Breaking News

Bitcoin issues; No CAT Delay; Goldman ready for vol

Observations & Insight

The Bitcoin Exchange That CME Plans to Use for Futures Is Down
Camila Russo – Bloomberg
This is exactly what the bitcoin futures naysayers have been warning about: One of the exchanges which CME Group Inc. would use to price the contracts is having serious issues.
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****SD: Not good. But this is partially why CME gathers pricing data from multiple other trading platforms – GDAX, itBit and Bitstamp. Here’s the methodology for CME’s CF Bitcoin Reference Rate (BRR) and CME CF Bitcoin Real Time Index (BRTI).

To understand how a “down exchange” dynamic can play out, see the minutes from CME’s June BRR and BRTI Oversight Meeting. At the meeting, Bitfinex and Okcoin were removed from the calculations of those indices due the exchanges suspending USD withdrawals and deposits.

Here’s the unsurprising result – “The rate has been shadow calculated using all 6 exchanges for comparison purposes. There was initial diversion between BRR6 and BRR4 after the removal of the 2 exchanges, as Bitfinex and OKcoin were trading at a much higher price due to withdrawal restrictions. Removing them therefore led to a lower index level. The divergence has now been erased as Bitfinex is now trading at a discount to the others due to the restrictions.”

Meanwhile, Cboe’s proposed futures contract would be based on the closing price at just one exchange, Gemini. According to the contract specs, if a settlement value from Gemini is not available, it comes down to OCC by-laws regarding settlement:

“OCC may fix the final settlement price using: (i) the reported price or value for the relevant underlying interest at the close of regular trading hours on the last preceding trading day for which such a price or value was reported; (ii) the reported price or value for the relevant underlying interest at the opening of regular trading hours on the next trading day for which such an opening price or value is reported; or (iii) a price or value for the relevant underlying interest at such other time, or representing a combination of average prices or values at such time or times, as OCC deems appropriate.”

One of those alternatives would be to use the “VWAP or TWAP of bitcoin trade prices from other bitcoin exchanges on the Final Settlement Date.”

Keep in mind, these contracts are still pending regulatory review.

For more on the CME’s contract specs see RCM Alternatives’ Blog. Of note: margin is expected to be 25-30 percent and $5 is one tick.

 

Lead Stories

SEC Rejects Last-Minute Push to Delay Stock Surveillance System
Benjamin Bain and Annie Massa – Bloomberg
Exchanges made request to postpone Wednesday’s start of CAT; Failure to comply could bring punishment from the regulator
Regulators rejected a last-minute request from U.S. stock and options exchange operators to delay by a year the start of a far-reaching new market-surveillance system.
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****SD: Other outlets’ takes – Financial Times, Pensions and Investments, Finextra and Traders Magazine

Goldman Set To Get When Volatility Returns To Market
Mark Melin – ValueWalk
As market volatility has literally lulled to sleep many global trading desks, there is a growing awareness of those that seek to be prepared when the change occurs. “Brokers in this market would love some volatility—whether it came from a spike in investor conviction or fear,” Greenwich Associates Managing Director Jay Bennett observed. In a recent survey, the firm noted who is ready to reap business when volatility once again returns to markets.
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****SD: The article references a Baupost Group letter talking about low volatility leading to increased leverage – “While leverage is not directly responsible for every financial disaster, it usual can be found near the scene of the crime.” I guess I’m going to think of Orson Welles as Harry Lime every time leverage comes up now…

The Only Traders Seen Scoring Pay Bumps Run Electronic Platforms
Hugh Son – Bloomberg
Options Group: Fintech ‘insulated’ as pay declines elsewhere; Investment bankers, wealth managers can also expect raises
Notch another victory for the machines — or at least the people who operate them.
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US equities volatility gauge strikes near three-month high
Adam Samson – Financial Times (Subscription)
Wall Street’s main equities volatility barometer pushed to its highest level in almost three months, highlighting the bout of nervousness that has struck financial markets over the past few days after a long period of smooth sailing and record setting.
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****SD: The VIX popped by about three points around this morning’s open. Here’s some of the notable VIX activity per Cboe TV’s Angela Miles in the morning – three calls trading for every put with notable activity in the 25 Dec calls, 16 Jan calls and 11.5 Dec puts. As of this writing though, the VIX is back under 13.

