CME to permanently close most trading pits; Market Volatility on Yellen’s Comments About Rate Increases Is Misdirected

May 5, 2021

$40,726/$300,000 (13.6%)
Steve Stasys, Anonymous

Observations & Insight

Without fanfare or amplification from its executives, the CME Group shut the books on most — but not all — of its floor trading history Tuesday afternoon with the announcement that it will not reopen its trading pits that were closed early last year. The CME closed its Chicago trading floor as of the close of business Friday, March 13, 2020, in response to the COVID-19 pandemic. The Eurodollar options pit, which was reopened in August 2020, will remain open and will trade both electronically and via open outcry. (Options, with their multiple strike prices, expirations and spreads, are generally viewed as more challenging to trade electronically, and euro options command healthy volumes.) CME Group also announced that, subject to regulatory review, it will delist its floor-based S&P 500 futures and options contracts following the expiration of its September 2021 contracts on September 17, 2021. Any remaining open interest in those contracts will be migrated into the E-mini S&P 500 futures and options on CME Globex, the exchange said.~SC


Jim Krause: The Path to Electronic Trading

Jim Krause came to the futures industry from a job in temperature control and HVAC at a company called MCC Powers. He followed Don Serpico, his supervisor at MCC Powers, who had been hired by the Chicago Mercantile Exchange, to the CME. His timing could not have been better. He was hired to develop the clearing system at the CME.

Watch the video »

Lead Stories

CME to permanently close most trading pits; They shut over a year ago because of COVID-19.
Steve Daniels – Crain’s Chicago Business
Most of the trading pits at CME Group, which closed last March due to the pandemic, won’t open again. The Chicago-based derivatives exchange said today that it is permanently ending “open outcry” trading for all products other than Eurodollar options. That trading pit reopened last August and will continue to trade those options both in person and electronically, the company said.

*****MR: see also Traders Magazine’s coverage on this story here, and Bloomberg’s coverage here.

Market Volatility on Yellen’s Comments About Rate Increases Is Misdirected
Daniel Moss – Bloomberg
Rapid economic growth need not lead to significant increases in interest rates or meaningfully faster inflation. Muscular recoveries from last year’s deep slump imply neither the imminent end of prolonged monetary easing nor any marked slowdown in the printing presses.
Some folks are clearly having trouble digesting this break with orthodoxy. U.S. Treasury Secretary Janet Yellen’s relatively anodyne comment about the prospect of higher borrowing costs from a pre-recorded interview with the Atlantic rippled through financial markets Tuesday. Yellen later clarified that she wasn’t predicting or recommending that the Federal Reserve pull any stimulus. I believe her: It’s unlikely that someone so well versed in Washington’s ways would talk out of turn. Fed officials zealously guard their independence, as Yellen did when she was Fed chair from 2014 to 2018.

Nasdaq 100’s Worst Day Since March Sparked by Inflation Fears
Lu Wang and Melissa Karsh – Bloomberg
Stock bulls have shrugged off inflation angst for months. That got a lot harder to do on Tuesday.
Janet Yellen roiled markets when she said interest rates may have to rise moderately to keep the economy from overheating. Already showing signs of jitters over rising prices, investors headed for the exits on the Treasury Secretary’s comments, delivering the worst day since March for the Nasdaq 100.

Exchanges and Clearing

OCC Monthly Volume by Exchange – April 2021

CME Group to Permanently Close Most Open Outcry Trading Pits; Eurodollar Options Pit will Remain Open – Effective May 4, 2021
CME Group
CME Group today announced it will not reopen its trading pits that were closed last March due to the outbreak of the COVID-19 pandemic. The Eurodollar Options pit, which was reopened last August, will remain open, allowing these contracts to continue to trade in both open outcry and electronic venues. The company also announced that, subject to regulatory review, it will delist its full-size, floor-based S&P 500 futures and options contracts following the expiration of the September 2021 contracts on September 17, 2021.

Miami International Holdings Reports April 2021 Trading Results, MIAX Exchange Group Sets New Monthly Market Share and Volume Records
Miami International Holdings
Miami International Holdings, Inc. today reported April 2021 trading results for its U.S. exchange subsidiaries – MIAX, MIAX Pearl and MIAX Emerald (together, the MIAX Exchange Group) and the Minneapolis Grain Exchange (MGEX).

Regulation & Enforcement

Race for Libor’s Replacement Is Too Close to Call
Brian Chappatta – Bloomberg
By now, Wall Street is well aware that its days of using the London Interbank Offered Rate are numbered. What’s increasingly unclear, however, is what will rise from its ashes.
In the U.S., Libor’s heir apparent was supposed to be the Secured Overnight Financing Rate, or SOFR. It began picking up momentum years ago but hasn’t come anywhere close to Libor’s ubiquity as banks and other market players drag their feet on transitioning away from the rate they’ve used for almost half a century. In 2019, the U.S. Treasury began exploring the idea of issuing SOFR-linked debt, which would be a huge step toward cementing its legitimacy as a future borrowing benchmark, yet it never moved forward; Wall Street now thinks such an offering won’t happen anytime soon. Still, strategists generally expect that it will morph into a liquid derivatives and cash-market benchmark by the time dollar Libor is supposed to be retired in mid-2023.


