, affecting everything from investment research to the booking of transactions. Most have heard of it, but they haven’t all fully addressed what will likely become a seismic industry shift.
Over half of US buy-side say they will need to comply with MiFID II
Hayley McDowell – The Trade
More than half of buy-siders based in North America have said they will need to comply with MiFID II, according to a recent poll.
Vocal, powerful critic of Wall Street rules leaving Congress
Pete Schroeder, Lisa Lambert – Reuters
Representative Jeb Hensarling, the Republican chairman of the U.S. House of Representatives Financial Services Committee, announced on Tuesday that he would retire from Congress at the end of 2018, marking the exit of Congress’s leading advocate for rolling back strict financial rules.
MiFID II: Down to the Wire on Commodity Position Limits
Ivy Schmerken, FlexTrade – TABB Forum
As MiFID II’s Jan. 3 go-live date draws closer, investment firms are rushing to implement systems that monitor position limits on commodity derivatives, though the majority of the limits are still unknown. The lack of information on those limits is making compliance difficult. FlexTrade’s Ivy Schmerken breaks down what we know about the rules.
Renaissance, DE Shaw look to quantum computing for edge
Robin Wigglesworth – Financial Times
Renaissance Technologies, DE Shaw and Two Sigma are among hedge funds that have started to experiment with quantum computing, dismissed by some but heralded by others as the next great revolution on the horizon for the finance industry.
Metamako And Velocimetrics Provide Capital Markets With Superior Analytics & MiFID Compliant Timestamping
Metamako, the leader in specialist FPGA-enabled high-performance networking platforms, and Velocimetrics, a leading provider of intelligent, business flow tracking and performance analytics, have today announced a close collaboration. Metamako’s low-latency, FPGA-enabled network devices will deliver lossless data capture and nanosecond-precision timestamping; Velocimetrics’ VMX monitoring software will consume and analyse the ‘raw’ data to enable financial institutions to measure, monitor and gain deep insight into their business/trade flows with unprecedented speed, accuracy and flexibility.
Credit Suisse Tackles Trading Fees & Expense Management
Eugene Grygo – FTF News
In a Q&A, Ben Harrison, the head of global brokerage, clearing and exchange efficiency and analysis at Credit Suisse, provides details on how he and his team are turning the corner on controlling trading fees and expenses.
BOA: Sharpe Ratios Offer Opportunity With Options
Rupert Hargreaves – ValueWalk
A central theme of Bank of America’s equity analysis this year has been the ‘melt-up’ trade.
At the beginning of the year, Michael Hartnett, BAML’s chief investment strategist, wrote in a note to clients that “Our tactical view: after a January/February wobble, we believe stocks & commodities will have one last 10% melt-up in [the first half of the year].”
Donald Trump tax plan: Trader positioning doesn’t show confidence
Joe Ciolli – Business Insider
Trader positioning ahead of the Republican tax-plan unveiling doesn’t suggest much confidence in the measures becoming law.
Citadel’s Kenneth Griffin to Donate $125 Million for University of Chicago Economics
The University of Chicago’s prestigious economics department will be renamed for billionaire hedge-fund manager Kenneth Griffin, who will give $125 million to the university.