Observations & Insight
****JJL: The OCC reported that March 2021 total volume was up 34.8 percent from a year ago and that it was the highest total volume month on record for U.S. equity options. March also marked the end of the highest quarter by contract volume in OCC’s history.
CME Group issued its March 2021 monthly and quarterly volume report and it is also a dazzler. Highlights for Q1 2021 compared with Q1 2020 included: The average daily volume (ADV) of Ultra 10-Year Treasury Note futures was up 26%. The ADV of the fast-growing Micro E-Mini Nasdaq 100 futures was up 100%. And the ADV of the Micro E-Mini Russell 2000 futures was up 138%. The CME traded a record of 112K ADV for SOFR and a record ADV of 13,500 Bitcoin futures. Ag options ADV was up 27% from a year ago and corn options ADV was up 67%. Soybean options ADV was up 64% and soybean oil options ADV up 46%.
Some March monthly volume product highlights included: SOFR futures ADV was up 82% year over year (YoY). Bitcoin futures ADV was up 35% YoY. The Micro E-Mini index options ADV of 2.9 million contracts was up 23% YoY. Record Micro E-mini Nasdaq 100 futures ADV was 1.3 million contracts and record Micro E-mini S&P 500 futures ADV was 1.2 million contracts. Soybean options ADV rose 97% YoY and the monthly ADV for BrokerTec EU Repo was EUR299 billion.
Amazingly, Micro E-mini futures and options represented 41% of overall Equity Index ADV during March 2021 at the CME Group. Micros rock!
Individual Investors Retreat from Markets After Show-Stopping Start to 2021; Net purchases of U.S. equities by nonprofessional investors recently fell to the lowest level of 2021 as market uncertainty continues
Caitlin McCabe – WSJ
Individual investors kicked off 2021 at a sprinter’s pace. Now, they are finally showing signs of fatigue. Trading activity among nonprofessional investors has slowed in recent weeks after a blockbuster start to the year, with the group plowing less money into everything from U.S. stocks to bullish call options. Daily average trades for at least two online brokerages have edged down from their 2021 highs. And across the industry, traffic to brokerage websites, as well as the amount of time spent on them, has fallen.
Hedge funds weigh prime broking relationships after Archegos fire sale
Laurence Fletcher – Financial Times
Hedge funds are evaluating their banking relationships after a fire sale of assets by family office Archegos Capital Management forced billions of dollars of losses on Credit Suisse and Nomura.
Executives are weighing up whether to switch lenders they use as their prime brokers — banks that offer a range of services including stock lending, leverage and trade execution.
Hedge Funds Boost Short Yen Bets to Highest in Two Years
Ruth Carson and Chikako Mogi – Bloomberg
Hedge funds are the most bearish on the yen in more than two years as expectations for the world’s post-pandemic recovery mount.
Futures and options speculators have added to yen shorts for three straight weeks after being long the Japanese currency as recently as a month ago, according to data from the Commodity Futures Trading Commission. The speed of the reversal partly explains the yen’s slide last week, when it dropped beyond the level of 110 per dollar for the first time in a year.
As Meme Stock Mania Fizzles, Wall Street Sees ‘Big Reckoning’
Bailey Lipschultz – Bloomberg
The day-trading Reddit crowd turned the first quarter of 2021 into one of the wildest periods of stock market mania in modern history. Books — plural — will undoubtedly be dedicated to the topic in years to come.
But after these small-time speculators banded together to drive up dozens of obscure stocks by hundreds or even thousands of percent — and in the process burned a few hedge-fund barons betting on declines — the movement appears to be petering out. An index that tracks 37 of the most popular meme stocks — 37 of the 50 that Robinhood Markets banned clients from trading during the height of the frenzy — is essentially unchanged over the past two months after soaring nearly 150% in January.
Bitcoin Is Going Mainstream. What Investors Need to Know.
Daren Fonda – Barron’s
Bitcoin is either a massive bubble or the digital currency of the future.
The reality is likely somewhere in the middle. Either way, the cryptocurrency is working itself into the mainstream financial world, achieving the scale and critical mass that may make it increasingly difficult to dislodge or restrain.
