| September 28, 2018 | | | |  | Spencer Doar
Editor
John Lothian News | |
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| | | | Lead Stories | | | CFTC Charges Futures Trader with Cross-Exchange Manipulation
CFTC
The Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against Davis Ramsey, a Florida-based futures trader, for employing a manipulative scheme to influence the prices of certain futures contracts traded on the Chicago Mercantile Exchange, Inc. (CME) and Commodity Exchange, Inc. (COMEX), both Designated Contract Markets operated by the CME Group, Inc. (CME Group), to impact the outcome of related binary contracts traded on the North American Derivatives Exchange (Nadex).
/jlne.ws/2DDLATo
****SD: There are plenty of binary options enforcement actions today - more on those in our "Regulation" section. This one is up top because regulators threw a spotlight on cross-market manipulation this year.
This action is especially weird because NADEX is involved. Due to previous actions and hypothetical discussions, I tend to think of cross-market manipulation tactics (spoofing/layering, etc.) as involving equity options and their respective underlyings, or futures/options on futures and maybe those underlyings, not binary options.
I'm also amazed at what little it seems it took to make the scheme work. The CME enforcement action provides more detail - "Knowing that these binary options settled based upon the last 25 trades in the underlying CME futures markets prior to the options' expiration, Ramsey subsequently executed a series of one-lot trades for the related underlying futures contracts shortly before the options' expiration and at prices that, when factored into NADEX's settlement protocol for binary options, favored Ramsey's binary options positions. Further, while Ramsey's CME futures trades were unprofitable in nearly every instance described above, the profits he received due to the effected [sic] binary options settlements significantly exceeded these losses."
Combine the CME and CFTC actions and this Ramsey fellow is out ~$500k. I could find only one (very sparse) social media profile that seems to match this Ramsey - it describes a Florida-based man who is a self-employed trader. If this is indeed the same Ramsey, then his previous job was as an actuarial analyst for the Florida Department of Financial Services.
According to a study by Australian regulators in 2017, 80 percent of binary options "investors" lose money. I guess this ploy was one way to make sure to be in the winning 20 percent.
P.S. I suppose this could also be a slightly different example of the always unusual "Florida Man" meme (link to Wikipedia).
++++++
Credit Suisse Wants Alabama Inverse VIX Price-Drop Suit Tossed
Dean Seal - Law360 (SUBSCRIPTION)
Credit Suisse asked an Alabama federal court on Wednesday to dismiss a complaint that alleges the bank misrepresented the value of certain short-term notes...
/goo.gl/Vas5v9
****SD: Unfortunately, we cannot find another source with this update and Law360 is tough to access. So just know the wheels of justice move slowly and the Credit Suisse XIV drama is ongoing.
U.S. regulator sues Musk for fraud, seeks to remove him from Tesla
Jonathan Stempel, Alexandria Sage - Reuters
The U.S. Securities and Exchange Commission accused Tesla Inc (TSLA.O) Chief Executive Elon Musk on Thursday of fraud and sought to remove him from his role in charge of the electric car company, saying he made a series of "false and misleading" tweets about potentially taking Tesla private last month.
/goo.gl/tkH4it
****SD: To quote "Tommy Boy," holy schnikes!
U.S. stock options volume on pace for a record year
Saqib Iqbal Ahmed - Reuters
The U.S. listed equity options market is set for a record volume in 2018 due mainly to a resurgence in stock market gyrations after a couple of unusually quiet years, data from derivatives clearing organization OCC showed on Friday.
/goo.gl/7FMTc1
****SD: Not really "news," more like continued evidence of a potential banner year.
Hedge Fund Investors Great Reset
RCM Alternatives
We talked a few weeks ago about 'Why There's Trillions in Hedge Funds with Stocks at All Time Highs', and read with interest Barry Ritholtz's Bloomberg piece lamenting "missing hedge fund performance".
/goo.gl/EZmxdK
****SD: The question is: are hedge funds returning less and exhibiting lower volatility because after the financial crisis, hedge funds' increasingly institutional client base demanded less risk? Because you know what they say, "no guts, no glory."
| | | | | | Exchanges and Clearing | | | RUT Options to List on Cboe's BZX Options Exchange
Rick Rosenthal - Cboe
On Monday, October 1, Cboe plans to further expand the Russell 2000 Index (RUT) options marketplace by adding their listing to its BZX Options exchange, pending regulatory approval. Options on the RUT currently are listed on Cboe Global Markets' Options Exchanges (Cboe and C2), where market participants enjoy the advantages of trading RUT on a hybrid basis between Cboe's electronic and open outcry markets. The additional BZX listing will expand the trading choices and capabilities of customers and liquidity providers.
bit.ly/2R7CnVS
****SD: Maybe the move was more to keep from getting complacent or, you know, stuck in a rut? (Sorry. Low hanging fruit, etc.)
Thomas Book: "We want to further increase fairness in pricing" (part I)
Eurex
The Chief Executive Officer of the derivatives exchange on 20 years of Eurex, innovations, the Chinese market and the protection of buy-side market participants
/goo.gl/RGZMtY
| | | | | | Regulation & Enforcement | | | CFTC Files Ten Enforcement Actions: Nine Addressing Fraudulent Binary Options Solicitations and One Addressing Cross-Exchange Manipulation
CFTC
The Commodity Futures Trading Commission (CFTC) issued seven orders today filing and simultaneously settling charges against various respondents, and also filed two complaints against various defendants, for violations of the Commodity Exchange Act (CEA) and Commission Regulations (Regulations) relating to fraudulent binary options solicitations, and one order filing and simultaneously settling charges for violations of the Act and Regulations relating to cross-exchange manipulation, as set forth below and as more fully described in the related press releases linked below.
