CME looks to lure retail traders with daily options frowned on in Europe

Jun 29, 2022

Lead Stories

CME looks to lure retail traders with daily options frowned on in Europe; Chicago exchange group launches contracts that track up or down moves in indices and commodities
Eric Platt and Joe Rennison – FT
CME Group plans to launch binary options in a push to woo more retail traders, offering a type of contract that regulators in much of Europe have banned as a form of gambling. The Chicago-based derivatives exchange operator on Tuesday said its so-called event contracts would be offered in September, allowing “individuals to trade their views on daily up or down price moves” in CME futures markets such as the S&P 500 stock index, gold or crude oil.

J.P. Morgan Launches Its First ETF on the Nasdaq Exchange
J.P. Morgan Asset Management recently launched its first ETF on the Nasdaq Exchange. The JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) seeks to deliver a consistent stream of distributable yield while also delivering a significant portion of the returns associated with the fund’s primary benchmark, the Nasdaq-100 Index (NDX ), with less volatility.
JEPQ is an actively managed portfolio that provides exposure to and resembles the NDX. The investment philosophy is to select securities of innovative large-cap companies that will likely outperform the NDX and will likely generate a modest amount of alpha based on a proprietary fundamental framework. At the same time, it avoids selecting stocks that have greater left tail risk or extreme downside performance periods. Investors receive the dividend associated with the long portfolio as well as the income generated from selling out-of-the-money options on the NDX. In addition, they may get some upside benefit when the market moves higher. The fund’s goal is to achieve a diversified source of return and consistent monthly distributable income, although the return is not guaranteed.

Bitcoin Options Point to Positive Signs After Rout, Traders Say
Vildana Hajric and Muyao Shen – Bloomberg
Crypto is undergoing a historic bout of volatility, but options traders are seeing positive signs within the market in the wake of the ruckus and controversy that overtook digital-asset lenders and others in the sector.
Chris Bae, chief executive and co-founder at structured-derivative-solutions provider EDG and a former trader at UBS and Goldman Sachs, is looking at open interest and is tracking global exchanges that offer options trading.

Liquid Alt Funds Head for Record Inflows as Stocks and Bonds Drop
Eric Wallerstein – WSJ
The role of bonds as a hedge to stocks is Wall Street canon. When those markets fall in tandem, investors tend to scramble for other, sometimes riskier, forms of protection.
Investors have poured more than $21 billion into liquid alternative mutual and exchange-traded funds this year through May, according to Morningstar Direct. That is on pace to beat last year’s record inflows of $38.3 billion.

The Whole Market Is Looking Like a Really Big Oil Trade
Joe Weisenthal – Bloomberg
At the recent Federal Reserve meeting, when the central bank opted to hike rates by 75 basis points, Chairman Jay Powell pointed out that they’re not really interested anymore in making a distinction between headline and core inflation.
In theory, central banks look at core measures because they’re less volatile and there’s a recognition that the price of some commodities are largely outside of the domain of monetary policy. But these aren’t normal times. And for consumers, it’s not much comfort if core measures are cooling but gasoline prices remain very high.

The risk of a flip-flopping Fed
Mohamed El-Erian – Financial Times
The markets are evolving their minds about US economic prospects just as the Federal Reserve has been scrambling again to catch up to developments on the ground.
This risks yet another round of undue economic damage, financial volatility and greater inequality. It also increases the probability of a return to the “stop-go” policymaking of the 1970s and 1980s that exacerbates growth and inflation challenges rather than addressing them.

What’s at stake for financial markets if investors get inflation wrong again in the second half
Vivien Lou Chen – MarketWatch
Investors and traders attempting to navigate one of the most treacherous periods in financial markets in years are all but sure to face more volatility during the second half of this year.
One major reason is that few seem to be prepared for the risk that U.S. inflation, already at an almost 41-year high of 8.6% as of May, could prove to be stubbornly resistant to rate hikes by the Federal Reserve. It’s a dynamic that’s played out time and time again during past periods of high inflation in the U.S. — in the 1970s under then-Fed Chairman Arthur Burns; the late 1970s during the short tenure of his successor, G. William Miller; and even in the 1980s under Paul Volcker.

