Observations & Insight
Regulation and Enforcement Continue Apace Despite COVID’s Onslaught, Regulators Say
Suzanne Cosgrove and Sarah Rudolph – John Lothian News
Fresh from his exit from the CFTC several weeks ago, James McDonald, former director of the agency’s Enforcement Division, Tuesday addressed several “big picture” themes advanced by the CFTC during his tenure.
The goal was to “redouble our focus on what we view as the core violations of the (Commodity Exchange) Act,” including manipulation and fraud, McDonald said. “You saw that actually play out in a few different ways,” he said. “You saw it in terms of the number and the depth of our commitment in trying to root out manipulative trading in markets,” whether it was spoofing or something else.
During fiscal year 2020 (which ended September 30), the CFTC filed 113 enforcement actions, more than any other year in the agency’s history, and imposed the largest monetary relief in the agency’s history. In that case, JPMorgan Chase and Co. agreed to pay the U.S. government $920 million in fines and disgorgement to settle spoofing charges, the largest payment ever agreed to by a defendant to settle a futures market manipulation charge.
To read the rest of this story, go HERE.
JJL: Greenwich Analytics is offering an opportunity to look at the equity markets from another angle. They are hosting a webinar on “Options Growth, Volatility & Outlook Following U.S. Elections” on Wednesday, October 28 starting at 4:30PM EDT. Ken Monahan, Senior Analyst, Market Structure & Technology, is moderating the event. Panelists include Stino Milito, Co-Chief Operating Officer at DASH Financial Technologies, Danny Kirsch, Head of Options Trading and Strategy at Cornerstone Macro, and Will Bartlett, Managing Member at Parallax Volatility Advisers. Register HERE.
Complacency warning? ‘Election premium’ in currency market collapses much like it did in 2016
William Watts – MarketWatch
Poll-watching currency traders are growing more relaxed about the prospect for market volatility in the aftermath of the Nov. 3 presidential election, according to the options market. Are they getting too relaxed? The “election premium,” derived from measures of implied volatility via the FX options market, has largely collapsed as Democratic challenger Joe Biden holds a wide lead over President Donald Trump which is seen reducing the chances of a muddled or contested election outcome that could spark market turmoil, said Olivier Korber, a currency strategist at Société Générale, in a Tuesday note.
Big U.S. Treasuries Wagers Bet Against Election Fireworks
Stephen Spratt and Edward Bolingbroke – Bloomberg
The latest big options wagers on Treasuries are bucking the trend of betting on a tempestuous U.S. election. One trader spent around $2.5 million on Tuesday on a bet that Treasuries will experience just modest declines following the Nov. 3 vote. The other eye-catching position was a hefty punt on the weeks following the vote, calling for bond yields to remain stuck in a range. The trades stood out for their size and because they’re against the current run of play. Strategists have been calling for a possible surge in yields on the chances of a “Blue Wave” Democratic victory. That’s looking increasingly possible, as nominee Joe Biden has consistently led national polls, and expectations of Democrats taking the Senate have risen.
Exchanges and Clearing
Nasdaq Reports Third Quarter 2020 Results; Delivers Broad-Based 13% Revenue Growth vs. Prior Year Period
Third quarter 2020 net revenues were $715 million, an increase of 13% over the third quarter of 2019. Compared to the prior year period, revenues in the non-trading segments2 increased 12% primarily due to organic growth while Market Services revenues increased 15%, due to elevated trading volumes in U.S. equities and options. The GAAP operating margin was 46% in the third quarter of 2020, up from 36% in the prior year period, while the non-GAAP3 operating margin of 52% increased from 50% in the prior year period.
Reduction of the Minimum Price Increments of the Monthly and Weekly Options on the Russian Ruble/U.S. Dollar (RUB/USD) Futures and Options on the South African Rand/U.S. Dollar (ZAR/USD) Futures
Effective Sunday, November 22, 2020 for trade date Monday, November 23, 2020, and pending all relevant Commodity Futures Trading Commission (“CFTC”) regulatory review periods, Chicago Mercantile Exchange Inc. (“CME” or “Exchange”) will amend the Price Increment rule of the Monthly and Weekly Options on Russian Ruble/U.S. Dollar (RUB/USD) Futures and Options on the South African Rand/U.S. Dollar (ZAR/USD) Futures (the “Contracts”) to reduce the minimum price increment of the Contracts (collectively, the “Rule Amendments”) as noted in the table below.
