| June 20, 2018 | | | | | Spencer Doar
Editor
John Lothian News | |
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| | | | Observations & Insight | | |
FIA IDX 2018 - Brexit's Influence on Global Markets
JohnLothianNews.com
MiFID II was more than 20,000 pages with 21 million paragraphs of regulation. Considering its scope, things have gone rather smoothly since it went into effect in January. But for Simon Puleston Jones, FIA's head of Europe, there is no time to rest on the laurels of a successful implementation with Brexit looming.
Brexit cuts across all the other issues on FIA's plate in Europe. One aspect of MiFID II left unresolved is equivalence assessments, which are impacted by Brexit. The Emir review this year, with its third party clearing components, is impacted by Brexit. (It makes sense the FIA opened an office in Brussels.)
With Brexit altering Europe the most, Puleston Jones said the industry believes the United States will be the end beneficiary.
Watch the video and read the rest here »
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Chicago is Crypto-fuel For the Coinbase Rocket
Jim Kharouf - JLN
My meeting with Paul Bauerschmidt has been reset three times and he's running a few minutes late for our coffee in Chicago. It's understandable. Since taking the role as head of Coinbase's Chicago office last October, it's been non-stop for Bauerschmidt and his office of nine and soon to be more.
He is on board with one of the fastest growing crypto exchanges in the world and thrilled with the ride after helping build Eris Exchange and CME's swap business before that. In many ways, he's one of the new asset class pioneers in a city largely built by financial pioneers.
For the rest of the commentary, click HERE
| | | | | | Lead Stories | | | In a Year Marked by Controversy, Cboe Seeks to Improve the VIX; Exchange is making changes to a monthly auction that determines final prices of futures tied to the index
Gunjan Banerji - WSJ (SUBSCRIPTION)
Cboe Global Markets Inc. is revamping a controversial feature of one of its most-lucrative products: the Cboe Volatility Index, or VIX - also known on Wall Street as the "fear gauge." Cboe is making changes to a monthly auction that determines final prices of futures tied to the VIX. While the changes amount to tweaks to its architecture, they also mark a step by the exchange operator to improve a product that has come under intense srcutiny due to manipulation allegations.
/jlne.ws/2tpaf5C
****SD: Smooth VIX settlement today - see the Reuters story in Exchanges. I haven't yet had the pleasure of meeting her, but Banerji is wearing multiple hats. I see her picking up a bit of Steve Sears' mantle over at Barron's from time to time.
Exchanges, industry group petitions SEC to create committee on options market
Rick Baert - Pensions and Investments
A group of market participants led by Cboe Global Markets has asked the SEC for permission to create a committee to analyze potential changes and improvements to the U.S. options market.
/goo.gl/47JFEV
JPML Bundles CBOE Index Manipulation Suits In Chicago
Lauraann Wood - Law360
The Judicial Panel on Multidistrict Litigation on Thursday sent several suits alleging an unlawful manipulation of the Chicago Board Options Exchange's volatility index to Chicago federal court, saying the move will ensure efficiency and consistency while litigating the case's complex issues.
/jlne.ws/2MGBx0i
****SD: Thank you, JPML, for making my life easier.
Robinhood in Talks With Regulators to Offer Bank Products
Julie Verhage and Olivia Zaleski - Bloomberg (SUBSCRIPTION)
Robinhood Markets Inc. has more than 4 million U.S. consumers using its free stock-trading platform. Now, it's in talks to offer them other banking services like savings accounts, according to people familiar with the matter.
https://goo.gl/4VpQ3T
****SD: The velocity at which their options business has taken off is breathtaking. Clearly their expansion mantra is pedal to the metal.
Options indicate investors under-pricing OPEC volatility
Reuters via Yahoo
In the heady mix of risk events investors have had to keep tabs on in June, it seems like OPEC has slipped under the radar - at least if option prices on crude and energy equities are anything to go by.
/https://goo.gl/i4u4xu
****SD: Also from Reuters - Oil traders ready for musical chairs as China tariffs loom
U.S.-China Trade Spat Isn't Why Stocks Are Stumbling
Mark Hulbert - Barron's (SUBSCRIPTION)
Do you really think the threat of a trade war is causing U.S. stocks to stumble? That's what the headline writers would have you believe, but I'm not buying it.
