Fed Hears Urgent Pleas to Ease Rules on Banks in Options Markets; ABN Amro takes $200m hit from failure of a single client

Mar 26, 2020

Lead Stories

Fed Hears Urgent Pleas to Ease Rules on Banks in Options Markets
Silla Brush, Benjamin Bain and Jesse Hamilton – Bloomberg
Amid the coronavirus outbreak, the options market has been a crucial tool for investors seeking to protect themselves from the wild swings of stock prices. Now, just as trading is surging, exchanges are warning that regulations could sideline banks that keep the market functioning.

ABN Amro takes $200m hit from failure of a single client; Dutch bank was forced to close out positions at substantial loss
Nicholas Megaw – FT
Dutch bank ABN Amro has announced a $200m hit to its profits after recent market volatility led to the failure of a client in its business catering to proprietary trading firms. ABN Amro Clearing was forced to close out the positions of its unnamed client at a significant loss after the firm was unable to meet margin calls on its trades in US options and futures.

TRADERS Q&A: Stino Milito, DASH Financial Technologies
John D’Antona Jr. – Trader’s Magazine
The COVID-19 pandemic has affected the options market along with equities. While the broad financial media has focused on the vacillations of the stock market and red ink posted by thousands of securities, there is one derivative market that is holding up relatively well – options.

Return of Calm in Safest Assets Signals Peak Panic Easing
Luke Kawa – Bloomberg
Markets roiled by indiscriminate liquidations are showing the first signs of calming, as volatility in the world’s safest assets eases.
A measure of swings in the Treasury market is in the biggest four-day decline on record as it plunges from an all-time high set last week. That Treasuries were not immune to the pan-assets sell-off even after the Federal Reserve slashed interest rates to zero epitomized how the need to boost cash positions resulted in a fire sale of parts of the market that are supposed to hold up in times of stress.

Barclays Says Goodbye to Equity Options Market Making Business
Aziz Abdel-Qader – Finance Magnates
Electronic market maker Global Trading Systems (GTS) has completed the takeover of Barclays’ equities automated options trading unit’s assets. The amount of the deal, which was originally announced in late 2019, was not disclosed. The New York-based market making business of UK investment bank buys and sells options to offer liquidity in the US derivatives markets. As part of the transaction, nearly 40 Barclays personnel has become full-time employees at the largest designated market maker on the New York Stock Exchange.

Exchanges and Clearing

CME Globex Notices: March 23, 2020
CME Group

Regulation & Enforcement

Exclusive: Capital One got CFTC waiver after oil price plunge increased swap exposure – sources
Chris Prentice and Devika Krishna Kumar – Reuters
U.S. lender Capital One Financial Corp got a waiver from the Commodity Futures Trading Commission (CFTC) after plunging oil prices increased the bank’s derivatives exposure above a key regulatory threshold, according to two sources with knowledge of the matter.On Friday, the CFTC said it would temporarily exempt a U.S. bank from a requirement to register as a “Major Swap Participant” even though its growing energy swaps exposure would technically require it to do so by the end of the next quarter.

****JB: Rules for thee, but not for me. (Capital One probably.)


S&p Down, VIX Down – What Gives?
RCM Alternatives
If anyone doesn’t know yet based off this month, and VIXmageddon in 2018, and the 2008 financial crisis – the VIX, or fear index as it’s known to have been called from time to time, rises quite rapidly when the stock market falls. There are all sorts of reasons for this, but the primary one is that the index is made up of option prices on the stock index, and as markets fall, people pay more for the Put options the falling market is getting closer to (or through). The end result is a rather persistent negative correlation between the sock market and the VIX. And in particular the S&P 500.

Marketquake 2020 – Volatility Update
Alphacution blog
In last week’s Feed post, “Marketquake: The Volatility of Volatility,” we set up a comparison of volatility levels – and duration – from the GFC with that of the current pandemic period. In that, I implied that elevated volatility persisted for 218 trading days after the initial GFC shock. In other words, it took about 218 trading days for the VIX to traverse the round trip from normal vol levels (~mid-20’s) through the associated shocks and back to normal.


Picking Up Stocks on the Cheap Amid the Turmoil
Steven M. Sears – Barron’s
World War II – era saying, mock Latin for “Don’t let the bastards grind you down,” seems appropriate as the world struggles against an invisible virus.
We aren’t engaged in a traditional global war, but we are fighting an enemy that will sicken and possibly kill anyone it meets without discrimination. Many people are struggling to stay strong as each day brings forth new challenges and even some victories, like the U.S. government approving a $2 trillion relief package to help the world’s largest economy confront the coronavirus.

Gold faces unique pricing, supply and delivery challenges amid COVID-19 shutdowns
Myra P. Saefong – MarketWatch
An unusually wide spread between gold prices for Comex futures and the London bullion market this week highlighted both pricing and delivery issues tied to the shutdowns of gold operations aimed at preventing the spread of the COVID-19 pandemic.
Metals traders were surprised to see Comex gold futures and London cash spot market prices so far apart on Tuesday. Traders said London spot prices on Tuesday were as much as $100 an ounce less than the gold futures price on Comex.


Getting to Know Your Equities Account
Rules every stock or options trader should know about their account before placing their first trade It’s important to know the differences between cash accounts and margin accounts. Both are equities accounts where you can trade stock or stock options, but each account type has its own set of rules. Knowing the rules and limits for your account ahead of time will save you the headache of having to figure them out last minute.


Investors look to 2008 for guidance on when to jump back in
Thyagaraju Adinarayan and Sujata Rao – Reuters
Investment banks are dusting off models from the 2008 financial crisis to gauge the right time to buy back into stock markets that have plunged 30% from their February record highs because of the coronavirus crisis.
That inflection point is not easy to model when the virus is still spreading rapidly across Europe and the United States.

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Past Options Newsletters

The Spread – July 30, 2021

The Spread – July 30, 2021

Earnings season in full bloom; Options lead year-to-date derivatives volume; Robinhood’s IPO; John gets real with Get Real VR: Conflicting factors underpin volatility; Cboe cleared for fall European competition; and the Cboe Options Institute’s Kevin Davitt talks about vega in this week’s “Term of the Week.”

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