Observations & Insight
JJL: The Financial Markets Group at the Chicago Federal Reserve has published their second episode of the LaSalle Street podcast series. This episode focuses on what the pandemic is teaching us about CCP risk management. Roland Chai, Chief Risk Officer of Nasdaq, and John J. Fennell, Chief Risk Officer of the Options Clearing Corp, join Ketan Patel, Policy Advisor and Head of Financial Markets Risk Analysis in the Chicago Fed’s Financial Markets Group. They discuss market issues ranging from operational risks at central clearing counterparties during the pandemic, to climate change, work from home arrangements and the biggest risks ahead in 2020.
Citigroup halts market making in retail options; Closure of business is latest sign of computer-driven rivals forcing out Wall Street banks
Richard Henderson in New York and Philip Stafford – FT
Citigroup has closed its market making business in retail options, in a move that underscores how the boom in zero-commission trading has squeezed the profitability of the industry’s middlemen. The bank closed the business, which serves retail broker-dealers such as Charles Schwab and Fidelity, at the start of last month, according to three people with knowledge of the decision. However, Citi has maintained its market making operations for institutional investors and high-net-worth customers, the people said.
Crypto Is Beating Gold as 2020’s Top Asset So Far
Joanna Ossinger – Bloomberg
Decentralized finance, DeFi, powers 66% jump in crypto gauge; Experts say DeFi spurred leveraged crypto bets via derivatives
A cryptocurrency mania known as decentralized finance has helped to turn digital currencies into this year’s best-performing asset by far. The Bloomberg Galaxy Crypto Index of digital coins is up about 66% in 2020, exceeding gold’s jump of more than 20% as well as returns from global stocks, bonds and commodities. A key reason for the move higher is a surge in Ethereum, which accounts for more than a third of the crypto gauge’s weight.
Bearish stock bets surge the most since March as volatility emboldens short-sellers
Ben Winck – Markets Insider
Short-sellers are rushing back to the stock market after the summer’s rally gave way to choppy price action, JPMorgan analysts said Tuesday.
Bearish stakes jumped above 7% of all US stocks available for lending last week, the highest level since July and the biggest increase since March’s market plunge, according to the bank. The gauge sat at roughly 6% in August as major indexes repeatedly notched record highs.
China investors bet on volatility as U.S. presidential election heats up
Samuel Shen and Scott Murdoch – Reuters
Investors in China are betting on a bumpy ride until the end of the U.S. presidential election and seeking to protect their assets from a long chill in Sino-U.S. ties.
Global equity fund managers are shifting out of New York-listed shares in Chinese firms and into Hong Kong-listed vehicles to counter the risk of forced delistings, as both Democrat Joe Biden and Republican President Donald Trump promise a hard line on Beijing.
Bitcoin options still bullish despite this week’s $900 BTC price drop
Marcel Pechman – Cointelegraph
Retail traders were rattled by Bitcoin’s $900 drop but BTC options data remains bullish ahead of Friday’s expiry. The $900 Bitcoin (BTC) price drop over the past two days might have been scary for novice traders, but those trading futures and options don’t seem bothered. As Bitcoin price rallied to $11,000 on Sept. 19, investors may have become overly excited as the price briefly broke an important resistance level.
Retail Investing Evolves
Shanny Basar – Traders Magazine
There has been a large increase in retail trading in US equity markets this year as markets gyrated amid the Covid-19 pandemic and investors had more time to trade while they stayed at home. Nasdaq hosted a webinar, The Evolution of Retail Investing and Related Obligations, to discuss the opportunities and risks presented by this increase in retail activity. Retail trading volumes this year have jumped to 25% of the total market in the US, up from 10% last year, according to John Zecca, executive vice president and global chief legal and regulatory officer at Nasdaq.
