Observations & Insight
Thom Thompson: Later today, CME will transfer open interest in natural gas and crude oil futures and futures options from NFX to CME Clearing using the block trade functions at CME. The CME’s May 26 Special Executive Report notes that it is making this accommodation “in response to client demand.” You might remember that last November Deutsche Boerse’s EEX’s Nodal Exchange said, “Nodal will acquire the core assets of NFX, including the portfolio of NFX contracts.” Nodal said the acquisition involved the transfer of NFX’s open interest to Nodal Clear. The financial terms were not made public. Since there is little protectable IP involved in those contracts, it sounds like Nodal was buying “goodwill.” Apparently, though, not everyone wants to go to NODAL and NODAL Clear and some members and customers are voting with their (electronic) feet to move to CME.
MR: The CME Group will launch options on Micro E-mini S&P 500 and Micro E-mini Nasdaq-100 Futures for trading in Fall 2020, pending regulatory approval. You can read the press release in our “Exchanges” section today, and you can read more about it on the CME’s website.
Cboe to Reopen Trading Floor June 8 and NYSE Brokers Return
Lananh Nguyen – Bloomberg
On the same day that the New York Stock Exchange partially reopened its historic trading floor, Cboe Global Markets Inc. announced plans to open the doors to its Chicago site on June 8.
Half of Cboe’s trading floor participants are expected to return to the reconfigured space next month, the exchange operator said Tuesday in a statement. “Rigorous precautionary measures” to limit exposure to the coronavirus include a different layout to allow for social distancing and capacity limits, the wearing of masks and medical screening at entrances.
Rowdy Chicago Trading Pits Face Risky Reopen, Extinction Threat
Elizabeth Stanton and Alyce Andres – Bloomberg
Pete Kosanovich can’t wait to put his trading jacket back on and return to the noisy Chicago pit where he’s worked for 17 years. The burly former football player is known on the floor by the letters “MGLA” printed on his badge, a nickname referencing the 1960s cartoon “Magilla Gorilla.” Yet this is a nightmare environment when it comes to an illness as contagious as the coronavirus: Sweaty traders crammed closely together, gesturing wildly, and screaming above the ruckus. But brokers at CME Group Inc.’s pit trading eurodollar options — the biggest of the handful of products that have avoided conversion to fully electronic trading — feel certain they’ll be back.
HKEX grabs derivatives deal from Singapore rival
Hudson Lockett and Philip Stafford – Financial Times
Hong Kong’s stock exchange group took a big step in its efforts to broaden its appeal to international investors on Wednesday when it snatched a key derivatives licensing agreement from the hands of its Singapore rival after 23 years, sending SGX’s shares tumbling.
The deal will allow Hong Kong Exchanges and Clearing to offer futures and options contracts based on 37 of MSCI’s equities indices, mostly in Asia, from June.
US benchmark switch splits swaptions market
Rebekah Tunstead – Risk.net (subscription required)
US dollar swaptions users are divided over new guidance designed to avoid a valuation change when clearing houses switch their swap discounting curves later this year. Investors are now able to specify a discounting rate for new swaptions, and an industry group has urged participants to opt for the secured overnight financing rate for many new trades. But some parties have not done so, with dealers citing operational challenges, the impact of Covid-19 and old-fashioned stubbornness.
China Tensions Spur $2 Billion of Bets on Currency Options
Susanne Barton and Robert Fullem – Bloomberg
Foreign-exchange options traders anxious about worsening U.S.-China relations are using key currency proxies to hedge against the uncertainties. Tuesday saw nearly $1.4 billion of options traded on the Hong Kong dollar and U.S. dollar that will be profitable if the Asian currency is below 7.61 per greenback in three months’ time, while another $640 million worth of similar derivatives was traded that are tied to the 7.64 level. They could also prove profitable for traders even without spot breaking below the official trading band of 7.75-7.85 if option-implied volatility were to rise sufficiently.
SGX Plunges Most in 17 Years as MSCI Signs Pact with Hong Kong
Ishika Mookerjee, Kiuyan Wong, and Abhishek Vishnoi – Bloomberg
Shares in Singapore Exchange Ltd. plunged after MSCI Inc. announced it will move licensing for derivatives products on a host of gauges to Hong Kong from Singapore.