/jlne.ws/2zAE1Zz
Online Marketers Charged With Conning Main Street Investors Through Rags-to-Riches Infomercials; SEC Issues Video Warning to Investors
SEC
The Securities and Exchange Commission today charged a group of internet marketers who allegedly created and disseminated elaborate rags-to-riches videos to trick retirees and other retail investors into opening brokerage accounts and trading high-risk securities known as binary options.
/jlne.ws/2DDJoLE
CFTC Charges Eleven Individuals and Five Entities in Nationwide Binary Options Fraud Ring; As alleged in two complaints and seven orders, hundreds of millions of prospective customers received fraudulent binary options solicitations from Defendants and Respondents
CFTC
The Commodity Futures Trading Commission (CFTC) today announced that it filed two complaints in federal district courts in Florida against four individuals and three entities and issued seven administrative Orders filing and simultaneously settling charges against seven individuals and two entities relating to global retail binary options fraud that victimized U.S. residents.
/jlne.ws/2DFh4IH
The End of the Tick Size Pilot
Themis Trading Blog
After two years, the tick size pilot will end after the close of trading today. While the goal of the tick pilot (increased small cap liquidity) was noble, the preliminary results appear to show that the goals were not accomplished. However, before the industry declares the pilot a waste of time and money (some have estimated it cost hundreds of millions of dollars), it's important to realize that the pilot has yielded two years of data which can now be analyzed by researchers. We hope that the analysis not only shows what worked and what didn't work but also gives reasons for certain failures.
/goo.gl/j5xp3u
Trader Who Ripped Off His Mom, Friends Gets 8 Years
Bob Van Voris - Bloomberg (SUBSCRIPTION)
A former Morgan Stanley trader who ran a phony hedge fund from his rented home in the wealthy New York suburb of Pound Ridge, ripping off friends and even his mother, was sentenced to eight years in prison for the $22 million fraud. Michael Scronic, 46, took money from 46 people, including a former college roommate who went on to become Facebook Inc.'s chief financial officer, in a seven-year scam that unraveled with his arrest by FBI agents last year. Scronic pleaded guilty in March to securities fraud, admitting that he lost the money betting on risky short-term options, while taking about $500,000 a year to cover his expenses.
/goo.gl/xzHwCV
Insider Trading's Odd Couple: The Goldman Banker and the NFL Linebacker
Max Abelson and Felix Gillette - Bloomberg (SUBSCRIPTION)
When Mychal Kendricks darted past the Chicago Bears line earlier this month and sacked their quarterback, the Seattle Seahawks linebacker crawled across the turf, smacked it, leaped into the air, and twirled. Mics for the Monday Night Football game picked up a stretched-out scream of joy.
/goo.gl/SCX6Gg
****SD: If we're going with "The Odd Couple," I'm guessing the linebacker was Oscar and the banker was Felix.
Trading venues face increased scrutiny on "unsatisfactory" MiFID II data submissions
Hayley McDowell - The Trade
ESMA will publish performance indicators on data submitted by trading venues for the double volume caps and bond liquidity assessments under MiFID II.
/goo.gl/5T8W6G
****SD: Recall that "incomplete data submissions from trading venues has forced ESMA to delay the implementation of certain aspects of MiFID II, including the DVCs and the systematic internaliser regime for derivatives."
| | | | | | Technology | | | Sterling Trading Tech Releases Expanded RaaS Analytics for Its Real-Time Risk Engine
Business Wire
Sterling Trading Tech (STT) unveiled its first major expansion of sophisticated analytics for its RaaS (Risk as a Service) solution, The Sterling Risk Engine. The cloud-based, high performance solution calculates intraday, real-time risk-based haircuts and portfolio margin using the OCC's TIMS methodology, in addition to simulating portfolio risk under user-defined market shocks and volatility shifts.
/goo.gl/vvMpXp
| | | | | | Strategy | | | Hedging Corporate Bonds with Long-term Puts
Steve Sosnick - OCCAM
The mark of a crisis is when people begin to worry more about return OF capital rather than return ON capital. When that psychological shift occurred in 2008, the impact was felt far and wide.
bit.ly/2R5TQhs
Paring Your Stock Risk Ahead of the Election
Gunjan Banerji - Barron's
Hints of election jitters are emerging in the options market.
Though markets have calmed and U.S. stock indexes are edging toward record highs once again, some signals indicate investors are gearing for greater turbulence in coming weeks. One point of focus: the Nov. 6 midterm elections, which will determine whether Democrats are able to wrangle control of Congress. Republicans currently hold a slim majority in both houses.
bit.ly/2R7A3hJ
****SD: Oh, midterm elections are coming up? I hadn't heard about that from anyone.
| | | | | | Miscellaneous | | | Fed chief Powell signals central bank is done with signaling
Ann Saphir - Reuters
Federal Reserve Chairman Jerome Powell has a new message for financial markets: watch the data on jobs, wages and inflation for signals on monetary policy - not the U.S. central bank's words or forecasts.
/jlne.ws/2zCidNc
****SD: But, but, but if you continue to signal that you're not signaling then aren't you still signaling?
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