CME to pay $3.5m over leak of secret trade data; Cboe braces for possible floor re-closing

Aug 3, 2020

Observations & Insight

The Spread: All That Glitters

This week on The Spread – bitcoin options open interest and spot gold prices reach record highs, Cboe tries to bring a slice of Europe back to the States, and more.

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Lead Stories

CME to pay $3.5m over leak of secret trade data; US exchange operator admits liability in case involving oil and natural gas options
Gregory Meyer – FT
CME Group, the largest US exchange operator, has agreed to pay at least $3.5m after admitting liability in a case in which two former employees leaked secret trade data to a commodities broker. The Chicago-based group was sued in 2013 by the US Commodity Futures Trading Commission in a rare federal regulatory action against an exchange company that itself has powers to police market misconduct.

Cboe braces for possible floor re-closing
Lynne Marek – Crain’s Chicago
Cboe Global Markets is readying a “virtual trading floor” if rising coronavirus cases in Chicago force it to close its trading floors in the city again. Executives at the Chicago Board Options Exchange parent disclosed the possibility, which they are vetting with the Securities & Exchange Commission, during a conference call today with analysts to discuss Cboe’s second-quarter earnings. Plans for that alternative trading floor were filed last month with the SEC, they said.

The Need for Improved Communication in the Securities Lending Industry
OCC’s Matt Wolfe contributed an article, “The Need for Improved Communication in the Securities Lending Industry,” to Global Investor’s Americas Securities Finance Guide 2020.

*****MR: You can find the article on page 18.

Wall Street Veteran Says Retail Money Damps Stock Volatility
Joanna Ossinger – Bloomberg
The soaring popularity of stock trading by the wider American public during the pandemic has actually been helpful for the functioning of the market more broadly, according to one veteran trader.
The involvement of amateur investors means less volatility and fewer irregular trading episodes, said Larry Peruzzi, Boston-based director of international trading at Mischler Financial Group Inc., who’s been buying and selling equities for a living for more than two decades.

The day-trading boom is a ‘welcome phenomenon,’ and has actually helped to reduce market volatility, a veteran Wall Street trader says
Saloni Sardana – Markets Insider
At a time where day-traders have been blamed for adding market volatility and falsely inflating stocks, one veteran trader thinks they have actually reduced volatility in stocks.
Larry Peruzzi, director of international trading at Mischler Financial Group, who has been buying and selling equities for more than 20 years, noted that the Cboe Volatility Index, a key indicator of market volatility, has fallen in recent months, Bloomberg reported Monday.
Peruzzi said the VIX has fallen in recent months even as trading volumes have surged.

Exchanges and Clearing

HKEX Launches New Tranche of MSCI Futures Contracts
Eight new USD-denominated MSCI index futures contracts have launched today on HKEX; Latest tranche of new HKEX / MSCI licensing agreement for 37 futures and options contracts in Hong Kong
Hong Kong Exchanges and Clearing Limited (HKEX) is pleased to welcome the launch of the latest batch of futures contracts as part of its new index licensing agreement with MSCI Inc. to further expand HKEX’s derivatives product suite.

Announcement On Publishing The Amendment Of Option Contracts And Options Trading Rules Of The Shanghai Futures Exchange
The amendment of Copper Futures Option Contract Specifications, Natural Rubber Futures Option Contract Specifications, Gold Futures Option Contract Specifications, and Trading Rules of the Shanghai Futures Exchange have been approved by the Shanghai Futures Exchange Board of Directors and reported to the China Securities Regulatory Commission.

Effective August 3, 2020 through August 7, 2020, MIAX Options and MIAX Emerald 2X Opening and Intraday Valid and Priority Quote Spread Relief in All Symbols
MIAX Exchange Group
Issue Symbol: All Symbols Multiplier: 2X Reason: In maintenance of a fair and orderly market. Time: Opening and Intraday Subject Summary: Please be advised, effective August 3, 2020 through August 7, 2020, the MIAX Regulation Department has granted 2 times opening and intraday quote parameter relief for all symbols on MIAX Options and MIAX Emerald.

MIAX Exchange Group – Options Markets – Delisting of Tailored Brands, Inc. (TLRD)
MIAX Exchange Group
Tailored Brands, Inc. (TLRD) will be de-listed from the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange effective on Tuesday, August 4, 2020. All GTC orders resting on the MIAX order books in TLRD will be canceled at the close of business on Monday, August 3, 2020.

Options Trader Alert #2020 – 21 Nasdaq NOM Updated Pricing Effective August 3, 2020
Effective Monday, August 3, 2020, pending filing with the SEC, the following changes will apply to the Nasdaq Options Market (NOM):

CME Group
In connection with the reopening of the Eurodollars option pit on August 10, 2020, no contract months will be restricted for purposes of CME Rule 552. (“Dual Trading Restrictions”). The Exchange will review pit-traded volume data no earlier than six months after the pit reopens to determine if any contract months in Eurodollar options are deemed mature and liquid pursuant to CME Rule 552. for purposes of applying the dual trading restrictions.

