Interactive Brokers takes $88m loss from crude futures collapse

Apr 22, 2020

First Read

Hits & Takes
By JLN Staff

The FIA has cancelled IDX and two other conferences scheduled in the coming months. They again made the correct but difficult decision for the organization, its employees and the industry. They have given us certainty about these events during an uncertain time, and that is valuable. And they have given us time to work out other ways to engage in dialogue, discuss pressing issues and develop new business relationships.

The FIA could have tried to push IDX into what is expected to be a very busy fall event season. However, even the fall event season is in doubt. The cancellation of Oktoberfest in Munich, announced by the southern state of Bavaria on Tuesday, is the latest major fall event to be cancelled.

Despite pressure from some political and corporate sources to loosen the quarantine, the majority of U.S. citizens don’t want to do that until there is widespread testing or a vaccine. And that may take months to accomplish, especially for the vaccine.

The good news is that Darwinian forces will eliminate some of those voices calling for premature loosening of the quarantine. A George Carlin quote sums this up nicely, “Think of how stupid the average person is, and realize half of them are stupider than that.

We have an interview with Christian Hauff of Quantitative Brokers that we will be publishing as a podcast. This is about the new Striker product for options trading. We shot it as a video, but lost the video content amidst the pandemic and other internal issues. We should have this podcast out today.~JJL


Here are the details on the cancellations of FIA conferences: The cancelled conferences include the IDX conference scheduled for June 1-3 in London, the Law & Compliance conference scheduled for April 29 – May 1 in Washington, D.C. and the U.S. Commodities forum scheduled for June 22 in Houston. In conjunction with the IDX cancellation, FIA announced the postponement of its Futures for Kids Gala, which raises funds for children’s charities on the last evening of the IDX event, to later in the year. FIA President and CEO Walt Lukken said in a notice, “It’s with great sadness that FIA must cancel these events, but we must all do our part in containing the spread of the novel coronavirus. We look forward to the next time our industry can safely get together as a community.” ~SR

CME Group is offering a “Trade Against a Pro Challenge” for those new to futures trading to try Micro E-mini Equity Indices, Micro Gold, and Micro FX, smaller versions of the exchange’s most liquid contracts. The challenge lets traders test their skills alongside Anthony Crudele, host of Futures Radio Show, and other participants. Crudele will also share his pro tips on futures markets. The top three finishers will earn cash prizes.
You can go here for details and to register. ~SR


The Spread: Hangin’ In There

This week on The Spread: Worldwide traded options volumes rise, Will Acworth notes the impact of the closing of the trading floors on the options markets, and more.

Watch the video »


CME Group, as oil contract plunges negative, says markets working fine
Tom Polansek – Reuters
CME Group Inc said its markets are working properly after crude oil futures sank into negative territory for the first time ever on Monday. The coronavirus pandemic has destroyed around a third of global fuel demand since early March and left producers worldwide struggling to store the resulting massive glut of oil.

*****I am surprised we have not seen someone from CME Group or ICE on the television talking about how the markets are working properly. I realize people are working from home, but even a telephone call with a picture on the TV screen is not that hard to do. Maybe when the Congressional hearings about this happen, we will hear from them.~JJL


Why Oil at Negative $100 Isn’t a Crazy Bet Anymore
Javier Blas – Bloomberg
It’s likely only a matter of time before oil storage runs out; That could drive prices globally into negative territory
Orbiting hundreds of miles above the Earth, the Sentinel-1 satellites are the eyes in the sky that show why U.S. oil prices dropped below zero and why much of the world is likely to follow. The satellite bounces radar signals off the massive metal tanks that store oil and that data is used to calculate how much crude is inside. It’s coming back with an alarming message: oil storage is running out.

*****This negative pricing thing might be the biggest black eye to the futures markets since I can’t remember. It just sounds like populist political risk and then some. I know market pros who minds are blown more than a Kingsman movie about this.~JJL


Interactive Brokers Issues Statement on Crude Oil Contracts and Margin Loss
Interactive Brokers Group, Inc.
Interactive Brokers Group, Inc. (Nasdaq: IBKR) today noted that, as has been widely reported, the energy markets yesterday exhibited extraordinary price activity in the New York Mercantile Exchange (NYMEX) West Texas Intermediate Crude Oil contract. The price of the May 2020 contract dropped to an unprecedented negative price of $37.63. This price was the basis for determining the settlement price for cash-settled contracts traded on the CME Globex and also on a separate, expiring cash-settled futures contract listed on the Intercontinental Exchange Europe (“ICE Europe”). Several Interactive Brokers LLC (“IBLLC”) customers held long positions in these CME and ICE Europe contracts, and as a result they incurred losses in excess of the equity in their accounts. IBLLC has fulfilled the firm’s required variation margin settlements with the respective clearinghouses on behalf of its customers. As a result, the Company has recognized an aggregate provisionary loss of approximately $88 million.

