Hedge Funds Are Highly Invested in Stocks; Yen to USD: Japan Retail Traders Set Record in 2020 Blitz

Dec 15, 2020

$18,761/$300,000 (6.3%)

Observations & Insight

SR: Marex Spectron announced Monday that it has become a trading privilege holder of Cboe Futures Exchange (CFE) and a clearing member of The Options Clearing Corporation (OCC). You can see the press release here. There is also a story from The Trade under Exchanges below.

Lead Stories

Hedge Funds Are Highly Invested in Stocks. Here’s Why That Could Be a Problem.
Jacob Sonenshine – Barron’s
Hedge funds have been buying up stocks of late, but if history is a guide, the trend could reverse itself—and that would be a pressure point on stocks.
Hedge funds’ net equity exposure has risen sharply in the second half of 2020 as the stock market has spiked from its pandemic-induced bear market in March. Net equity exposure is the total percentage of a fund represented by long positions in stocks, minus the percentage of the fund in short positions on stocks it is betting against.

Yen to USD: Japan Retail Traders Set Record in 2020 Blitz
Chikafumi Hodo – Bloomberg
Japan’s army of retail currency traders has set an annual record for transaction volume with a month to spare, as gains in the yen and working from home spur activity.
Trading volume in retail currency margin accounts reached 5,822.7 trillion yen ($56 trillion) in the first 11 months of 2020, surpassing the previous full-year record of 5,570.5 trillion yen in 2015, data from the Financial Futures Association of Japan show. The volume rose by 69% from the full 12 months of 2019.

Sterling stabilises after Brexit deal hopes rebound
The pound stabilised on Tuesday after Monday’s sharp rebound as market participants grew more optimistic about the chances of a Brexit deal, but implied volatility gauges pointed to further price swings ahead as the Dec. 31 Brexit deadline approaches.
Sterling dropped to as low as $1.3135 last Friday and implied volatility surged to its highest since March, when British Prime Minister Boris Johnson said a no-deal was “very very likely”.

Exchanges and Clearing

Vela adds US equities and equity options trading to platform with ED&F Man; Execution services for US equities and equity options though ED&F Man Capital Markets are now available via the DMA platform at Vela.
Annabel Smith – The Trade
Trading technology provider Vela has added brokerage ED&F Man Capital Markets to its direct market access (DMA) platform to offer clients trading in US equities and equity options.

*****MR: You can also read the press release for this story here.

Marex Spectron expands equity derivatives clearing offering
Marex Spectron
Marex Spectron, the global commodities specialist, today announced that it has become a trading privilege holder of Cboe Futures Exchange (CFE) and a clearing member of The Options Clearing Corporation (OCC).
Today, Marex Spectron’s execution and clearing membership covers 37 major global exchanges.

Revised: Product Modification Summary: Amendments to the Strike Price and Listing Schedule for Certain Options on Great British Pound/U.S. Dollar (GBP/USD) Futures Contracts – Effective February 01, 2021
CME Group
Amendments to the Strike Price and Listing Schedule for Certain Options on Great British Pound/U.S. Dollar (GBP/USD) Futures Contracts.

CME Group Adds New Hemp Pricing Data to CME DataMine
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that customers can now access hemp pricing data in DataMine, its self-service online data platform. This new alternative dataset from Hemp Benchmarks , a division of New Leaf Data Services, LLC, allows CME Group market data customers to access benchmark wholesale hemp pricing data alongside nearly a petabyte of historical data for futures and options across every investible asset class.

CME Group Announces 2021 Annual Meeting Date
CME Group
CME Group Inc., the world’s leading and most diverse derivatives marketplace, today announced it will conduct its 2021 annual meeting of shareholders at 10:00 a.m. Central Time on Wednesday, May 5, 2021. Additional information will be provided in the company’s proxy statement.

Product Modification Summary for Clearing Firms, Bookkeeping Software Providers, ISVs
CME Group
Effective Sunday, January 31, 2021 for trade date Monday, February 1, 2021 and pending all relevant CFTC regulatory review periods, please be advised that the Chicago Mercantile Exchange, Inc. (CME or EXCHANGE) will amend the strike price increment and range for Options on Great British Pound/U.S. Dollar (GBP/USD) Futures as listed below.

Regulation & Enforcement

Federal Court Orders Interdealer Broker to Pay $7 Million for Deceptive Trading Practices in the FX Options Markets
Former CEO and Desk Head Ordered to Pay $500,000 Each for Supervision Failures
The Commodity Futures Trading Commission today announced the U.S. District Court for the Southern District of New York entered a consent order against defendants TFS-ICAP LLC and TFS-ICAP Ltd., interdealer brokers located in New York and London, requiring them to pay a $7 million civil monetary penalty for representing to clients bids and offers that had not been made, and for communicating to clients trades that had not occurred. In the order, TFS-ICAP admits that its employees engaged in the misconduct, known as “flying” prices and “printing” trades, that violated the Commodity Exchange Act (CEA), as charged.


