JLN Options: China to combine foreign investment schemes; CAT Issues; Volatility Returns to Normal

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February 01, 2019
Spencer Doar
John Lothian News
Observations & Insight
How Many Lives Does This CAT Have Left?
Spencer Doar - JLN
If the old saying holds true, one has to wonder how many lives the Consolidated Audit Trail (CAT) has left.
Yesterday, it was leaked to the WSJ that the contractor hired to build the Consolidated Audit Trail, Thesys Technologies, was fired by the exchanges tasked with implementing the data repository mandated by the SEC in 2012. (The SEC wanted a repository for stock and options trading info after realizing in the wake of 2010's flash crash that it didn't have the best tools and breadth of data necessary to do a proper autopsy.)
The firing is a stunning and confusing move. To be fair, there have always been dissatisfactory rumblings about this project. But when there are so many cooks in the kitchen — all the SROs, regulatory bodies and then Thesys itself — aren't those grumblings just the nature of the beast? The industry has its answer.
Read the rest of the story HERE.
****SD: One other thing I just remembered: On Tuesday, the SEC announced the appointment of Manisha Kimmel as advisor to Chairman Clayton on the CAT. I wonder what her first piece of advice was?
OCC January Volume Down 11.9 Percent After Record-Breaking 2018
Lead Stories
China to combine schemes to boost foreign investment
Asia Times
The China Securities and Regulatory Commission has issued draft rules that will combine QFII and RQFII, two existing schemes for foreign institutional investors to invest directly in Mainland China's bond and equity markets, The Paper reported.
****SD: This is big: "Foreign investors will also be allowed to invest in A-shares listed on the New Third Board, private equity investment funds, financial futures, commodity futures and options, and will be able to conduct bond repurchase as well as margin trading, thus expanding the scope of investment." Other sources: Reuters and Bloomberg
Volatility's Return to Normal Says New Year Rally Has Legs
Yakob Peterseil - Bloomberg (SUBSCRIPTION)
Two signposts of the global volatility complex suggest the risk rally is set to endure.
After a rare month in which implied swings for the S&P 500 Index exceeded those for emerging markets stocks, the relationship has flipped back to its historic norm. And after blowing out several times last year, the spread between volatility expectations on the Nasdaq and the S&P is drifting lower, too.
Stock Exchanges to Fire Company Building Stock-Market Supercomputer; Finra to take over the Consolidated Audit Trail from Thesys Technologies
Dave Michaels - WSJ (SUBSCRIPTION)
Stock exchanges intend to fire the contractor they hired to build a data warehouse for all U.S. stock-market activity, the latest sign of trouble for a project designed to detect trading fraud and causes behind wild swings in prices. People familiar with the matter said the exchanges have lost confidence in Thesys Technologies LLC, a startup hired in 2017 to build the repository, known as the Consolidated Audit Trail. The Securities and Exchange Commission told the exchanges to create the database so it would have a complete picture of orders in the stock and options markets, a tool they have never had.
****SD: FT has its take here.
Options-trading fintech wins backing from big and small banks
Penny Crosman - American Banker (SUBSCRIPTION)
Gatsby, a fintech loosely named after the Great Gatsby of literary fame, has won $500,000 of backing from Radius Bank, Barclays, Techstars, former Goldman Sachs managing director Alex Wohl and others.
Radius is already thinking about partnering with Gatsby and offering its app to customers of the bank. Gatsby's mission is to let ordinary people, especially millennials, make options trades.
****SD: For funsies, I joined the Gatsby waitlist to see what demand was like — there are more than 11k people ahead of me in line.
Here's a tangent that I thought about while poking through the Gatsby site: Back in spring 2017, I remember hearing about a platform called "Jellifin" which advertised free options trading, or rather, unlimited free trades for a low monthly fee. I poked around at the time and there didn't seem to be much out there about the firm or its founder, Andre Norman.
(Note: Jellifin's website no longer offers a free trading platform, but rather white labeled trading platforms and an app called "Rho" which looks like an interface for Tradier Brokerage.)
Since then, there was an article published in spring 2018 that mentions Jellifin partnered with a brokerage API firm called Third Party Trade. On Gatsby's website, it says its brokerage services are provided by Third Party Trade. None of the three company sites - Third Party, Jellifin, or Gatsby - has much in the way of "About" sections, disclosures or details about staff. I'll keep poking around.
The Three Classes of Market Data
Themis Trading Blog
IEX published a report this week titled "The Cost of Exchange Services" which is a first-of-its-kind, inside look at how exchanges provide and price market data. Not only does IEX provide a detailed breakdown of market data feeds and physical connectivity costs but they detail the process of how an exchange delivers data. The numbers are simply astounding. We urge you to read the entire IEX paper to really understand what the market data fee debate is all about.
SocGen Doubles Down on Execution Services
John D'Antona - MarketsMedia
One global brokerage is doubling down on its global execution business.
Doubling down is one of the most thrilling moves in blackjack. It allows you to double your bet in the middle of a hand in exchange for one extra card. It's a risky gamble, as it usually ends one's betting - if you receive a particularly low second card you can't hit again. But if the right card is dealt, it can significantly increase the chance of winning and making money.
February's Market: Volatility, Geopolitics And Earnings Are On Watch
JJ Kinahan - Forbes
February could bring a heaping plate of geopolitical drama to markets around the world, potentially helping to end a brief calm that settled over January.
As the month starts, markets were basking in the Federal Reserve's decision to hold interest rates steady, along with better than expected earnings results from Boeing and Apple. In fact, many Wall Street analysts have indicated they now expect no interest rate increase at all this year after the Fed said it will remain "patient." So stocks begin February propelled in part by the ongoing earnings season and the Fed's dovish tone.
