Breaking News

Advocating for a stronger U.S. options market; $60m bond trade; BofA to Become MiFID II Venue for Derivatives

Observations & Insight

Bittrex Inc. takes controlling strategic stake in Seed opening new trading opportunities for Institutional Crypto Trading
Seed CX
Seed CX Ltd (“Seed”) today announced a strategic investment by Bittrex Inc., a US-based cryptocurrency trading platform. Seed is currently onboarding institutional participants and will launch spot and derivative crypto trading in Q1 2018. Bittrex is one of the largest crypto trading venues in the world, with over $3 billion notional traded on a daily basis and over 2 million customers. Seed operates a swap execution facility, Seed SEF, registered with the Commodity Futures Trading Commission. Edward Woodford, CEO of Seed commented, “Seed uniquely offers spot and derivative contracts that are both cash settled and physically settled. We have the ability to offer a large number of trading pairs, including 19 different fiat currencies and over 200 types of crypto.”
****SD: Seems like Seed CX, initially launched with industrial hemp trading in mind, is taking its IP to a product with existing interest. Originally, the plan for industrial hemp trading (the stuff for fiber, not marijuana on the street) was augmented by things like Hass avocados and limes.

Now, with custody of assets, currency pairs, margining services of its own, derivatives + physical + spot, Seed is looking to be more of a one-stop shop for crypto traders than its Chicago competition. While industrial hemp and avocados seems light years away from cryptocurrencies, Seed’s idea from the start was to find other products/assets to apply the platform to, so this is not as nuts as it seems. This pivot corresponds to a rebranding of Seed’s site and logo.

Keep in mind there’s this enigmatic Tom Sosnoff angle stemming from Dough’s acquisition of Seed Futures in August (when I say Dough I pretty much mean the tastytrade/works empire). Seed Futures was a subsidiary of Seed CX.

Lead Stories

Advocating for a stronger U.S. options market
John Davidson, OCC President & Chief Operating Officer
As we move closer to 2018, one thing is abundantly clear: the exchange-listed options industry will continue to be impacted by various regulations and risks in the year ahead. I recently participated on a panel at SIFMA’s annual Listed Options Symposium and had an opportunity to discuss some of the key issues that will be critical for the industry and regulators to address over the next twelve months.

****SD: Will 2018 be the year the industry sorts out the ORF beef? To a different point, here’s Davidson: “I see the exclusive focus on price in speed bumps as a fundamental flaw to any market structure adjustments, especially considering the rise of index and passive investing. Price may be important to market participants, but so are execution certainty and size visibility.”

Trader Turns $60 Million Profit in Sharpest Bond Selloff of 2017
Brian Chappatta and Edward Bolingbroke – Bloomberg
One bond trader made a very timely bet on a selloff in the Treasuries market — and is about $60 million in the black because of it.
The 30-year Treasury yield has soared 13 basis points to start the week, the steepest two-day increase in a year. The selloff has caused pain for some, including hedge funds and other large speculators, who ramped up net long positions in Treasury bond futures to a near-record in the week through Dec. 12, according to Commodity Futures Trading Commission data.

****SD: Even if it weren’t a hedging play and instead were a direct bet, is it really that crazy that someone positioned for this bond selloff? Look at spreads…

BofA to Become MiFID II Venue for Bonds, ETFs, Derivatives
Will Hadfield – Bloomberg
Bank of America Corp. will make markets in bonds, currencies, derivatives, equities and exchange-traded funds through a new type of trading venue being ushered in by Europe’s MiFID II overhaul of financial regulations.

Brent prices caught in the calm before the storm? Kemp
John Kemp – Reuters
Crude oil traders have started to price in the resumption of North Sea shipments on the Forties pipeline, with spot prices stalling and nearby calendar spreads returning to levels before the pipeline was shutdown.

****SD: More on the record to near-record long positions in the oil and oil-related complexes.

Quick move higher in interest rates could be warning for 2018
Patti Domm – CNBC
A sharp jump in Treasury yields will be watched by markets Wednesday, as Congress is expected to finish voting on the tax bill.
The two-day move higher in yields was one of the biggest moves of the year, and the volatility could continue as the less liquid holiday markets head toward year end.

****SD: The environment that allowed the top story’s trade to succeed.

Everything You Need to Know About Global Markets in 2018
Dani Burger, Todd White and Sarah Ponczek – Bloomberg
And just like that, the year in which we learned to live with late night Twitter rants from a U.S. president, record-high stock prices and the bitcoin bubble comes to a close.

****SD: One of the observations – “As the euro heads toward its best annual run against the dollar in 14 years, options markets that price probabilities on the world’s most traded currency pair point to the rally continuing in 2018.”

Exchanges and Clearing

Court Rules for Lawsuit Against Stock Exchanges to Proceed
Alexander Osipovich – WSJ (Subscription)
A federal appeals court said Tuesday that a lawsuit accusing stock exchanges of defrauding investors by favoring high-speed traders can go forward, in a blow to the New York Stock Exchange and Nasdaq Inc.
The two firms were among four U.S. stock-exchange operators whose units are named as defendants in the lawsuit. They have denied allegations that the exchanges favor high-frequency trading, or HFT firms, over slower-moving investors. HFT firms use powerful computers and ultrafast network connections to trade large volumes of stocks.

****SD: “The case grew out of a lawsuit filed in 2014 by the city of Providence, R.I.” – did not know this part.

Race to Launch Crypto Derivatives Continues, Bitcoin Spreads Begin on ?Nadex
Aziz Abdel-Qader – Finance Magnates
Nadex, the North American Derivatives Exchange, has launched its own crypto ?derivative instrument, Nadex Bitcoin Spreads, for a Monday ?trading debut,? ?giving folks bullish or bearish on the coin another ?regulated venue to bet ?against it in the short-term.