It strikes me as though mounting trade tensions have become commentators' latest whipping boy, conveniently available as the after-the-fact explanation for whatever the market is already doing.
bit.ly/2K34CBr
| | | | | | Exchanges and Clearing | | | Cboe VIX logs orderly June settlement
Saqib Iqbal Ahmed - Reuters
The Cboe Volatility Index .VIX, Wall Street's so-called "fear gauge," logged an orderly monthly settlement on Wednesday, which is likely to help allay concerns that the index is manipulated on settlement days.
The VIX futures June settlement, calculated using a subset of S&P 500 .SPX options, was 12.27, according to Cboe data. The VIX opened during regular trading hours at 12.47.
/reut.rs/2K2aavW
Big Volume for VIX Futures during Global Trading Hours (GTH) on June 19
Matt Moran - Cboe
Estimated volume for futures on the Cboe Volatility Index (VIX) during Global Trading Hours (GTH) rose to more than 79,000 contracts on June 19, making the GTH session one of the busiest on record. VIX futures often are used for portfolio management purposes in times of financial market uncertainties, and the financial markets recently have digested news about tariffs and possible trade wars, and a recent headline at wsj.com noted "Markets Begin to Take Threat of Trade War Seriously."
bit.ly/2I6gJMh
Eurex Exchange - Fixed Income Highlights
Eurex
In May, geopolitical risks such as the uncertainty arising from the Italian elections continued to drive European FIC markets. Short covering in Bund Futures helped to drive futures volumes in German benchmark derivatives products. The spread between Bunds and BTPs was a focal point for fixed income traders and widened to levels not seen for five years, with a spread at 232 basispoints (bps). Options volumes saw a strong pick-up, partly driven by the Italian turmoil and partly by short covering as Bund Futures rallied hard and the market sought protection to the upside. Implied volatility on ten-year Bunds rose from 3.85 percent to 5.5 percent, the top end of the 4 to 6 percent corridor that we have seen for much of the past 24 months.
bit.ly/2MIm7J4
Level 01 Collaborates With Thomson Reuters to Introduce Blockchain-based Derivatives Exchange
CoinTelegraph
Level 01 Technologies is poised to launch the Level01 Derivatives Exchange, a platform envisioned to be the ultimate fair and transparent environment for the trading of derivative contracts.
bit.ly/2I7UqWe
****SD: The Thomson Reuters line is soooo misleading. Near as I can tell, Level 01 is simply using TR data - "The platform utilizes Thomson Reuters data feeds as a trusted source for its AI deep learning algorithms to provide real-time pricing analytics on derivative contracts." I'm also suspicious of the use of "ultra fair" in its pitch deck. That being said, p2p options trading via smart contract is intriguing...
| | | | | | Moves | | | Goldman Sachs brings back former prop trader as an MD
Beecher Tuttle - eFinancialCareers
Goldman Sachs isn't just losing managing directors; it's hiring them too. The firm just re-hired a longtime veteran of the company who formerly worked within the firm's most lucrative and controversial business. Former macro prop trader Robert Surgent rejoined the company in June as a managing director in New York.
bit.ly/2I7nEVj
****SD: Bringing back a former prop guy right as Volcker is getting a revamp - coincidence?
| | | | | | Regulation & Enforcement | | | Managed futures mutuals face fresh SEC derivatives rule
CTA Intelligence (SUBSCRIPTION)
Legal experts are warning that managed futures strategies are once again facing the prospect of SEC regulation of their use of derivatives in mutual funds in a move that has taken many by surprise.
bit.ly/2JUaBMS
ECB Poised for Power Over Euro-Derivatives Clearing Post-Brexit
Silla Brush and Alexander Weber - Bloomberg (SUBSCRIPTION)
The European Central Bank edged closer to gaining power over financial clearing, a lucrative business dominated by London and a flash point in the Brexit negotiations.
Lawmakers on a European Parliament committee on Tuesday endorsed a bill that amends the ECB's governing statute, explicitly granting it authority over clearinghouses for euro-denominated contracts. This matters to the U.K. because the vast majority of interest-rate swaps in euros are cleared at a London unit of the London Stock Exchange Group Plc.