High-Frequency Traders Push Closer to Light Speed With Cutting-Edge Cables
Alexander Osipovich – WSJ
High-frequency traders are using an experimental type of cable to speed up their systems by billionths of a second, the latest move in a technological arms race to execute stock trades as quickly as possible.
The cable, called hollow-core fiber, is a next-generation version of the fiber-optic cable used to deliver broadband internet to homes and businesses. Made of glass, such cables carry data encoded as beams of light. But instead of being solid, hollow-core fiber is empty inside, with dozens of parallel, air-filled channels narrower than a human hair.

*****JB: Unlike the hugely overpriced cables you find in some big box stores, these fancy cables seem to deliver on their promise (although most of us probably would never notice a difference).

Direct Market Access In Exchange-traded Fx Derivatives
Ahmed Heikal – Vela
In recent years, in a bid to capture liquidity away from the traditional OTC/bilateral markets, exchanges around the world have been heavily promoting a wide range of new and improved exchange-traded derivative (ETD) contracts for FX. Whilst some of these contracts are becoming widely traded, the jury is still out on just how successful the majority of FX ETD initiatives are likely to be in the long term. The evidence from recent BIS figures shows that, despite a major upsurge in open interest and daily average turnover in 2018/19, global volumes in FX exchange-traded contracts have dropped significantly since then (see table below). However, the recent frenzy of acquisitions of spot FX ECNs by exchanges is likely to lead to more innovative and “blended” products. CME’s FX Link is a case in point.


The Small-Cap Rally Still Has Room to Run. How to Play It With Options.
Steven M. Sears – Barron’s
When good things happen to the American economy, great things tend to happen to small-cap stocks.
Smaller companies tend to get the majority of their revenue from within America’s borders. This geographic concentration makes them proxies for the U.S. economy, so good news—like the rollout of a Covid-19 vaccine—means small companies tend to behave with big vigor when the economic outlook brightens. And the outlook has indeed brightened as it seems our long, national Covid-19 nightmare may finally be coming to an end sometime in 2021.


Trading Options: Understanding Assignment
The options market can seem to have a language of its own. To the average investor, there are likely a number of unfamiliar terms, but for an individual with a short options position—someone who has sold call or put options—there is perhaps no term more important than “assignment”—the fulfilling of the requirements of an options contract.


Roundtable Discussion: Trading Opportunities in European Volatility with VSTOXX Derivatives
Topic – Roundtable discussion: Trading Opportunities in European Volatility with VSTOXX Derivatives
Description – Join Eurex, RCM-X, Shore Capital Research and Equity Armor Investments for a webcast discussion on:
1. Why volatility is so relevant in today’s markets?
2. What factors could influence the spread between VSTOXX & VIX volatility indices? Are these spreads seasonal or event driven? Could traders find a way to incorporate this data into their daily trading? What events in the near to mid-term will affect these spreads?
3. Besides the spread trading opportunity (VSTOXX vs VIX), what other trading opportunities may arise out when considering the VSTOXX?
4. Why is there a negative correlation between VSTOXX, volatility Indices and the equity markets? Does this behavior offer potential opportunities to hedge an equity portfolio?
Dec 16, 2020 11:00 AM in Central Time (US and Canada)

2020 Annual Trends in Futures and Options Trading
27 January 2021 • 10:30 AM – 11:30 AM ET • Webinar
This webinar will highlight the main trends in trading activity in 2020 in the global exchange-traded derivatives markets, with category and regional breakdowns as well as exchange and contract rankings.
Moderator: Will Acworth, Senior Vice President of Publications, Data & Research, FIA


How evolving ESG indices & derivatives help transforming portfolios
Christine Heyde – Eurex
Eurex only began offering market participants the ability to hedge and trade derivatives on five MSCI ESG Screened futures indexes (World, EM, US, EAFE and Japan) that exclude corporates not in compliance with the United Nations Global Compact principles or predefined ESG screening criteria in March. But they have quickly become a sought-after derivative product at the Frankfurt-based derivatives exchange as the number of investors seeking to integrate ESG to mitigate today’s most challenging risks jumps. “Our overall Eurex ESG Screened index futures offering is approaching one million contracts traded this year amounting to EUR12bn of traded volume,” says Christine Heyde, Equity and Index Product Design at Eurex speaking during a recent webinar hosted by Responsible Investor. Eurex was the first to launch ESG derivatives on key benchmarks in Feb 2019.

ESG Standards Convergence Could Happen in Next 12 to 24 Months, Accounting Body Chief Says
Leslie P. Norton – Barron’s
Reporting standards in the world of environmental, social and governance investing, long a thicket of competing frameworks, could converge within 12 to 24 months, said Janine Guillot, head of the Sustainability Accounting Standards Board. Guillot spoke to Barron’s in a joint interview with Brian Moynihan, CEO of Bank of America, this month. During the interview, Moynihan endorsed the work of SASB, which has a leading framework to report sustainable metrics.

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