| July 25, 2018 | | | |  | Spencer Doar
Editor
John Lothian News | |
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| | | | Observations & Insight | | | 10 Years of PHLX @ Nasdaq
Spencer Doar - JLN
The oldest stock exchange in the United States hit another milestone - the Philadelphia Stock Exchange (PHLX) celebrated its 10-year anniversary as a part of the Nasdaq family on July 24.
While the '07-'08 timeframe is best remembered in financial circles as the time of "bailout this" and "subprime that," it was a transformational period for non-crisis reasons at Nasdaq.
Nasdaq purchased PHLX - founded in 1790 as a venue for bond trading - for $652 million in 2008. At the time PHLX was the third largest options exchange, with some 20 percent market share, behind ISE and CBOE. Nasdaq was looking for new products and did not have an existing footprint in U.S. derivatives.
Read the rest here.
| | | | | | Lead Stories | | | CBOE Faces Another VIX Futures Manipulation Antitrust Suit
Bryan Koenig - Law360 (SUBSCRIPTION)
The holding company for the Chicago Board Options Exchange was hit with another proposed antitrust class action Monday over alleged manipulation of the exchange's volatility index, with a trading firm accusing the CBOE in Illinois federal court of looking the other way as a group of financial firms stoked uncertainty among other investors.
bit.ly/2uOVeeT
****SD: I've only had a chance to peruse the case filing (you can get to it via PACER - Northern District of Illinois case # 18-cv-5023) but it doesn't seem like there's anything "new" in this filing.
When Market Makers Ate Their Own
Paul Rowady, Alphacution Research Conservatory Blog
In today's winner-take-all markets, the ability to analyze data to better predict market movements and outcomes will be the difference between the hunter and the hunted.
Right out of the gate, this story might emit a whiff of last year's news. Maybe. But, that sense would only last until you realize that this is also a template for improving predictions about future events. And, that kind of predictive power relies upon the bet that more markets and opportunities are becoming winner-take-all in the digital era ... (Hint: As the functioning of markets - and other economic opportunities - becomes more "digital," a single leader can emerge in that market. This is how we end up with the "FANG's" - Facebook, Amazon, Netflix and Google. It's also how US equity markets end up with ~80% lit market-making flows being split between Virtu and Citadel.)
/goo.gl/ZzJRQn
****SD: This came to my attention after it was reposted on Tabb today - it's originally from last Wednesday. The charts comparing varying MM tech spend metrics are awesome, particularly the one of technology costs per employee (or TCO/e). Virtu tops the chart, spending more than $400k on tech per employee. That's DOWN from the previous three years. Then again, you need to fund your shortwave radio rigs, right? Speaking of Virtu...
Virtu Announces Japan HST Registration
Virtu Financial, Inc.
Virtu Financial, Inc., a leading technology-enabled market maker and liquidity provider to the global financial markets, today announced that its Singapore entity, Virtu Financial Singapore Pte. Ltd. has received High Speed Trading Registration with Japan's Financial Services Agency.
bit.ly/2OhIkOX
****SD: Flow Traders gained regulatory approval in Japan earlier in July.
Best's Special Report: U.S. Insurers Increasing Use of Derivatives for Liability Risk Management
Business Wire
U.S. insurance companies are increasing their usage of derivatives in hedging and portfolio management to manage risks or to achieve objectives for their asset-liability portfolios, according to a new A.M. Best report.
bit.ly/2Of1TqN
****SD: In an another insurer development (via the WSJ)- Insurers Pull Billions From Hedge Funds
Understanding the Full Lifecycle of Transaction Tax Compliance
Daniel Carpenter - International Banker
Regulatory compliance continues to reach far and wide, and has touched areas from front to middle to back office. A key area that has seen increasing regulatory activity in recent years has been taxation. The recent move to the collection of transaction taxes for underlying products in baskets of derivatives belonging to nationals living abroad, has now brought the Tax Operations department to the forefront of banking compliance. In order to satisfy regulatory requirements, fulfil client needs, and guarantee client data protection under rules like the GDPR, banks are creating and ramping up dedicated tax operations departments, managing and tracking each and every relevant transaction - from start to finish.
bit.ly/2uPXPoX
****SD: I know, I know - just what you want to be thinking of during summer vacation...
Credit Agricole outsources listed derivatives operations to asset servicing arm
Joe Parsons - The Trade
French investment bank Credit Agricole CIB has outsourced its listed derivatives back-office operations to CACEIS Investor Services.