Exchanges and Clearing
OCC March 2021 Total Volume Up 34.8 Percent from a Year Ago
OCC, the world’s largest equity derivatives clearing organization, announced today that March 2021 total cleared contract volume was 904,039,629 contracts, the highest volume month on record and up 34.8 percent compared to March 2020. March also marks the end of the highest quarter by contract volume in OCC’s history. Year-to-date average daily cleared contract volume through March was 42,231,809 contracts, up 48.7 percent compared to March 2020.
CME Group Reports Q1 and March 2021 Monthly Market Statistics
CME Group, the world’s leading and most diverse derivatives marketplace, today reported its Q1 and March 2021 market statistics, showing it reached average daily volume (ADV) of 21.8 million contracts during the first quarter, and 21.7 million contracts during the month of March. Market statistics are available in greater detail at https://cmegroupinc.gcs-web.com/monthly-volume.
Regulation & Enforcement
Isda preps swaps blueprint for new Bloomberg rates benchmark; Credit-sensitive SOFR add-on could be included in Isda’s interest rate definitions by mid-April
Helen Bartholomew – Risk.net
New standards are being drawn up for trading in swaps referencing Bloomberg’s short-term bank yield index (BSBY), one of a handful of credit-sensitive benchmarks vying for a place in the post-Libor markets. The International Swaps and Derivatives Association has created documentation that would govern trading in BSBY swaps, which was sent to members on March 23. Following a comment period, the new benchmark will be added to the trade body’s interest rate definitions in mid-April.
Opinion: How to make money from stocks — while you sleep
Mark Hulbert – MarketWatch
The early bird doesn’t just get the worm. It also gets the bulk of the stock market’s profits.
That’s because most of the S&P 500’s gains occur overnight. The U.S. benchmark index on average barely gains while the New York Stock Exchange is open.
That’s the finding of a recently updated study entitled “Market Return Around the Clock: A Puzzle.” Its authors are Oleg Bondarenko of the University of Illinois at Chicago and Dmitriy Muravyev of Michigan State University.
This fund’s ‘long-short’ stock strategy helps investors navigate rocky times
Philip van Doorn – MarketWatch
Hedge funds have been portrayed as helping the rich take outsized bets for profits — and occasionally suffering catastrophic losses.
But New York-based investment-management company Alger follows what the firm’s CEO, Dan Chung, describes as a “traditional conservative hedged-equity strategy” through a mutual fund. And it has achieved significant gains while reducing volatility, geared toward the average investor.
Archegos Is No Big Deal, But Sounds a Warning Nonetheless
Editorial Board – Bloomberg
Following the implosion of Archegos Capital Management, finance professionals everywhere are asking what, if anything, regulators should do. The answer for this particular case is: not a lot. Yet the firm’s collapse points to the possibility of something worse in future, and this danger does warrant attention.
Archegos is the fund in which Bill Hwang, a wealthy investor with an insider-trading rap, managed his family money. He used some of the money, along with more borrowed (via derivatives) from banks, to make billions of dollars in bets on stocks including ViacomCBS Inc., Discovery Inc. and Baidu Inc. When some of the stocks fell, he suffered big losses. Banks that had lent to him lost money, too. The total damage has been estimated at as much as $10 billion — headline-worthy, but not enough to threaten financial stability.
A Century of Data Show Markets Far From Impervious to Tax Hikes
Joanna Ossinger – Bloomberg
Higher corporate, individual rates have dented returns: BTIG; JPMorgan warns of declines for beneficiaries of 2017 cuts
The prospect of tax hikes may not have derailed gains in U.S. stocks yet, but 100 years of data say the market is far from impervious to them. Stocks can take a hit when rates rise on corporations and individuals, according to Julian Emanuel, chief equity and derivatives strategist at BTIG LLC. He sees 13 such instances, most recently in 1993. The average return on the U.S. benchmark index in the years of the combined hikes is 2.4%, and drops to -0.9% for the year following. That compares with a long-run annual average of 7.7%, Emanuel notes.