*****One wonders if negative prices are a disclosed risk among all the risks disclosed in the account opening papers for a futures account. One wonders also how many FCM legal departments are now working on an addendum to the account agreements to add a disclosure about negative prices. This is a new risk that many people did not think about, let alone disclose.~JJL


A new bitcoin exchange wins approval; Bitnomial, which has backing from Chicago investors, will let market participants trade on margin and take physical delivery of bitcoin.
Lynne Marek – Crain’s Chicago Business
The Commodity Futures Trading Commission today approved Chicago-based Bitnomial Exchange to operate as a cryptocurrency exchange, allowing it to trade futures and options contracts on bitcoin.

*****MGEX is the clearinghouse working with Bitnomial.~JJL


Tuesday’s Top Three
Our most read story Tuesday, by quite a bit, was The Streetwise Professor’s WTI-WTF? Part II (of How Many???) by Craig Pirrong, about the craziness in the oil futures market. Second was Bloomberg Businessweek’s The Oil Price Crash in One Word: ‘Inelasticity’. Third was – third time on this list – Trump’s Coronavirus CEO Death Panel Backfires Hilariously, from New York Magazine.


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Lead Stories

Interactive Brokers takes $88m loss from crude futures collapse; Shares in brokerage firm drop overnight after it discloses payments to clearing houses
Philip Stafford – FT
Shares in Interactive Brokers dropped about 8 per cent in overnight trading after the US broker took an $88m loss from the collapse in value of short-term oil futures contracts. The Greenwich, Connecticut-based broker, founded by electronic trading pioneer and billionaire Thomas Peterffy, said late on Tuesday that several of its customers had been caught on the wrong side of Monday’s plunge, forcing it to step in and pay the margin calls owed to clearing houses.

Negative Oil Prices Pose Headache for Futures Giant CME; The exchange is home to the WTI futures contract, linked tightly to the physical oil market.
Alexander Osipovich – WSJ
Negative oil prices threaten to tarnish the image of West Texas Intermediate, the U.S. crude benchmark, and hurt the company that has long relied on it as a key source of revenue: exchange giant CME Group Inc.

High-Speed Trader GTS to Create Online Market for Pre-IPO Shares; ClearList venture to allow private companies to issue and sell shares, avoid cost of initial public offering
Alexander Osipovich – WSJ
One of the top electronic trading firms at the New York Stock Exchange plans to launch a new online marketplace where investors can buy and sell shares of private companies. New York-based GTS is set to unveil the venture, called ClearList, later Wednesday. The first transactions on ClearList could come within a month, executives of GTS and ClearList said. The venture may appeal to investors hoping to get in early on the next Facebook Inc. or Zoom Video Communications Inc., at a time when companies have been waiting longer to hold initial public offerings.

Brent Oil Drops to 21-Year Low, Spreading Pain Across the Globe
Sharon Cho and Alex Longley – Bloomberg
Physical prices crash further as market plows new lows; Brent futures drop as much as 17% in London before paring loss
Oil in London traded near a 21-year low as the global benchmark was sucked into the rout that sent U.S. futures below zero for the first time ever this week. Brent for June delivery slumped as much as 17%, before paring losses to trade near $19 a barrel. West Texas Intermediate crude fell 2.9% in New York, having lost almost half its value on Tuesday. Prices continue to slide amid fears that the massive glut that sent May WTI to as low as minus $40.32 on Monday is only going to get worse.

What Negative Oil Prices Mean and How the Impact Could Last; The strange thing that happened in oil markets does not mean you can make money storing oil, or that gasoline will cost nothing.
Vikas Bajaj – NY Times
A main benchmark for the price of oil fell negative for the first time ever this week. The decline — more than 300 percent in daily trading — raised fresh questions about the damage the coronavirus is having on the global economy.

