CME’s SOFR Options and Near-Record August

Sep 4, 2019

Observations & Insight

OCC Strengthens Financial Resiliency With New Capital Management Policy
JohnLothianNews.com
In the past few years, OCC has taken steps to strengthen its resilience through a variety of activities including increasing headcount, working to revamp the clearinghouse’s technology stack and altering margin methodologies, to name a few. In this video, OCC Executive Vice President and Chief Operating Officer Scot Warren talks about the OCC’s new capital management policy. It was recently re-submitted after the prior policy was disapproved by the SEC at the beginning of 2019.
Watch the video »

Lead Stories

CME Group to Launch SOFR Options on January 6, 2020
PRNewswire
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that it will launch options on Three-Month Secured Overnight Financing Rate (SOFR) futures starting on Jan. 6, 2020, pending regulatory review.
/jlne.ws/2zQwHs1

****SD: More on the current state of SOFR via the CME’s August Rates Recap.

CME Group Reaches Second-Highest Monthly Volume Ever, Averaging 24.3 Million Contracts Per Day in August 2019
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, reached average daily volume (ADV) of 24.3 million contracts during August 2019, up 53% from August 2018 and the second-highest monthly ADV on record. During a month that historically sees lower average daily volumes, August 2019 was the company’s best August ever. Open interest (OI) at the end of August was 139 million contracts, up 21% from year-end 2018 and up 14% from August 2018.
/jlne.ws/2PITJfn

****SD: It’s a CME heavy day – see “Exchanges” for a Risk.net story on CME’s next generation of SPAN.

How U.S. Banks Took Over the World; A decade ago, they almost brought down the global financial system. Now they rule it.
Liz Hoffman and Telis Demos – WSJ (SUBSCRIPTION)
When two of Europe’s corporate titans sat down to negotiate a merger this year, they called American banks. Fiat Chrysler Automobiles hired Goldman Sachs Group Inc. GS -2.42% as its lead adviser. France’s Renault SA hired a boutique bank stacked with Goldman alumni. In a deal that would reshape Europe’s auto industry, the continental banks that had sustained Fiat and Renault for more than a century were muscled aside by a pair of Wall Street deal makers.
/jlne.ws/2PEbRqD

Here’s How Outsourced and Supplemental Trading Solutions Reduce Operational Risk and Cost
Daniel Dispigna, Tourmaline Partners via TabbForum
Over the past decade, the trading landscape has transformed dramatically for market participants across all sectors and asset classes. For the buy side, continued electronification of trading has caused technology costs to rise considerably, and head counts on buy-side trading desks have contracted correspondingly. Although the largest banks and brokers have the operational scale and infrastructure needed to keep up with this pace of change, many on the buy side do not have the same resources at their disposal.
/jlne.ws/2UrOxv3

Sterling bounces 1% as UK lawmakers battle to avert no-deal Brexit
Olga Cotaga – Reuters
Sterling jumped 1% against the dollar on Wednesday to trade above $1.22 for the first time since Aug. 30, after British lawmakers seized control of the parliamentary timetable to try to block a no-deal Brexit.
/jlne.ws/2MTvDw8

****SD: Topsy turvy.

IB’s August DARTs Surge Double Digits as Volume Hits Year High
Finance Magnates
During August 2019, the number of DARTs was reported at 930,000, the highest figure since December 2018.
/jlne.ws/2MT2KjN

Exchanges and Clearing

A look under the hood of Span 2, CME’s new margin engine
Costas Mourselas – Risk.net (SUBSCRIPTION)
The devil’s in the details.
The CME Group is putting the finishing touches on its new value-at-risk margin framework Span 2, an abrupt break from the Span 1 vernacular, now in its fourth decade. As the fine print of Span 2 starts to seep out, risk managers are looking at where it departs from current orthodoxy.
/jlne.ws/32ucwwu

Eurex figures upward trend continues: Eurex Exchange up by 22 percent in August
Eurex Exchange
Eurex, Europe’s largest derivatives exchange and part of Deutsche Börse Group, saw a double-figure increase year-on-year in August. The number of traded contracts reached 156.4 million compared to 127.9 million in August 2018, an increase of 22 percent.
/jlne.ws/2zRsJ2k

The Saga of the EDGX Retail Priority Order ·
Themis Trading Blog
We recently filed a comment letter with the SEC concerning a Cboe EDGX proposal which aimed to add a new Retail Priority Order. Our main concern with this order type was the information leakage that would occur on the exchange proprietary data feeds since the retail priority orders would be designated with a special identifier.
/jlne.ws/2UqOVKj

Truly Global Positioning: London Stock Exchange
Scott Bradley, LSE – GlobalTrading
Through initiatives such as Shanghai-London Stock Connect, and the soon-to-be-launched Global Equities Segment, London Stock Exchange is cementing its role as the world’s most international stock exchange.
/jlne.ws/2zOkKTA

HKEX To Invest In Data Technology Firm
Mondovisione
Hong Kong Exchanges and Clearing Limited (HKEX) is today (Wednesday) pleased to announce that it has signed a letter of intent to acquire a minority stake in a Beijing-based data technology company, Huakong TsingJiao Information Science (Beijing) Limited (TsingJiao). The proposed deal is part of HKEX’s strategic focus on developing its data and technology offering.
/jlne.ws/2UsT408