Buying the bear? Equity demand endured market pain
Mike Dolan – Reuters
It’s a hard habit to break.
You’d be forgiven for thinking the worst two-quarter period for stock markets since 2009 had investors running for the hills – but you’d be wrong.
One of the most startling statistics from the torrid first half of 2022 is that investors bought a net $195 billion of stocks even as major U.S. and global equity indices lost almost a fifth of their value in the face of rising inflation, interest rates and recession fears.


CME Group to Launch Event Contracts on September 19
CME Group
CME Group, the world’s leading derivatives marketplace, today announced it will launch event contracts on September 19, pending regulatory review.
Designed especially for the retail audience, these contracts will allow individuals to trade their views on daily up or down price moves in some of the world’s most widely quoted benchmark futures markets, beginning with E-mini S&P 500, E-mini Nasdaq-100, E-mini Dow Jones Industrial Average, E-mini Russell 2000, crude oil, natural gas, gold, silver, copper and Euro FX.
These new daily options on futures contracts will offer short-term trading opportunities for individuals seeking to take a position on daily price moves and will allow participants to know their maximum profit or loss when entering a trade. Each event contract is valued up to $20 per contract.

Nadex Adds Definition of “Business Day” and Clarifies Contract Issuance
Pursuant to Section 5c(c)(1) of the Commodity Exchange Act, as amended (“Act”), and Section 40.6(a) of the regulations promulgated by the Commodity Futures Trading Commission (the “Commission”) under the Act (the “Regulations”), North American Derivatives Exchange, Inc. (“Nadex”, the “Exchange”), Nadex submitted notice to the Commission that Nadex is adding the definition of “Business Day” to Chapter 1 (Definitions) of the Rulebook and clarifies the description of contract issuance in Rule 12.1, to note that the description does not necessarily apply to the issuance of contracts during a holiday week. These amendments will become effective July 15, 2022.

Regulation & Enforcement

ESMA updates on applications for recognition from U.S.- based CCPS
The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has announced its recognition of two central counterparties (CCPs) established in the United States (U.S.) as Tier 1 CCPs under the European Market Infrastructure Regulation (EMIR). These are the Fixed Income Clearing Corporation (FICC) and the Options Clearing Corporation (OCC).

FIA responds to HKEX consultation on position limits and open position reporting requirements
FIA has responded to Hong Kong Exchanges and Clearing’s consultation on proposed changes of position limits and large open position reporting requirements.
In line with its response to the Securities and Futures Commission’s consultation on position limit regime changes on 21 June, FIA highlights the importance of harmonisation between the rules imposed by the SFC and HKEX and encourages the SFC and HKEX to work together to have consistent rules in place.


Hedge fund manager Jim Chanos’s next ‘big short’ is data centres
Harriet Agnew – Financial Times
Short seller Jim Chanos is betting against “legacy” data centres that now face growing competition from the trio of tech giants that have been their biggest customers.
Chanos, who remains best-known for predicting the collapse of energy group Enron two decades ago, is raising several hundred million dollars for a fund that will take short positions in US-listed real estate investment trusts.


Southwest Airlines employs a crack team of 4 fuel traders to hedge energy prices — and they’ve saved the company $1.2 billion this year
Theron Mohamed – Markets Insider
A crack team of four fuel traders at Southwest Airlines have saved the company a whopping $1.2 billion this year, the Financial Times reported this week. Southwest’s hedges have slashed its estimated fuel costs by 70 cents to between $3.30 and $3.40 a gallon this quarter, the carrier disclosed in a recent trading update. It pegged the fair market value of its fuel-derivative contracts for this year at $1.2 billion. The company’s treasurer, Chris Monroe, and his team trade crude-oil derivatives as a proxy for jet fuel. They deal with Goldman Sachs, JPMorgan, and seven more of Wall Street’s shrewdest commodity-trading desks, the FT said.

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