HKEX Publishes 2017 Market Statistics
2017 has been an active and vibrant year for Hong Kong’s securities and derivatives markets, according to market statistics from 1 January to 15 December 2017, published on Hong Kong Exchanges and Clearing Limited’s (HKEX) website today in response to media requests.

China to Shake Up Global Market With Yuan-Based Oil Futures Contract
Georgi Kantchev – WSJ (Subscription)
China is preparing to launch its own yuan-based oil futures contract, a move set to shake up the 96 million barrel-per-day global crude market currently dominated by trading in London and New York.

****SD: How long has this been in the pipeline?

CME Group Inc. Announces Fourth-Quarter and Full-Year 2017 Earnings Release, Conference Call
CME Group
CME Group Inc. will announce earnings for the fourth quarter and full year of 2017 before the markets open on Thursday, February 1, 2018. Slides and written highlights for the quarter and year will be posted on its website at 6:30 a.m. Central Time, the same time it provides its earnings press release. The company will hold an investor conference call that day at 7:30 a.m. Central Time, at which time company executives will take analysts’ questions.


Maverick Trading Approves Bitcoin Trading for Firm’s Traders
Maverick Trading, one of the top-ranked proprietary trading firms, recently approved Bitcoin as a trading instrument for its traders. Beginning January 2nd, 2018, traders in the firm’s Options division will be approved to trade Bitcoin options as well as Bitcoin futures.

****SD: A lot more opinion on the space baked into this press release than just “we approved it.”

Women in Listed Derivatives Announces New Board of Directors
Women in Listed Derivatives (WILD), an organization which promotes career advancement and professional relationship-building among women in the OTC & Listed Derivatives Industry, today announced new additions to its board of directors.

Regulation & Enforcement

Derivatives Contracts Will Not Be Void Post-Brexit
ISDA’s derivatiViews Blog
There’s a lot of speculation and second guessing about the final form of Brexit and the impact on financial services. But on one thing we can be pretty certain: existing cross-border derivatives contracts between counterparties in the UK and the other 27 European Union (EU) member states will not suddenly become null and void after Brexit. In fact, parties should be able to continue to perform on their contractual obligations – including payments, settlements and collateral transfers – as before, irrespective of the form of the UK’s withdrawal from the EU.

Europe Seeks Crackdown on Brexit Bank Arbitrage
Patricia Kowsmann and Max Colchester – WSJ (Subscription)
The European Central Bank should take charge of regulating big investment banks in the eurozone, according to a proposal to be presented by the European Commission, the latest move to stop individual European countries from luring Brexit-hit banks with the promise of looser rules.

U.S. bank regulators say four bank ‘living wills’ have shortcomings
Pete Schroeder – Reuters
U.S. banking regulators said Tuesday that “living wills” submitted by eight large U.S. banks are satisfactory, but half of those plans have “shortcomings” that should be addressed in the future.

****SD: BofA was told, “Hey, take another look at your derivatives.” Also in the piece, “Regulators said four areas where all banks need to refine their focus in the years ahead include: intra-group liquidity, internal loss-absorbing capacity, derivatives, and payment, clearing and settlement activities.”

Bank of England to spare EU banks from costly rules, if Brexit goes well
Huw Jones, William Schomberg – Reuters
The Bank of England, seeking to protect the City of London’s status as a global financial hub, said it would spare European banks costly capital rules after Brexit but warned of “consequences” if negotiations with Brussels turned sour.

****SD: “If Brexit goes well.” Hah.


INSIGHT: Sandboxes vs. Labs: LabCFTC offers blueprint for regulatory engagement with fintech
Todd Ehret – Reuters
Financial regulators across the globe face an enormous challenge keeping pace with the rapid evolution of technology affecting finance, financial products, and markets. Equally challenging is the need to apply rules, laws, and compliance and oversight associated with the financial industry at a time of rapid technological change.


Bitcoin Futures: Why I Trade BTC (CME), Not XBT (CBOE)
Celan Bryant – Seeking Alpha
I’ve been asked what my turning point was for Bitcoin. As a crude oil trader, it was when the CME group first announced it would be trading Bitcoin. This is when Bitcoin became its own asset class – at least in my mind – and I’m not the only one.

Front-month contracts dominate bitcoin futures (XBT) debut on Cboe
Front-month XBT futures (XBTF8 – January contract) dominated trading volume all week, averaging over 90% of the total futures volume. The preponderance of trade volume in other futures contracts tends also to be in the front-month contract.

****SD: Maybe it’s just easier to focus on the near term given the super unclear outlook and volatility – just see ValueWalk’s These Bitcoin Price Predictions Are All Over The Map. Who wants to go so far out on the curve that you’re overlapping with price predictions ranging from $1,000 to $100,000? Not like trading gold or grain that’s for sure…

Elliott assumes ownership of HNA shares in Dufry
Robert Smith in London – Financial Times (Soft paywall)
Elliott has taken advantage of HNA Group’s liquidity squeeze to snap up a nearly 6 per cent stake in the Swiss duty-free retailer Dufry, with the hedge fund buying shares the Chinese conglomerate has used in elaborate financing transactions.
Elliott disclosed that it now holds 3m shares in Dufry in a filing at SIX, the Swiss exchange, on Wednesday. While the seller of the stock was not publicly disclosed, people familiar with the matter said that an investment bank sold the shares as part of a complicated derivatives options trade for HNA Group.

****SD: “Complicated derivatives options trade” is an accurate statement.

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Graduate of University of Minnesota School of Journalism and Mass Communication