BOX Exchange: Annual SIFMA BCP/ Reg SCI Test – October 26, 2019
Mondovisione
In coordination with other market centers and in support of Regulation SCI, BOX Exchange LLC (“BOX”) will be participating in the annual SIFMA BCP Test on Saturday, October 26, 2019.
/jlne.ws/2Uunpvf

MCX, Zhengzhou Exchange sign MoU for exchange of information
Economic Times
The Multi Commodity Exchange of India (MCX) and Zhengzhou Commodity Exchange (ZCE), one of the leading commodity exchanges in China, have signed memorandum of understanding (MoU) for co-operation and the exchange of information.
/jlne.ws/2MUSHL8

Eurex temporarily waives fees for RFQ trades via EnLight platform; Requesters on Eurex EnLight will have transaction fees temporarily waived between 1 September until the end of this year.
Hayley McDowell – The Trade
Eurex has introduced a fee waiver for its request for quote (RFQ) platform, EnLight, aiming to encourage more trading activity.
/jlne.ws/2zLD9R4

****SD: In case you missed the press release from Eurex yesterday.

EEX to tie French gas bourse Powernext more closely to main group
Reuters
The European Energy Exchange (EEX) on Tuesday announced it would bring the activities of its subsidiary Powernext under the EEX group umbrella as of January 1, 2020, as it develops a global exchange with a strong European footprint.
/jlne.ws/2zQqAEa

Moves

Goldman’s Marty Chavez, who helped transform the investment bank, is leaving
Hugh Son – CNBC
Chavez, who was co-head of the bank’s trading division, will retire at the end of 2019, according to a memo sent to employees Tuesday.
Chavez has been outspoken on the need for the financial industry to become more like giant technology firms in its approach to coding, automation and serving clients.
Marc Nachmann will take his place in the securities division, according to a separate memo.
/jlne.ws/2UuqsUd

Former Head of Equity Derivatives Trading at Standard Chartered Joins Fintech PremiaLab
Yahoo Finance
PremiaLab, the Fintech platform for Risk Premia Strategies, has today announced the appointment of Dr. Georgios Sittas as Managing Director, Head of Risk Solutions to lead its key products expansion linked to risk solutions. Dr. Sittas as previously served at Lehman Brothers and HSBC as Head of Investment Solutions Trading in London and then Head of Index & Structured Products Trading, Head of Equity Derivatives Trading and Head of Funds and Structured Solutions at Standard Chartered Bank in Hong Kong.
/jlne.ws/2UtjaA3

Technology

Hey, Google, check my TD Ameritrade portfolio
Ryan W. Neal – Investment News
TD Ameritrade is expanding the ways retail investors can access its brokerage platform using voice commands.
/jlne.ws/2zODaUp

Options launches cloud connectivity services with Equinix Cloud Exchange
Natalie Bannerman – Capacity Media
Options, a managed service and IT infrastructure provider, has launched new cloud connectivity services with Equinix. Combining Options’ hybrid cloud offering and Equinix’s Cloud Exchange (ECX) Fabric, the new connectivity services will give businesses one streamlined and secure platform to deploy hybrid digital infrastructure globally.
/jlne.ws/2Uxgx0q

Strategy

Headwaters Volatility’s Rowe Sees Opportunities in the Cross-Asset Space
Bloomberg (VIDEO)
In this edition of “Options Insight,” Headwaters Volatility’s Matt Rowe discusses the performance of U.S. equities and his investment strategy with Bloomberg’s Luke Kawa on “Bloomberg Markets: The Close.”
/jlne.ws/2Ur3iyf

Miscellaneous

Traders Fixate on Trump’s Twitter Everywhere, Except in China
Bloomberg (SUBSCRIPTION)
One country where traders are less obsessed over President Donald Trump’s tweets about China, is China.
While their counterparts elsewhere grapple with the impact of Trump’s Twitter tirades, equity traders in China don’t have easy access given the service is blocked there. They aren’t rushing for work-arounds such as VPNs either, and say Trump’s tweets — often occurring out of trading hours — are having less impact on China’s equity markets than before.
/jlne.ws/2Use5bk

The Chinese Are In Revolt. The Hedge-Fund Investing Chinese, We Mean.
Jon Shazar – Dealbreaker
There is unrest in China. A key part of the population is up in arms—in open rebellion, some might say—protesting vigorously in defense of their rights. That’s right: Chinese hedge fund investors are fed up with the shady, unfairly self-enriching way the country’s managers charge incentive fees, and they’re not gonna take it anymore. Or, at least, they’re gonna complain about it online.
/jlne.ws/2UsFaLo

Brokers, Hedgers Among Pioneers in Japan Power Futures Debut
Aya Takada and Stephen Stapczynski – Bloomberg (SUBSCRIPTION)
More than 30 companies will be eligible to start futures trading in one of the world’s biggest power markets when the Tokyo Commodity Exchange debuts Japan electricity contracts this month, including at least two foreign firms.
/jlne.ws/32zd6Jr

****SD: How long before options come?

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