Exchanges and Clearing
OCC January Volume Down 11.9 Percent After Record-Breaking 2018
OCC, the world's largest equity derivatives clearing organization, announced today that total cleared contract volume in January reached 422,610,940 contracts, the second-highest January volume in OCC history, following January of 2018. This was down 11.9 percent compared to last January. OCC's year-to-date average daily contract volume is 20,124,330 contracts, 3.6 percent lower than 2018's record-breaking average of 20,884,820 contracts a day.
Options: Overall exchange-listed options volume reached 416,274,951 contracts in January, down 11.0 percent from 467,904,767 in 2018. Equity options volume reached a total of 375,222,959 contracts, an 8.8 percent decrease from January 2018. This includes cleared ETF options volume of 157,950,235 contracts last month, also an 8.8 percent decrease compared to January 2018 volume of 173,248,941 contracts. Index options volume was down 27.0 percent with 41,051,992 contracts in January, with an average daily volume of 1,954,857 contracts.
NSE, SGX may sign offshore trading pact
Pavan Burugula, ET Bureau
NSE and SGX have submitted a joint proposal to the Securities and Exchange Board of India (Sebi) seeking permission to allow such an arrangement. The National Stock Exchange (NSE) and the Singapore Exchange may soon call a truce in their longrunning tussle over offshore equity derivatives trading.
Moscow Exchange Rolls Out Ultra-Low Latency Market Data Solution For Derivatives
On 18 February 2019, Moscow Exchange will launch an updated version of the FAST protocol and a new FAST Full_orders_log Online service to enhance market data delivery from its Derivatives Market. This is currently the fastest real-time feed with nanosecond precision timestamps for access to all on-exchange orders and trades in derivatives.
SGX TSI Iron Ore 62% Derivatives volume hits 20 million mt on Jan 30
Niki Wang and Petter Kolderup - S&P Global Platts
SGX Iron ore 62% swap volume hit a new daily record since 2018, with 16.6 million tons futures and swaps traded Wednesday. The total volume including options and screen trades was over 20 million tons, as confirmed by SGX.
Regulation & Enforcement
Law Offices Of Howard G. Smith Announces The Filing Of A Securities Class Action On Behalf Of ProShares Short VIX Short-Term Futures ETF Investors (SVXY)
Global Banking & Finance Review
Law Offices of Howard G. Smith announces that a class action lawsuit has been filed on behalf of investors that acquired ProShares Short VIX Short-Term Futures ETF (SVXY or the Fund) (NYSE: SVXY) pursuant to the May 15, 2017 Registration Statement and/or between May 15, 2017 and February 5, 2018 (the "Class Period"). SVXY investors have until April 1, 2019 to file a lead plaintiff motion.
*****SD: This is the third SVXY notice of the week.
Pomerantz Law Firm Investigates Claims On Behalf of Investors of ProShares Short VIX Short-Term Futures ETF
Press Release
Pomerantz LLP is investigating claims arising from securities fraud or other unlawful business practices on behalf of investors of ProShares Short VIX Short-Term Futures ETF ("SVXY" or the "Futures Fund") (NYSEArca: SVXY). Such investors are advised to contact Robert S. Willoughby at rswilloughby@pomlaw.com or 888-476-6529, ext. 9980.
****SD: This is the fourth SVXY notice of the week.
Brexit: Derivatives trade exodus 'to start with currency contracts'
Sameer Van Alfen - IPE
Any Brexit-fuelled exodus of the derivatives market from London to the European mainland will start with currency contracts, according to Dutch asset manager Achmea IM.
ESMA clarifies the reporting and handling of derivatives data in case of no-deal Brexit
The European Securities and Markets Authority (ESMA) has issued today a public statement on how derivatives data reported under the European Market Infrastructure Regulation (EMIR), should be handled in the event of the United Kingdom (UK) leaving the European Union (EU) without a withdrawal agreement, the no-deal Brexit scenario.
****SD: Reuters here.
Someone's Making a Big Bet on a Border Wall
Steven M. Sears - Barron's (SUBSCRIPTION)
The financial equivalent of President Donald Trump's controversial Mexican border wall was just erected in the options market.
An unknown investor made a big, bold bet that Mexico's stock market will make an unusually sharp move over the next five months for reasons that some speculate are related to Trump's interest in building a wall along the U.S. Southern border.
****SD: Big straddle - "When the fund was just under $45, an investor bought 7,500 June $45 puts and 7,500 June $45 calls for $5.50."
CBOE Re-Applies With US SEC to List Bitcoin Exchange-Traded Fund
Aaron Wood - Cointelegraph
The Chicago Board Options Exchange's (CBOE), along with investment firm VanEck and financial services company SolidX, has re-applied with the United States Securities and Exchange Commission (SEC) for a rule change to list a Bitcoin (BTC) exchange-traded fund (ETF). VanEck digital asset strategy director Gabor Gurbacs announced the public filing on Jan. 31.
****SD: Someone didn't get the Cboe's style guide after the Bats acquisition...
Trading Volumes Rebound at Cboe FX in January
Aziz Abdel-Qader - Finance Magnates
Cboe's institutional spot FX platform on Friday reported ?its trading volumes for the month ending January 2019, which saw a ?positive performance as a rise in volatility from holiday lows encouraged more buying and selling ?of currencies at major institutional venues.?
During January 2019, Cboe FX disclosed a total trading volume of $799 billion, up 19 percent on a month-over-month basis from $671 ?billion in December 2018?. In a different pattern, the figure was lower by -14 percent year-over-year when weighed against $937 billion in January 2018.
Payrolls surge by 304,000, smashing estimates despite government shutdown
Jeff Cox - CNBC
Job growth in January shattered expectations, with nonfarm payrolls surging by 304,000 despite a partial government shutdown that was the longest in history, the Labor Department reported Friday.
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