Bank of America Hires Volatility Traders From JPMorgan and Morgan Stanley
Alex Morrell – Business Insider
Bank of America has hired two veteran volatility traders from JPMorgan and Morgan Stanley to run trading teams on its equity derivatives desk, filling holes in one of the hottest hiring areas on Wall Street.
Spencer Cross has resigned from JPMorgan to run US index trading at Bank of America, according to sources familiar with the matter. Meanwhile, Anastasios “Taso” Giannopoulos has left Morgan Stanley to take the role of Americas head of micro derivatives trading, sources told Insider.
Both traders will report to Glenn Koh, head of equities trading, the sources said.


Doomsday Indicator or Rare Opportunity
Frank Kaberna – tastytrade
Talking heads can share many attributes whether they represent politics, finance, or sports. One mutual trait that’s been particularly relevant lately is overdramatizing events. “That team would NEVER draft that player,” a fictional NFL commentator says minutes before said team drafts said player. The Fed and interest rate analysts currently find themselves in a similar dance. After the US Federal Reserve announced no change in rates last week, many took to social media to hyperbolize and rant about how the Fed will never move rates off 0% and how this will cause an inevitable stock market crash.


All About Options (With) Expert Sheldon Natenberg
Join Cboe Options Institute on Wednesday, May 12, to learn from one of the industry’s most renowned option trading educators. This webinar will interest traders of all ages and experience levels, but if you are new to options trading you really won’t want to miss it.
Wednesday, May 12, 2021
12:00 p.m. ET

Fundamentals of Futures & Options (also applicable to Series 3 Exam)
For more than 30 years, IFM has consistently provided learners with a solid foundation and understanding of futures and options markets and trading including terminology, risk management, pricing, and basic trade strategies. This instructor-led virtual course includes lectures from an engaging instructor with real-world expertise and supported by class discussion, practice exercises and educational materials. The course fee includes two must-read industry books, “Futures and Options” and the “Guide to U.S. Futures Regulation.”
Dates: May 10, 2021 through May 14, 2021, 12:00 p.m. to 2:00 p.m. ET.
Location: Virtual Live. 2-hour sessions over 5 days.
Early-bird $495
Fee $595
Instructor: Marti Tirinnanzi
Class size registration is limited to approximately 20 participants to promote student participation and interaction.

The Covered Call Options Strategy
Date: Wednesday, May 12, 2021
Time: 3:30 p.m. CT
Duration: 1 hour
Mark Benzaquen – Principal, Investor Education – OCC
For options investors, the covered call is one of the core strategies for income generation, but there are many details to consider before opening a position. On May 12, join The Options Industry Council’s Mark Benzaquen, a former pit broker who now focuses on options education, for a detailed overview of the covered call.


Clearing 101: Exchanges, Clearinghouses and CCPs
Dates: Sep. 15, 2021 12:00 p.m. – Sep. 16, 2021 1:30 p.m. ET.
Location Virtual Live. Two 90-sessions over 2 days.
Early-bird $199
Fee $225
Instructor: Marti Tirinnanzi
Registration is limited to approximately 20 participants to promote student participation and interaction.
Join us for a short program (90 minutes each day for 2 days) that explains the multilateral systems that provide the infrastructure for transferring, clearing and settling payments, derivatives and other financial transactions among financial institutions and end users. Following Dodd Frank, clearinghouses became designated as Systemically Important Financial Market Utilities, vital to the operations of the financial markets and subject to heightened regulatory scrutiny. Buyers and sellers in exchange transactions rely on clearinghouses to intermediate transactions and to manage credit risks between trading parties. As such, clearinghouses promote transparency, efficiency, and stability by providing market-based pricing, daily settlement, and ensuring adequate capitalization for markets to function.


Under Armour Earnings Were a Bit Misleading
Matt Levine – Bloomberg
One theory is that the price of a share of stock reflects the present value of its future cash flows in perpetuity. People buy stock today not because they expect high profits tomorrow, but because they expect high profits over the long run. Investment decisions that cost money today, but that will bring in much more money in five years, increase the net present value of the stock, so the shareholders should support them.
Another theory is that public markets are myopically focused on the short term. Investors care only about this quarter’s earnings; they buy stocks whose earnings go up each quarter and sell stocks whose earnings go down. A decision that reduces earnings today, in exchange for higher earnings in the future, is bad, and shareholders will punish a company that makes those decisions.

The Jedi Of Volatility Trading
RCM Alternatives blog
That’s Happy Star Wars Day to those not in the know. As in ‘May the 4th be with You!’ If you’ve been following along with the Derivative Podcast this past year, you’ll have noticed we had a veritable who’s who of the volatility trading world on the pod. Those so skilled at the game of volatility, it wouldn’t be too much of a stretch to consider them Jedi of Vol. We’ve talked to Benn Eifert, Cem Karsan, Vineer Bhansali, Hari Krishnan, Jason Buck, Wayne Himelsein, Joe Tigay, Kris Sidial, Brett Nelson, Matt Thompson, Pat Hennessy, Jim Carrol, and Lily Francus to name a few; and actually ask them at the end who their favorite Star Wars character is.

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