In Case You Missed It: July 2020
Cboe blog
In July, we acquired pan-European clearinghouse EuroCCP, announced plans for Mini VIX futures, shared market insights and more. Follow us on Twitter for daily updates as we continue defining markets and check back here at the end of August for our next monthly update.

Exchange operator Cboe’s profits rise as retail trading surges
John McCrank – Reuters
Exchange operator Cboe Global Markets reported higher second-quarter earnings on Friday, driven by a surge in retail investor participation in the markets that boosted stock and options trading volumes, offsetting lower institutional demand. The Chicago-based company hit record trading volumes in U.S. cash equities and multi-listed options during the quarter ended June 30, fueled by the spike in Main Street trading activity, Cboe Chief Executive Officer Ed Tilly said on a call with analysts.

Regulation & Enforcement

NYSE American
Morgan Stanley & Co. LLC violated: (i) NYSE American Rule 995NY(c), by effecting options and equity transactions after gaining knowledge of terms and conditions of client orders in the same or related options series that were not disclosed to the trading crowd (“anticipatory hedging”); and (ii) NYSE American Rule 320, by failing to establish and maintain a supervisory system reasonably designed to achieve compliance with NYSE American Rule 995NY(c). Consent to a censure, disgorgement of $5,261, and a fine of $56,880.1

Morgan Stanley & Co. LLC violated: (i) NYSE Arca Rule 6.49-O(b), by effecting options and equity transactions after gaining knowledge of terms and conditions of client orders in the same or related options series that were not disclosed to the trading crowd (“anticipatory hedging”); and (ii) NYSE Arca Rule 11.18, by failing to establish and maintain a supervisory system reasonably designed to ensure compliance with NYSE Arca Rule 6.49-O(b). Consent to a censure, disgorgement of $2,817, and a fine of $144,983.

CME Group
During the month of June 2020, SG Americas Securities LLC, inaccurately reported its open interest in the July 2020 WTI Crude Oil (CL) and July 2020 Henry Hub Natural Gas (NG) futures contract in violation of Rule 811.


Quantile margin optimization service now includes cleared interest rate derivatives
Jeff Reeves –
Margin issues have been increasingly in focus in 2020 as derivatives clearinghouses have raised collateral requirements in response to the spike in market volatility. This trend has intensified interest among large banks in new methods for optimizing their margin obligations. Until this year, the main focus was on uncleared derivatives, with the goal of reducing the amount of collateral that dealer banks are required to post for those products. But the sudden surge in clearinghouse margin requirements this spring, combined with the longer-term trend towards greater use of central clearing, has sparked new interest in services that can optimize margin across both cleared and uncleared derivatives.


A stock market correction may be imminent, JPMorgan says. Here’s why you shouldn’t panic
Callum Keown – MarketWatch
The typically muted month of August is upon us but there’s still a lot for investors to digest.
Talks over another coronavirus stimulus package that would restore jobless benefits to millions of Americans continued into the weekend and will remain in focus this week. However, lawmakers reportedly remain far apart in the negotiations. U.S.-China tensions are also back in the spotlight after President Trump said he would ban Chinese videosharing app TikTok. Technology company Microsoft confirmed talks on Sunday to buy TikTok, owned by Chinese company ByteDance, after a call between Chief Executive Satya Nadella and Trump.

Buy, sell, repeat! No room for ‘hold’ in whipsawing markets
Saikat Chatterjee and Thyagaraju Adinarayan – Reuters
Warren Buffett’s favourite holding period — forever — has few fans these days, with the average length of time shares spend in a portfolio hitting record lows this year as investors surf wild market swings for quick gains. The length of time that investors hold shares has been shrinking for decades but the trend accelerated this year in volatile markets that have made people nervous about sitting on investments for too long.

“Earnings, Earnings, Earnings!” // tastyBeats July 27-31
Mike Butler – TastyTrade
What a week for earnings announcements, and KODK’s surge to the moon! It just goes to show that anything can fall apart, and there is always unknown equity risk – these kinds of things don’t happen with standard ETFs, so there’s nothing wrong with sticking to those if you prefer! This week I’d like to talk about earnings announcements and my favorite setups with a few show links that you can now watch at 2x speed! Enjoy!


Q2 2020 trends in futures and options trading
5 August 2020 • 10:00 AM – 11:00 AM ET • Webinar
Global futures and options trading grew by 32% to record-setting 21.9 billion contracts in the first half of 2020 compared to 2019, according to figures released by FIA. In the second quarter, the total number of traded contracts was 10.46 billion, down 8.4% from the record-breaking 11.41 billion contracts traded in Q1 2020, but up 21.8% from the second quarter of 2019. In fact, the second quarter volume was higher than any other quarter in the history of the industry aside from the first quarter of 2020.


(Podcast) Volatility Views 408: The Nitty Gritty of Implied Volatility
Volatility Views – Options Insider Network

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