Index Giant S&P Faces Potential SEC Lawsuit Over Volatility Gauges; Gold’s rise is a sign of uncertain times

Jul 29, 2020

Lead Stories

Index Giant S&P Faces Potential SEC Lawsuit Over Volatility Gauges
Alexander Osipovich – WSJ
The Securities and Exchange Commission plans to bring an enforcement action against S&P Dow Jones Indices, one of the world’s biggest index providers for exchange-traded funds, for failing to provide sufficient disclosures on certain volatility-linked indexes in 2018.

Gold’s rise is a sign of uncertain times
Editorial Board – Financial Times
Gold is not a particularly good investment. It yields no interest and pays no dividend: the only way its owners can earn a return is if other investors value the shiny metal more tomorrow than they did today. For a “haven” asset, which investors can use to preserve capital in times of crisis, it is remarkably speculative: aside from some niche industrial uses, most of the permanent demand comes from jewellery. Its rise in value this week to a near-record high of $2,000 per troy ounce reflects the fact that many other options are even less attractive, rather than any intrinsic merits.

China banks, regulators move to cool gold rush
Andrew Galbraith, Winni Zhou, Samuel Shen and Arpan Varghese – Reuters
Chinese regulators and major banks are rushing to curb precious metal trading by domestic investors to temper speculation that some fear could cause a repeat of this year’s oil trading mishaps.
The scramble to limit risks comes as gold prices hit record highs this week, spurred by investors hunting for safe haven assets in markets rattled by worries of rising coronavirus cases, lofty equity valuations and a falling U.S. dollar.
A deepening rift between the United States and China has also become a factor drawing mainland investors to gold.

Oil ends at more than one-week low as traders fret over demand, ahead of weekly supply data
Myra P. Saefong and William Watts – MarketWatch
Oil futures logged their lowest finish in more than a week on Tuesday, as the U.S. dollar steadied and traders continue to fret over the outlook for energy demand, ahead of weekly U.S. petroleum supply data.
The ICE U.S. Dollar Index, a measure of the currency against a basket of six major rivals, was up less than 0.1% a day after hitting a two-year low. A weaker dollar can be supportive to commodities priced in the currency, making them less expensive to purchasers using other currencies.

ETFs are the canary in the bond coal mine
Gillian Tett – Financial Times
Ever since the 2008 financial crisis, policymakers and pundits have wondered what would happen to the cogs of finance in the next big global market shock.
Now, they have a test case to dissect: the widespread market drama that occurred in March as Covid-19 spread worldwide and economies began locking down. While it is still too early to pass definitive judgment on the overall resilience of banks and finance — since the full tally of Covid-19 pain remains unclear — some curious micro-lessons are emerging that deserve more debate.

Brexit and its Impact on the Cleared Derivatives Markets: A Primer
The UK left the EU on 31 January 2020 and is in a transitional period that ends on 31 December 2020. During this period, EU law continues to apply in and to the UK and UK financial services firms continue to benefit from all existing EU rights, as do EU firms operating in the UK. At the end of the transition period, in the absence of any agreement to the contrary, EU law will cease to apply in and to the UK, the UK will become a third country under EU law and the EU will become a third country for the purpose of UK legislation.

Exchanges and Clearing

CME Group Inc. Reports Second-Quarter 2020 Financial Results
CME Group
ME Group Inc. today reported financial results for the second quarter of 2020. The company reported revenue of $1.2 billion and operating income of $638 million for the second quarter of 2020. Net income was $503 million and diluted earnings per share were $1.40. On an adjusted basis, net income was $583 million and diluted earnings per share were $1.63. Financial results presented on an adjusted basis for the second quarter of 2020 and 2019 exclude certain items, which are detailed in the reconciliation of non-GAAP results.1

Dividend Derivatives: Amendment of the “Product Specific Supplement” for EURO STOXX 50 Index Dividend Options
The Management Board of Eurex Deutschland and the Executive Board of Eurex Frankfurt AG took the following decision with effect from 1 September 2020:

MIAX Exchange Group – Options Markets – Series in GLD Made Non-Tradeable
MIAX Exchange Group
The following series in SPDR Gold Shares (GLD) have been made non-tradeable on the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchanges effective for today, Wednesday, July 29, 2020:

MIAX Exchange Group – Options Markets – Intra-day Series Adds in KODK
MIAX Exchange Group
The attached series in Eastman Kodak Company (KODK) were added to the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange effective today, Wednesday, July 29, 2020.