The Future of Buy-Side Trading
Michael Chin, Thomson Reuters – TABB Forum
Buy-side traders face unprecedented amounts of change. As new regulations take effect, technology capabilities advance, and the competitive landscape shifts, buy-side firms increasingly are turning to open technology platforms to customize and enhance trading workflows and gain a competitive advantage.
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Cloud computing is the exchange infrastructure of the future
Magnus Haglind – Financial News (Soft Paywall)
Depending on the industry, the speed at which cloud computing will become the standard system they operate with varies. In my universe, the capital markets, I predict cloud-hosted markets will soon be everywhere, challenging the traditional architecture of how markets are run.
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Exchanges and Clearing

Virtu’s Viola warns of ‘systemic risk’ from clearing houses
CME Group OpenMarkets
The head of one of the largest US proprietary trading firms has added his voice to the chorus of concern over the systemic risks posed by clearing houses.
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Deutsche Boerse Said to Favor UniCredit’s Weimer for CEO
Eyk Henning and Nicholas Comfort – Bloomberg
Theodor Weimer, the head of UniCredit SpA’s German unit, is the lead candidate to succeed Carsten Kengeter as Deutsche Boerse AG’s chief executive officer, according to people familiar with the plans.
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Intercontinental Exchange Announces Management Team Promotions
Intercontinental Exchange
Intercontinental Exchange, a leading operator of global exchanges and clearing houses, and provider of data and listings services, announced the promotion of several senior executives, effective today.
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Bitcoin exchanges may not be ready for the big time
John Detrixhe – Quartz
Someday soon, crypto-enthusiasts think big financial firms will buy and sell bitcoin like any other asset: stocks, bonds, gold, whatever. But trading on this scale involves volumes and scrutiny that the most popular cryptoasset exchanges today may not be prepared to handle. Although they got in on the action early, these exchanges face costly technology upgrades or ugly meltdowns as activity increases and major exchange operators muscle in on the market.
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****SD: From Forbes – Will Bitcoin Trigger Stock Market Bust?

Cboe Global Markets Trading Schedule for Thanksgiving Holiday
Cboe
Cboe Global Markets, Inc. announced today the following trading schedules for its exchanges in observance of the Thanksgiving holiday on Thursday, November 23.
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Moscow Exchange bets on growth in Russia-China investments
Matthew Miller – Reuters
Deepening cross-border financial cooperation between Russia and China remains a priority, said a senior official with the Moscow Exchange (MOEX), with more products expected for companies and investors to raise funds and buy securities.
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Hong Kong’s Xin Hua Securities joins SGX’s derivatives market as trading member
Andrea Soh – The Business Times
Hong Kong-based Xin Hua Securities has joined as a trading member of Singapore Exchange’s (SGX) derivatives market.
This brings the total number of SGX’s trading members in the derivatives market to 58, the bourse said in an announcement on Wednesday.
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Regulation & Enforcement

JPM seeks fixed income SI status under MiFID II
Helen Bartholomew – Reuters
JP Morgan has confirmed plans to become a Systematic Internaliser for all fixed income instruments under MiFID II.
The new designation of liquidity provider allows the bank to execute bilateral trades, outside of a regulated market, in instruments that are in-scope for Traded on a Trading Venue (TOTV) rules that form part of a sweeping overhaul of European markets.
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****SD: Of note since JPM has volunteered for SI status in equity derivatives (Deutsche Bank is seeking that status as well).

FIA works with industry coalition to modernize SEC record-keeping rule
FIA
On November 14, five U.S. financial associations, including FIA, asked the SEC to update its broker-dealer electronic retention Rule 17a-4 by eliminating an obsolete recordkeeping requirement known as WORM (write once, read many) that was first put in place more than 20 years ago.
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House Passes Bill Requiring Safeguards on Trading Data
Melanie Waddell – ThinkAdvisor
The House passed by voice vote on Monday bipartisan legislation to require the Securities and Exchange Commission and the Financial Industry Regulatory Authority to safeguard data provided on the Consolidated Audit Trail (CAT), which would track market trading activity.
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LSE Group lobbies for U.S support in Brexit clearing battle
Reuters
The London Stock Exchange Group is lobbying to win American political support in its battle with Europe to preserve London as a global financial center after Brexit.
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Asian regulators need to step up to swaps challenge
Narayanan Somasundaram – Risk.net
Asian derivatives markets could look very different in 2018, as the attraction of Hong Kong and Singapore as hubs for booking derivatives strengthens amid global regulatory change and Britain’s looming exit from the European Union.
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****SD: “Book’em, Danno!” (Sorry – felt obligated to make the “Hawaii Five-0” reference.)