SGX’s stock fell 12%, the most since 2003, amid concerns over the loss of revenue. MSCI has struck an accord with a Hong Kong Exchanges & Clearing Ltd. unit to sell 37 futures and options contracts based on its Asian and emerging-market measures, according to a statement issued by the index provider. It will stop licensing indexes for most derivatives products with SGX early next year after the present agreement expires, the bourse said in a separate statement.
*****MR: See SGX’s press release in the “Exchanges” section below.
Exchanges and Clearing
Standards of Conduct related to the Reopening of the Cboe; Options Trading Floor and COVID-19
Applicable Cboe Exchange: Cboe Options
Effective March 16, 2020, Cboe closed the Cboe Options Exchange (the “Exchange”) trading floor in Chicago until further notice related to the COVID-19 virus. Effective June 8, 2020, Cboe Options will reopen its trading floor and resume trading operations on the floor in a modified manner. In order to help protect the safety and welfare of persons on the trading floor given the circumstances of COVID-19 pandemic, until further notice, Trading Permit Holders and associated persons and employees of Trading Permit Holders (collectively, “TPHs”) accessing the Exchange’s facilities at 400 South LaSalle, including the trading floor, (the “Facilities”) must follow the practices set forth below. Please note that in accordance with these requirements, badge access will be restricted to only those trading floor personnel that the TPH organization has notified Cboe of in advance. TPH organizations must also provide advance notice to Cboe of any changes to personnel.
CME Group to Launch Options on Micro E-mini S&P 500 and Micro E-mini Nasdaq-100 Futures
CME Group, the world’s leading and most diverse derivatives marketplace, announced it will launch options on its Micro E-mini S&P 500 and Micro E-mini Nasdaq-100 futures contracts. The new options will be available for trading in the fall of 2020, pending regulatory review.
SGX reduces licence agreement with MSCI from February 2021; continues to serve global investors with pan-Asian multi-asset solutions
SGX (press release)
Singapore Exchange (SGX) today reaffirmed its commitment to providing market participants with a single platform to trade and risk-manage Asia across asset classes, as it reduces its licence agreement with MSCI Inc. This comes on the back of a decision between MSCI and SGX to let SGX’s licence agreement with MSCI, other than for MSCI Singapore, expire in February 2021. MSCI Singapore futures and options will remain listed on SGX.
HKEX Signs Agreement With MSCI To License Indexes To Launch Asia and Emerging Markets Futures and Options Contracts
HKEX (press release)
Hong Kong Exchanges and Clearing Limited (HKEX) is today pleased to announce that its wholly owned subsidiary, Hong Kong Futures Exchange Limited, has signed a major licensing agreement with MSCI Inc. (NYSE: MSCI), a leading provider of mission critical decision support tools and services for the global investment community, to license a suite of MSCI indexes in Asia and Emerging Markets for the introduction of futures and options contracts in Hong Kong.
Sterling Trading Tech Partners with Voyager to Launch Crypto Trading Widget
Sterling Trading Tech
Sterling Trading Tech (STT), a leader in compliance, risk and infrastructure solutions for equity, options and futures trading, unveiled a new offering of digital asset trading capabilities through a partnership with Voyager Digital, LLC, a crypto asset broker that provides retail and institutional investors with a turnkey solution to trade crypto assets.
Coronavirus Is Making Markets Unpredictable and Volatile
Joanna Ossinger – Bloomberg
For investors who aim to hold down the volatility of their investments, this has been a very unsettling year. Not only have markets been wild, but many classic havens proved not to be so safe in the face of the coronavirus pandemic.
Take one of the simplest examples: buying stocks that in the past have shown low volatility. The S&P 500 Low Volatility Index—which measures the 100 steadiest stocks in the S&P 500—has lost more than 16% so far this year, compared with a loss of about 7% for the broader gauge. The low-volatility companies were hit slightly harder during the equity rout from Feb. 19 to March 23 and have recovered less than the market since then.