Breaking News

Bitcoin certifications; Least Volatilite Year Ever?; Interactive Brokers customers file complaint

Observations & Insight

Putting on My Broker Hat About Bitcoin
John J. Lothian – JLN

Everyone is asking about bitcoin. A journalist called and asked to interview me. A magazine called and asked me to write something. A brokerage firm chief risk manager called to ask me my opinion about bitcoin and bitcoin futures. Two weeks ago, a former employer I have not seen in 10 years called me out in for my bitcoin qualms. At the dinner table my son Robby opened up about owning not just bitcoin, but bitcoin cash, ether and monero. This is a full-fledged mania.

As I was driving home last night and thinking about bitcoin (as opposed to walking and thinking about it or sitting at my desk and doing the same), I asked myself what would John Lothian the broker think of bitcoin.

John Lothian the broker loved new products. He would often be the broker who first traded a new product at his firm or even clearing firm. He loved innovation and new markets and new customers coming to manage risk, or assume it.

However, John Lothian the broker was also John Lothian the risk manager. He was John Lothian, the customer default fund. By that I mean that when customers failed to meet margin calls or left uncollected debits, the funds would come from my commissions.

For the rest of the commentary, go HERE

****SD: John gets into some options stuff, too.


Key points from CFTC’s Quintenz at ISDA’s London event
Spencer Doar – JLN

CFTC Commissioner Brian Quintenz addressed ISDA’s Unlocking Value in Derivatives Markets conference in London yesterday and a few timely remarks were included (as well as some shout-outs to Galileo and Prometheus…).

Regarding the crypto elephant in the room

Of all the aspects of the Commodity Exchange Act (CEA), Quintenz brought up the provision that exchanges “may not list a contract that is readily susceptible to manipulation.”

Ink has already been spilled on how thin some of the closing cash auctions can be on the crypto exchanges which these prospective bitcoin futures contracts will use in determining the underlying’s price. With the above comment from Quintenz, it is clear this pricing mechanism is of some concern, regardless of today’s announcement from the CFTC.

Read the rest HERE.

Lead Stories

CFTC Statement on Self-Certification of Bitcoin Products by CME, CFE and Cantor Exchange
Today, the Chicago Mercantile Exchange Inc. (CME) and the CBOE Futures Exchange (CFE) self-certified new contracts for bitcoin futures products, and the Cantor Exchange (Cantor) self-certified a new contract for bitcoin binary options.

****SD: Annnnd away we go! CME to launch bitcoin futures on December 18. More in our exchanges section.

The Least Volatile Year Ever?
Sage Anderson – tastytrade blog
While 2017 isn’t yet complete, new research published by tastytrade suggests that we may be headed for the lowest annual volatility ever in the history of both the S&P 500 and the Nasdaq 100.

****SD: We did have a big VIX pop (relatively speaking) today on the news of, I guess, everything – tax bill, Flynn, debt ceiling concerns, etc. Vix went up over 14 and then down around 12.3 as of this writing. The Group One folks must be pretty busy at the Cboe today. Better than bored, right? Seems like folks, as always of late, already BTFD. (Fun blog from StockTwits – A Brief History of BTFD

Customers of Interactive Brokers file class action complaint over management of portfolio margin accounts
Maria Nikolova – FinanceFeeds
The peculiarities of portfolio margin accounts are at the heart of a newly launched lawsuit against electronic trading firm Interactive Brokers LLC. The class action complaint was filed by two clients of the broker – Timothy Moss and Heather Hauptman, with the New York Southern District Court today.

****SD: This pertains to ETNs, including VIX futures-based ETNs like Barclays’ VXX, which qualify as unsecured debt instruments and not equities or derivatives. That makes those instruments ineligible for portfolio margin. There are a lot of quirks to VXX because it is an unsecured debt: Barclays is not obligated to disclose what it does with its share creation cash, plus VXX actually has an expiration date – January 2019 – Barclays can’t extend. At that juncture, Barclays will likely create a new ETN and somehow move the ticker. It’s weird. As the link above says, “[VXX is] structured like a bond, trades like a stock, follows VIX futures and decays like an option.”