UK Finance Regulator Warns Against Cryptocurrency Derivatives
Nikhilesh De – Coindesk
A U.K. finance regulator is warning consumers about a particular kind of derivative contract based on cryptocurrencies.
In a release on its website today, the U.K. Financial Conduct Authority (FCA) cautioned investors who might consider entering into cryptocurrency contracts-for-differences or CFDs. Under a CFD, the two parties involved agree to pay either side in the event that the underlying value of an asset – in this case, an amount of cryptocurrency – changes over time.
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We were right: Israeli official Professor Shmuel Hauser shares our view on fraudulent ICO and crypto mania
Andrew Saks-McLeod – FinanceFeeds
Israel Securities Authority chairman Professor Shmuel Hauser states that binary options fraudsters are moving to cryptocurrency and ICO fraud, highlighting FinanceFeeds’ perspective on this matter.
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Technology

Vela launches Systematic Internaliser Data Hub, expands MiFID II solution suite
Vela
Vela, the premier market access technology provider, today announced the launch of its Systematic Internaliser (SI) Data Hub, part of its comprehensive MiFID II solution suite. Vela also confirms the addition of Sun Trading as part of its roll-out of new Systematic Internaliser venues.
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Blockchain Can Bridge the Divide Between Innovation and Risk Management
Ram Komarraju, CLS – TABB Forum
The beauty of blockchain stems from its direct transformative impact on a company’s capability to manage risk. Uncertainty is a powerful factor in a business environment, and the ability to properly balance it is paramount to success. Blockchain can help bridge this divide.
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Strategy

Markets Just Got Too Rich for Private Wealth Manager Cashing In
Adam Haigh – Bloomberg
The bull run in equities may have further to go in the view of some, but for one Sydney fund manager, now’s the time to cash in your chips.
Karl Goody, a Sydney-based private wealth adviser at Shaw and Partners Ltd., said Wednesday that he’s been unloading some of his holdings of shares to bulk up in cash. He was so convinced that the run-up in stocks round the world to historic highs was bound to reverse that he placed bets with options on a pull-back, which are now paying off, he says.
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Current Data Says It’s Not If but When the Market Correction Comes
Lee Jackson – 24/7 Wall St.
It has been one of the most staggering stock market rallies in the history of Wall Street. Coming out of the ashes of the market meltdown, which was a byproduct of the mortgage-related disaster that began over 10 years ago, and culminating with a plunge into the abyss of massive selling in March of 2009.
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Events

GFLC Day Two WrapUp
CME Group OpenMarkets
Day two at the Global Financial Leadership Conference featured leading voices in business, politics and media addressing the the roles of media in the new political environment, how to move forward on climate change and the success stories behind some iconic global businesses. The day was capped with a discussion between CME Group Chairman and CEO Terry Duffy and Michael Bloomberg.
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John Davidson To Speak at November 30 SIFMA Listed Options Symposium
OCC
On November 30th, industry experts, representing various roles across the market segment, will examine the state of the options market and the challenges and opportunities facing investors and market participants at SIFMA’s Listed Options Symposium. The program will include a data-driven look at recent trends and current issues in today’s options markets, followed by interactive discussions on what’s impacting market activity, such as liquidity, regulation, fragmentation, clearance and settlement issues, CAT, competition, the mix of market participants, and more.
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Miscellaneous

DRW is setting up shop in Asia
Frank Chaparro – Business Insider
DRW, a Chicago-based firm, is looking to set up a bitcoin trading desk in Singapore to dominate the cryptocurrency market in Asia.
The firm has been in the bitcoin game since 2014 via its division Cumberland Mining, which already operates over-the-counter bitcoin trading desks in Chicago and London.
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Graduate of University of Minnesota School of Journalism and Mass Communication