Exchanges and Clearing
Stock Exchanges Present Opportunity as Volumes Surge; Shares of American exchange operators have mostly performed well this year, especially compared with other financials
Telis Demos – WSJ
Stocks might be very expensive right now. But stock exchanges aren’t. Shares of American exchange operators have mostly performed well this year, especially compared with other financials. The engine for exchanges has been the U.S. stock market’s highly elevated trading levels, record options volumes and new public listings—all three of which are in no small part being driven by a surge in retail activity. This has helped Nasdaq and Intercontinental Exchange, owner of the NYSE, to sharply outperform. They are up 7% and 15%, respectively, versus a more than 20% decline for financials overall.
MIAX Exchange Group – Options Markets – Corporate Action Alert: Eros International Plc (EROS) name and symbol change to Eros STX Global Corporation (ESGC)
Eros International Plc (EROS) will change its name and symbol to Eros STX Global Corporation (ESGC) effective on Wednesday, September 23, 2020. All GTC orders resting on the MIAX order books in EROS will be canceled at the close of business on Tuesday, September 22, 2020. NOTE: ESGC options will trade on Cloud 5 on the MIAX Options Exchange and on Cloud 3 on the MIAX PEARL Options Exchange and the MIAX Emerald Options Exchange.
MIAX Exchange Group – Options Markets – Corporate Action Alert: Marinus Pharmaceuticals, Inc. (MRNS)
Marinus Pharmaceuticals, Inc. (MRNS) has announced a reverse split effective for Wednesday, September 23, 2020. On that date, the current MRNS option class will change to MRNS1. The MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange will not list MRNS1 options. Therefore, no options on MRNS will be available for trading on Wednesday, September 23, 2020. Marinus Pharmaceuticals, Inc. (MRNS) will resume trading on the the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange on Thursday, September 24, 2020.
Regulation & Enforcement
Options Regulatory Alert #2020 – 34 REVISED UPDATED – PHLX, NOM, BX, ISE, GEMX and MRX – Quarterly Quote Spread Parameter Relief through December 18, 2020
Effective September 23, 2020, the revised updated market maker quarterly quote width requirements on Nasdaq PHLX (PHLX), The Nasdaq Options Market (NOM), Nasdaq BX (BX Options), Nasdaq ISE (ISE), Nasdaq GEMX (GEMX) and Nasdaq MRX (MRX) will be effective through December 18, 2020. The exchanges may, in their discretion, amend these requirements by providing notice to members.
Options trading: Legend Tony Saliba shares strategy that made $100,000
Christopher Competiello – Business Insider
Tony Saliba, a legendary options trader and author of “Managing Expectations,” didn’t have the ideal start in financial markets that most dream about — far from it.
When Saliba found his way onto the Chicago Board Options Exchange in his early adulthood, a trader for whom he used to caddy backed his account with $50,000.
Don’t fear the VIX. Volatility is here to stay for now, and that’s no bad thing.
Amanda Cooper – Markets Insider
The Cboe Volatility Index – or VIX, which is commonly referred to as the stock market’s fear gauge – is trading at fairly elevated levels and suggests more volatility for months to come, regardless of the outcome of the November election. The index can take months, or even years, to return to more average levels following a crisis, according to DataTrek data going back 30 years. Goldman Sachs says volatility is on average 25% higher in October, but there is no evidence that this trend is exacerbated in election years.
The impending EU CCP recovery and resolution regime and its impact on EU and non-EU firms
24 September 2020 • 10:00 AM – 11:00 AM ET • Webinar
On 24 September, representatives from Allen & Overy’s Global Financial Services Regulatory and Bankruptcy practice in London and New York will provide an overview of the EU legislative framework for the recovery and resolution of CCPs operating in the EU, which has now been finalized. The aim of the framework is to reduce the risk of a CCP failing and to establish procedures for the resolution of a CCP that has failed in order to limit impact on the financial system and on public funds. The regime and the changes it will require to EU CCP practices will be relevant to all direct and indirect participants in EU CCPs. The New York team will moderate and draw out the impact of the EU CCP Recovery and Resolution Regime on US clearing members and contrast the EU framework with the US position for CCP bankruptcy and resolution under the CFTC’s proposed Part 190 bankruptcy regulations and other recovery and resolution initiatives for CCPs.”