Regulation & Enforcement

Cboe Seeks SEC Approval to Curb Fast Trading Advantages
Arnab Shome – Finance Magnates
Cboe Global Market is planning to implement new measures in one of its four stock exchanges in the United States to curb the advantages of the high-frequency traders. In an outline published on Cboe’s website, the company proposing to launch periodic auctions lasting one-tenth of a second. These auctions will aggregate buying and selling positions from the order book into batches and will execute them at a discrete interval.

CME Group
FINDINGS: Pursuant to an offer of settlement in which Brad AuBuchon neither admitted nor denied the rule violations upon which the penalty is based, on July 27, 2020, a Panel of the CBOT Business Conduct Committee (“Panel”) found that between November 15, 2017, and June 26, 2018, an automated trading system AuBuchon operated and monitored entered price modifications in various U.S. Treasury Options outrights and User Defined Spreads with incrementally widening spreads between the bid and offer prices, causing aberrant prices to be disseminated to the market.


Options Technology COO: We’re a bridge between the public and private clouds
Leanna Reeves – Bob’s Guide
As the pandemic caused an unprecedented market disruption, hedge fund liquidation surged in the first months of the crisis. Stevie Morrow, chief operating officer at Options Technology – a company that delivers full technology solutions to hedge funds and asset managers – explains how reliance on tech has skyrocketed over the past few months as clients looked to protect investments. Digital tools, he says, were the biggest enabler for a swift change during the lockdown, in which Microsoft 365 and Citrix became key components for clients. Despite cyberthreats, Morrow assures protection of data remained the same as the company bridged the gap between the public and private cloud.


An Options Strategy for Amazon’s Second-Quarter Earnings Report
Steven M. Sears – Barron’s
Amazon. com’s earnings report is always one of the great events in the stock and options market. At about $3,000 a share, the e-retailer’s securities always lure wealthy investors who like to try their luck at a high-stakes trade that can produce extraordinary rewards.
Selling a put or buying a call before earnings can create substantial profits for anyone with the resources to finance the trade. Amazon (ticker: AMZN) is scheduled to report second-quarter earnings late Thursday. If the stock trades higher on the report, anyone who sold the cash-secured put stands to make a pretty penny, while the value of the call should surge.


Q2 2020 trends in futures and options trading
5 August 2020 • 10:00 AM – 11:00 AM ET • Webinar
Global futures and options trading grew by 32% to record-setting 21.9 billion contracts in the first half of 2020 compared to 2019, according to figures released by FIA. In the second quarter, the total number of traded contracts was 10.46 billion, down 8.4% from the record-breaking 11.41 billion contracts traded in Q1 2020, but up 21.8% from the second quarter of 2019. In fact, the second quarter volume was higher than any other quarter in the history of the industry aside from the first quarter of 2020. In this webinar, FIA will present data on volume and open interest across the global listed derivatives markets, with break-downs by asset class and region as well as comparisons to historical trends.
This event is open to the public and press.


The S&P 500 Is Positive 100 Days Before the Election. What History Says Could Happen Next.
Carleton English and Al Root – Barron’s
With less than 100 days left until the 2020 presidential election, investors can’t be blamed for trying to guess what’s in store for the next three months. If 40 years of history is any guide, markets should continue to rise and could be less volatile.
The lead-up to the 2020 presidential election is sure to have moments of volatility as traders learn more about each candidate’s policies and what they would mean for markets and the broader economy. A re-election of President Donald Trump is thought to mean continued lowering of taxes and loosening of regulations. A second Trump term could also mean continued tensions with trading partners. A win by former Vice President Joe Biden would likely mean increased infrastructure spending, but also higher taxes.

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