CACEIS, which serves as the asset servicing business of Credit Agricole, will also act as its main listed derivatives clearer.
bit.ly/2OguyMj
Trump Says U.S., EU Must Cut All Tariffs Ahead of Key Talks
Nikos Chrysoloras - Bloomberg (SUBSCRIPTION)
EU chiefs meet Trump in last-ditch bid to prevent car levies; Europe prepares $20 billion retaliation if U.S. raises tariffs
President Donald Trump said that the U.S. and the European Union should eliminate all tariffs, barriers and subsidies, with the bloc's trade chiefs set to present him with proposals in that direction in a crunch meeting at the White House later Wednesday.
/jlne.ws/2v4N3ui
****SD: In other trade news, the WSJ has Mexico's Incoming Administration Willing to Offer Flexibility on Nafta
| | | | | | Exchanges and Clearing | | | The long (and not the short) of it: three questions for Markus-Alexander Flesch
Eurex Exchange
Markus-Alexander Flesch, Global Head of Equity & Index Sales at Eurex, is in constant contact with his customers and their input is key to the development of our products. We asked him how Eurex is increasing its efforts to support the buy side.
The latest example of a product tailor-made for the buy side are our month-end options. What is they all about?
bit.ly/2uUQIMf
****SD: This has info on their month-end options.
Nasdaq Reports Second Quarter 2018 Results; Completes Divestiture; Delivers Strong Organic Revenue Growth
GlobeNewswire
Nasdaq, Inc. (Nasdaq:NDAQ) today reported financial results for the second quarter of 2018.
/jlne.ws/2LjTRzf
****SD: Total net equity derivative trading and clearing revenues for Q2 were $72 million (down MoM but up YoY).
FX Volumes Continue Growth Trajectory in North America, FXC Survey Shows
Aziz Abdel-Qader - Finance Magnates
The Foreign Exchange Committee (FXC), a multi-national cooperative conducting a semi-annual survey that includes FX data from leading dealers and banks in North American, today issued its twenty-eighth report which covers April 2018.
bit.ly/2Ogcy4L
| | | | | | Regulation & Enforcement | | | CFTC proposes update to rule governing security futures position limits
Amy Leisinger - Wolters Kluwer
The CFTC unanimously approved a proposal to update a rule governing exchanges that list security futures products to increase liquidity in SFP trading. The proposal would provide these exchanges with greater discretion in setting position limit levels to foster more effective risk management. Specifically, the proposed amendments would increase the default level of equity SFP position limits to 25,000 contracts and adjust the criteria for setting higher position limits and position accountability levels.
bit.ly/2Oefyyp
****SD: "The default level for position limits for SFPs have not changed over time, but those on security options have, which has allowed position limits for security options to be set at a higher default level, potentially placing SFPs at a competitive disadvantage. The proposal is designed to level the playing field, the CFTC notes."
CFTC Nears Full Strength as Democrat Coasts Through Nomination Hearing; Dan Berkovitz appears set for Senate confirmation this year, along with Republican counterpart Dawn Stump
Gabriel T. Rubin - WSJ
The Commodity Futures Trading Commission moved a step closer to having a full commission for the first time in four years, with a Democratic nominee getting almost no pushback at a Senate confirmation hearing.
/jlne.ws/2Ljl1Gx
****JB: FIA special report on this here
Don't Eat the Poison Pill By Mistake
Matt Levine - Bloomberg
...I suppose there is a mirror image of it, which is, don't insider trade by buying short-dated out-of-the money put options on companies that are about to announce bad earnings. That one comes up occasionally, but is not as salient as the calls on merger targets. But definitelyÂcall it Law 2A I guessÂdon't insider trade by buying short-dated out-of-the-money put options on your own company just before it announces bad earnings. Don't buy put options on your own company at all! It's not a good look. If you're going around betting against your own company's stock, the SEC is going to make some inquiries.
/bloom.bg/2OetSXM
****SD: The second portion of Matt Levine's column today touches on some of the recent insider trading cases (and the trickster behind Fyre Festival).
Republican tax plans include making U.S. cuts permanent - documents
Reuters
Republican plans to build on last year's U.S. tax legislation will include making individual and small business tax cuts permanent, expanding savings plans and giving breaks to start-up companies, according to documents released on Tuesday by the chief architect of the legislation.