Special Executive Report: Resetting of Price Limits for Grain, Oilseed and Lumber Futures
Effective Sunday, November 1, 2020 for trade date Monday, November 2, 2020, The Board of Trade of the City of Chicago, Inc. (“CBOT”) and Chicago Mercantile Exchange Inc. (“CME”) (collectively, “the Exchanges”) will reset price limits for grain, oilseed, and lumber futures. This is the second of the two price limit resets in 2020 that is stipulated by the variable price limits mechanism pursuant to each product’s respective Rulebook Chapter, as linked below.
Spotlight on: Equity Index ESG Derivatives
Eurex has set the pace for the develop-ment of ESG derivatives, launching its first ESG equity index products in February 2019. Now, as it gears up to expand its equity suite with the addition of four DAX 50 ESG and EURO STOXX 50 ESG futures and options, Christine Heyde, Equity & Index Product Design and Achim Karle, VP, Sales Equity & Index Derivatives, share their thoughts on the journey so far and the upcoming launch.
MIAX Exchange Group – Options Markets – Delisting of High Point Resources Corp. (HPR)
High Point Resources Corp. (HPR) will be de-listed from the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange effective on Wednesday, October 21, 2020. All GTC orders resting on the MIAX order books in HPR will be canceled at the close of business on Tuesday, October 20, 2020.
MIAX Exchange Group – Options Markets – Delisting of Superior Industries International, Inc. (SUP)
Superior Industries International, Inc. (SUP) will be de-listed from the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange effective today, Tuesday, October 20, 2020. All GTC orders resting on the MIAX order books in SUP will be canceled.
Regulation & Enforcement
CBOE: Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend its Fees Schedule to Adopt New Fee Codes Related to the Execution of Equity Legs of a Stock-option Order (Release No. 34-90229; File No. SR-CBOE-2020-095; October 20, 2020); see also Exhibit 5
Phlx: Notice of Designation of a Longer Period for Commission Action on Proposed Rule Change to List and Trade Options on a Nasdaq-100 Volatility Index (Release No. 34-90226; File No. SR-Phlx-2020-41; October 20, 2020)
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend its Fees Schedule to Adopt New Fee Codes Related to the Execution of Equity Legs of a Stock-option Order (Release No. 34-90228; File No. SR-CboeEDGX-2020-048; October 20, 2020)
Applied Derivatives becomes first broker to distribute Trading Technologies platform in South Africa
Annabel Smith – The Trade
Chicago-based technology provider Trading Technologies (TT) has signed an agreement with Applied Derivatives which becomes the first broker to distribute its TT platform in South Africa.
Applied Derivatives is providing international TT clients with access to the Johannesburg Stock Exchange (JSE) for the trading of all equity and currency derivatives, including futures and options.
What’s been driving US equity markets outperformance?
Despite falling more steeply in the March downdraft, US equities have handily outperformed international stocks this year. Indeed, the US has gained much of its edge since June, when the rally elsewhere began losing steam. And now, despite a volatile cocktail of global pandemic, political wrestling over a stimulus bill and approaching a looming general election which could be the most contentious in US history, US equity markets have been going strong.
What’s behind a 55% surge in the US large-cap Russell 1000 since March and a nearly 5% upswing for the US small-cap Russell 2000 in October?
And how can investors tap into US equity market opportunities?
FTSE Russell is joined by special guests from CME Group and BlackRock/iShares to examine the current state of the US equity market, consider what factors may be driving its outperformance between US large- and small-cap stocks and suggest ways investors can use trading and product strategies to manage risk and tap into market opportunity.
Live online Oct 22 11:00 am CST
FIA Disaster Recovery Test
The 17th Annual Industry-Wide Disaster Recovery Test
24 October 2020 • 9:00 AM – 5:00 PM EST
On October 24, 2020, the futures industry will conduct its 17th annual FIA Disaster Recovery Test.
The annual exercise, an initiative of the FIA Market Technology division, is a coordinated industry effort to test business continuance, process recovery, connectivity and functionality between exchanges, clearinghouses and their member firms. Participants are provided with an opportunity to test the resiliency of their trading systems by conducting order entry from alternate recovery sites and verifying connectivity with exchanges and clearinghouses.
The test remains a valuable apparatus for the industry to assess its response to potential disaster scenarios and is an extraordinary example of a collaborative effort across the futures industry.