Brexit May Leave Banks on the Hook for Impossible Contracts
John Glover – Bloomberg
Bankers, Carney highlight risks as derivative exposure flees; Arguing Brexit made contract illegal no defense, lawyers sayr.
As far as Brexit headaches go, Barclays Plc’s John McFarlane says that while his bank is on top of job relocations, he’s more concerned about rewriting “hundreds of thousands” of contracts.

****SD: Obligatory link to the original version of the “Mission Impossible” theme song.

OCC News – November 2017
Dave Hoag, Chief Information Officer, shares his insights into the impact technology has on the exchange-listed options industry; OCC Celebrates 25 Years of OIC Educating Options Investors; OCC and EquiLend Clearing Services Bringing Greater Access to Central Clearing in Securities Financing and more.

Citi adds traders to delta one desk
Andrew Neil – Global Investor Group (SUBSCRIPTION)
Citi has grown its client balances in prime brokerage and delta one derivatives by 68% since the start of 2014

Exchanges and Clearing

Cboe Reports Increasing Usage of New Complex Order Options Functionality
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, has announced increasing usage of complex order functionality on its Cboe EDGX Options Exchange, one month after the new technology was launched.

Cboe Submits Product Certification for Bitcoin Futures
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, today announced that Cboe Futures Exchange (CFE) has filed a product certification with the Commodity Futures Trading Commission (CFTC) to offer bitcoin futures trading. The product certification is subject to regulatory review.

CME Group Self-Certifies Bitcoin Futures to Launch Dec. 18
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that it has self-certified the initial listing of its Bitcoin futures contract to launch Monday, December 18, 2017.

Euronext to expand derivatives offering after ISE merger
Louisa Chender – Global Investor Group (SUBSCRIPTION)
…Speaking at the media conference after the merger announcement, Lee Hodgkinson, head of markets and global sales of Euronext and chief executive officer of Euronext London, said: “We will be expanding our equity derivatives franchise into futures and options on individual Irish names, index futures, single stock futures and dividend stocks futures – we think there is a lot of exciting opportunity across a wide range of initiatives.

HKEX to Revise Strike Intervals for its Most Actively Traded Stock Index Options
Revise strike intervals for HSI, Mini-HSI, HSCEI and Mini-HSCEI options from 22 January 2018; Aim to give investors more choices for trading
Hong Kong Exchanges and Clearing Limited (HKEX) announced that it will revise the strike intervals for its four most actively traded stock index options contracts – Hang Seng Index (HSI) Options, Hang Seng China Enterprises Index (HSCEI) Options, Mini-HSI Options and Mini-HSCEI Options – from Monday, 22 January 2018 (details are shown in the table below).

Japan Exchange Group
…In November 2017, total derivatives trading volume reached 38,131,495 contracts, a high since January 2016 and the highest record for November.

Nasdaq ISE, Nasdaq PHLX, Nasdaq GEMX and NOM Updated Pricing, Effective December 1, 2017
Effective Friday, December 1, 2017, pending filing with the SEC, the following changes will apply to Nasdaq ISE, Nasdaq PHLX, Nasdaq GEMX and The Nasdaq Options Market (NOM), respectively.

Regulation & Enforcement

Bitcoin Heads to Wall Street Whether Regulators Are Ready or Not
CME, CBOE futures bring bitcoin to banks it was built to beat; Regulators have struggled to sort out just what bitcoin is

A Robust Futures Market Could Give SEC More Comfort With Bitcoin Products
Brian Louis – Bloomberg
Options Clearing ready to handle futures when trading starts; Three major exchanges plan to list bitcoin futures contracts
A vigorous, regulated bitcoin futures market could make the Securities and Exchange Commission more comfortable with bitcoin exchange-traded products, an agency official said Thursday.

Legislators ponder cybersecurity of market auditing system
Joe Uchill – The Hill
Members of the House Financial Services Committee mulled concerns over cybersecurity and the pace of development for a consistently delayed project to bolster Wall Street records collection during a hearing Thursday.
“We can’t make a mistake in building [the Consolidated Audit Trail (CAT) system],” said Chris Concannon, president and chief operating officer for the Chicago Board of Options Exchange at a hearing of the Capital Markets, Securities and Investment Subcommittee.

Global deal on bank capital rules likely: EU official
Huw Jones, Lawrence White – Reuters
A deal on global bank capital rules is likely next week, a senior European Commission official said on Thursday, though the compromise that will emerge will be tested for its impact on the EU’s economy.