/reut.rs/2OipQOe
Testimony Of Chairman J. Christopher Giancarlo Before The House Committee On Agriculture, Washington, D.C.
Mondovisione
bit.ly/2Oif6zk
| | | | | | Technology | | | Innovation is Changing Hedge Funds
RCM Alternatives Blog
Many have questioned what the future holds for the hedge fund industry, given its history of innovation. What kind of products will hedge fund firms offer to their new investor? How will they reconcile profits with social responsibility? Will hedge fund firms even exist in the future, or will they have been replaced by artificial intelligence systems? If they do still exist and are still staffed with humans rather than machines, how will hedge firms navigate the coming generational change in leadership?
bit.ly/2uMAgx8
****SD: Some fun charts in here. For more on the growth of data angle in the piece, see the study from Seagate and IDC - Data Age 2025
In the great tech race, Wall Street firms are lapping the regulators
Kirsten Wegner - TheHill
When the United States grew into the world's top economic power during the 20th century, it was the ingenuity and reliability of our financial system that funded the expansion.
Federal laws passed in the wake of the Great Depression created an effective  albeit imperfect  system that balanced both innovation and regulation with respect to lending, investing, trading and developing new products. But day by day, we are seeing breakthrough technologies render that old way of regulating markets obsolete.
bit.ly/2uOGxIL
| | | | | | Strategy | | | See More Pound Turmoil? It May Be Time to Build Your Buffer
Charlotte Ryan - Bloomberg (SUBSCRIPTION)
Sterling volatility below 2018 average despite Brexit risks; Pound options look mispriced, J.P. Morgan Private Bank says
The summer lull in currency markets could be just the time to buy some cheap protection against potential pound turbulence.
/goo.gl/6UeSy5
Bitcoin Volatility, Skew, and Options Pricing, Part 3
Volatility Futures and Options
Recently Deribit, the leading cryptocurrency options exchange introduced a new service - crypto-based USD loans. Here is a blog post that describes existing marketplace for crypto-based loans, and the loan service that they are offering. The service is radically different from existing services, as it relies on hedging.
bit.ly/2uKPhQj
****SD: The theory pertains to the lenders' hedging activity: "Crypto lending is a growing market with demand exceeding the supply. If Deribit's lending service will take off, it will create a strong, systematic buying pressure on puts, raising the left skew."
| | | | | | Education | | | Options Volatility Q&A: VIX, Skew, and the Rule of 16
Kevin Hincks - The Ticker Tape
In fact, advanced traders can even trade futures and options on the VIX. But for all the attention it gets, few investors really understand this measure of options volatility, what it means, how to measure it, and finally, how to determine its most accurate value.
bit.ly/2uNyf45
| | | | | | Miscellaneous | | | How the Fleece Vest Became the New Corporate Uniform
Jacob Gallagher - WSJ
The fleece zip-up vest, the capstone of a new corporate uniform, lurks in air-conditioned corporate cubicles across America. It covers the sweating backs of nervous interns ordering supersize coffees at Starbucks. It has become as ubiquitous as the take-out salad in humdrum workplaces, and is slowly supplanting the suit and tie as essential office wear.
/jlne.ws/2v0THSo
****SD: Here I thought it was my imagination... And the story is right: the @midtownuniform Instagram is pretty hilarious.
Institutional Investors Swap Bitcoin Futures for Physical BTC in Wall Street First
CCN
Bitcoin took a significant step toward becoming a mainstream financial instrument this week, as two institutional investors completed the first-ever exchange for physical (EFP) transaction involving bitcoin futures. The CME EFP Bitcoin transaction, facilitated by ED&F Man Capital Markets, a registered futures commission merchant, and itBit, an institutional-grade cryptocurrency exchange, saw two institutional traders swap a position in CME's bitcoin futures market for an equivalent amount of the "physical" asset itself.
/goo.gl/x5hTY6
****SD: I can't be the only one amused that of all the companies in the world, ED&F Man, a more than 200-year-old merchant powerhouse that trades 11 million tonnes of sugar a year, was involved. Don't judge a tree by its rings I suppose. Anyway, super important development.
Senate probe finds massive errors in program detailing U.S. agency spending
Richard Cowan - Reuters
A U.S. government program designed to give the public and policymakers a clear view of how Washington uses federal dollars is riddled with errors and new Trump administration changes threaten to make the problem worse, Senate investigators said on Tuesday.
/reut.rs/2uQ4ob3
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