/bloom.bg/2K6kyTd
Buy side, broker, vendor fee models "not sustainable" - report
Louisa Chender - Global Investor Group (SUBSCRIPTION)
The existing business models for fees that brokers and their buy side clients pay for vendor's services are not sustainable, according to a report.
In the latest Aite Group report, 'OMS in focus: The Light and Dark Sides of FIX and Client Connectivity', the research group estimates that brokers paid US$1.23 billion globally in 2017 for client connectivity.
/goo.gl/9hjm4a
****SD: Also from Global Investor Group on the unsustainable front - European regulatory model unsustainable - expert
Will states pick up where feds left off on derivatives regulation?
Kristin Broughton - American Banker
As state attorneys general take on a more muscular role in financial policy, enforcing consumer protection laws amid the deregulatory wave in Washington, they may soon add another item to their agenda: derivatives.
That is the hope of Michael Greenberger, a law professor at the University of Maryland, who recently published a paper on how big banks  such as JPMorgan Chase, Bank of America and Goldman Sachs  have taken advantage of loopholes in the regulation of derivatives under the Dodd-Frank Act.
bit.ly/2K5kYt4
| | | | | | Technology | | | Negative Latency
Matt Hurd - TABB Forum
Negative latency is impossible. There is no such thing. OK. So, why are you meandering about it then? The impossible made other people millions of dollars over the years when my team and I gave them negative latency. But you said it was impossible? The fun stuff always is.
bit.ly/2JS5ht7
****SD: A bit in the weeds, but when you're dealing with micro-slices of time, how could it not be?
| | | | | | Strategy | | | A Smarter Way to Rebalance with the BuyWrite Index (BXM)
Dave Donnelly - S&P Dow Jones Indices
As advisors begin mid-year rebalancing of client portfolios, they face a dilemma.
/goo.gl/kLWoH3
3 Sectors to Sell Short in a Trade War
Alan Farley - Investopedia
Three sectors stand out as potential short sale opportunities if a full-scale trade war breaks out in the coming weeks. Remarkably, these market groups have held close to their 2018 highs in the second quarter, with investors betting that political posturing will yield fruitful negotiations. That could change overnight if the Trump administration follows through on threats against China, Canada, Mexico and the European Union.
bit.ly/2K3JICb
Halfway Through 2018, Risks Rise For Investors
Rob Isbitts - Forbes
If you are not familiar with the "boiling frog metaphor," allow me to summarize it for you. If you put a frog in boiling water, it senses the temperature and jumps right out. If you put a frog in room temperature and slowly raise the heat, it won't sense it until it is too late. Now, as disgusting as that scene is to me as a pet and animal lover, the point is very relevant for investors as we approach the middle of 2018. The heat around us is rising, and I don't mean the temperature. The perspective with which you approach the next 6-18 months is likely to have an outsized impact on your ability to meet your long-term investment objectives, be they preservation, income or growth-oriented.
bit.ly/2I80Kgr
| | | | | | Miscellaneous | | | Deutsche Bank Settles New York Forex Probe for $205 Million
Bloomberg
Deutsche Bank AG agreed to pay $205 million to settle a long-running investigation of its foreign exchange trading by New York's banking superintendent, resolving one of several remaining regulatory issues that have dogged the bank in the U.S.
/bloom.bg/2K5w55g
****SD: "The dealers operated in a chat room known as 'Butter the Comedian.'" Wut?
Cboe president Chris Concannon thinks ICO legal issues will multiply
John Detrixhe - Quartz
One of the big questions since initial coin offerings took offÂraising billions of dollars in the past year while spawning concerns about scamsÂis how watchdogs will clean up the ICO market. Last week William Hinman, a top US Securities and Exchange official, provided some guidance on how the agency views digital assets and ICOs, which resemble crowdfunding that's been supercharged by crypto speculation.
bit.ly/2MGYOPH
****SD: Or as Business Insider phrased it - 'It was true for tulips, junk bonds, and mortgage-backed securities, and now crypto'
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| | | | John Lothian News (JLN) is the news division of John J. Lothian & Company, Inc. (JJLCO). The online media and financial services firm is staffed by derivatives industry, journalism and technology professionals. | | | | | | | John Lothian News Editorial Staff: | | | John Lothian
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