Markets watchdog investigates D. Boerse’s handling of new CEO hire
Reuters Staff
Germany’s financial markets watchdog BaFin is questioning Deutsche Boerse over how it communicated the appointment of Theodor Weimer as chief executive, the regulator said on Friday.

China regulator: will effectively monitor cross-border flows, derivatives trade
China will conduct effective monitoring of cross-border capital flows and derivatives trading, a senior official at its securities regulator said on Friday.


Wall Street must recognise challenges posed by machine learning
John Dizard – Financial Times
Wall Streeters have been coming out ahead in their struggles with demanding Washington regulators and liberal activists. Investment management companies in particular no longer face the threat of being regulated as systemically important.
The financial industry’s leaders should enjoy their moment of triumph in Washington. They may not have much time before facing the consequences of their under-investment in research and development.

TradeStation Already Seeing Demand for Bitcoin Futures
Donna Fuscaldo – Investopedia
According to James Putra, director of innovation and strategy at TradeStation, the company has been actively working with the exchanges to become a day-one provider and has been preparing customers for the launch. He said that clients are already interested in accessing some of these products and that CME bitcoin futures will help drive “much more” capital into the cryptocurrency markets as well as boost awareness.

Looking Back
Blue Trading Systems Blog
As the holidays approach, we reflect on an eventful and productive 2017. Conversations with a diverse group of potential customers we met at various industry events revealed new market opportunities and began what we hope will be several mutually beneficial relationships. We adapted our strategy accordingly, broadening our focus, which has traditionally concentrated on options trading, to include futures and introduced our new product, BTS Spark.

Fidelity Offers Reparations to Customers After Website Outage
Sarah Krouse – WSJ
Fidelity Investments has offered reparations to some clients after a website outage that lasted more than two hours on Wednesday blocked millions of customers from accessing their online accounts. The Boston-based firm’s offers to clients have included waiving commissions on some trades attempted during the outage and offering several free trades.

****SD: It’s one thing to have a fear of missing out, it’s another to miss out because of a broker blunder.


Tech Investors Buy the Dip A Day After Stocks Get Routed
Elena Popina and Sarah Ponczek – Bloomberg
QQQ ETF calls are among most active in U.S. options market; FANG bouncing back after $60 billion market-cap wipeout

Can the market go up and $VIX rise as well?
Lawrence G. McMillan – Option Strategist
Traders are abuzz with the seemingly absurd fact that $VIX is up strongly today (and up for four days in a row), even though the market has risen strongly over that time – and is blasting explosively higher today.

Weighing their options
Pensions & Investments
Options investors reacted to new confidence in the tax bills’ impact on equity markets by sending the Chicago Board Options Exchange’s composite put/call ratio to its lowest levels in at least three years. The ratio was 0.71 at Wednesday’s close, just a tick higher than the 0.68 at Tuesday’s close — a stark contrast to previous weeks, when the average ratio was about 0.95.

****SD: This came out before the “trigger” derailment late yesterday – looks like it might pass now anyway.


How to calculate an expected range for the market?
Information about expected monthly range can be used by people who trade in derivative markets, especially the options traders as Implied volatility can be used to calculate the upper and a lower range of an underline derivative security. Option writers can use this expected monthly range to short the options above or below the expected monthly range, while Plain-Vanilla option buyers can use this upper and lower range to create spread positions i.e. Bull-Call spread, Bear-Put spread, Ratio Spread etc in order to reduce their entry-level cost on their Plain-Vanilla positions.

****SD: Uses the Nifty for the calculations, but potato potato right?


Blankfein isn’t planning to die at his desk at Goldman, after all
Liz Moyer – CNBC
Blankfein once joked he would die at his desk at Goldman, but he really just meant he planned to stick around for a long time.
It’s possible that a couple of people could succeed him, following a long-standing tradition at the investment bank, but there’s no timetable.

OPEC’s Endless Hot-and-Cold Shower
Liam Denning – Bloomberg
Showers, particularly older ones, can be tricky. First, you get hit with a freezing blast, so you turn up the hot water. Nothing happens. You turn it higher, and it warms up — and then keeps warming up. Until it’s scalding. Frantically, you turn up the cold water and stem the hot, and it cools down — and then keeps cooling down. Until it’s freezing …

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Graduate of University of Minnesota School of Journalism and Mass Communication