Can the USO fund collapse?
Izabella Kaminska – FT
This is a quick follow-up post on the USO piece out earlier as the fund has just announced it will be suspending new creations because it has run out of preregistered shares to provide to authorised participants. Please excuse typos, et cetera (we are out of babysitting time and encumbered by a two-year old). So what does it all mean?

Oil Market’s Crisis Spreads to Individual Investors; Many analysts caution that complicated products like the U.S. Oil ETF are too risky for retail investors
Amrith Ramkumar – WSJ
The collapse in crude prices is creating mounting losses for ordinary investors, a sign that the energy crisis is starting to ripple beyond the oil patch. Individual investors have piled into risky products like the United States Oil Fund, a popular exchange-traded fund designed to track the price of crude, despite warnings that such products are unsuitable for inexperienced traders.

Quantitative Brokers launches first options on futures execution algorithm; Known as Striker, the algorithm will initially support execution of options in CME treasury futures.
Hayley McDowell – The Trade
Quantitative Brokers (QB) has launched an execution algorithm for options on futures markets, which it claims is the first of its kind in the industry. Known as Striker, the agency algorithm will initially support options in CME treasury futures, and QB expects to expand coverage across other CME futures products throughout this year, including options on Eurodollars and equity index.

“The Great Liquidity Crisis”, “The Great Lockdown”, or “The Pandemic Crisis” – What’s in a name?
Mark Rzepczynski
Every crisis needs a name, but what is in a name? A lot. It frames future discussion about the crisis and defines the type of crisis. The naming meme frames expectations of what happened and what should be the response. This crisis needs a name and a single leading candidate has not arisen.

World’s largest oil ETF revamps portfolio after market chaos; USO scales back holdings of benchmark June futures contract that had become 24% of market
Gregory Meyer and Derek Brower – FT
The world’s largest oil-backed exchange-traded fund has been forced to make far-reaching changes to its portfolio, after below-zero crude prices raised the spectre of unlimited losses for investors and its holdings ballooned to almost a quarter of the benchmark US futures market.

Oil ETF Ensnared in Crude’s Crash Tries to Stave Off Turmoil
Katherine Greifeld and Catherine Ngai – Bloomberg
USO saw record inflows last week as investors bet on bottom; Fund rolled positions forward, with more holding in July, Aug.
Oil’s collapse is leaving the biggest U.S. crude-tracking fund at risk of becoming dislocated from prices, raising the prospect of another casualty in the crisis. Furious buying by retail investors trying to pick a bottom in crude, along with a rush by short-sellers making the opposite bet, sparked a surge in new share creation that had swelled the United States Oil Fund to its maximum allowed size.

Singapore oil traders face credit crunch after Hin Leong fiasco; Banks eye pullback from sector as financial scandal compounds woes from coronavirus
FT reporters
The collapse of one of Singapore’s biggest oil traders has raised the prospect of a severe liquidity crunch in the city-state’s under-pressure commodities sector, threatening a wave of defaults and bankruptcies.

Big Banks Face Lawsuit Over Smaller Corporate Bond Trades
Chris Dolmetsch, Matthew Leising, and Claire Boston – Bloomberg
Suit comes amid efforts to break large lenders’ hold on market; Banks are accused of forcing investors to pay more, get less
A cavalcade of big banks including Bank of America Corp., Credit Suisse Group AG and Goldman Sachs Group Inc. was sued for conspiring to suppress corporate-bond trades of less than $1 million in par value at the expense of small investors.

All that drama about fixed-income ETFs was overplayed; Exchange traded funds holding bonds played a key role in easing March turmoil
Robin Wigglesworth – FT
Everyone loves a crisis that confirms biases. And in the case of exchange traded funds, this has been a good period for their legions of detractors. But what if ETFs actually eased, rather than exacerbated, the market mayhem that broke out last month?

Scandal-hit Hin Leong seeks to cede control to PwC; Singapore oil trader to pull bankruptcy filing as it pursues $3.85bn debt restructuring
Stefania Palma and Neil Hume – FT
Hin Leong, the distressed Singapore oil trader that has admitted to $800m of undisclosed losses, is seeking to appoint PwC as an independent manager to run the business as it pursues a debt restructuring of almost $4bn.

Brand First, Digital Led
Steve Grob – LInkedIn
I remember the response I nearly always got from my old boss when I rushed to tell him about some new industry change and how we should respond. “Well Steve, you may be right, but things always move slower than you think.”


How ‘Silent Spreaders’ Make Coronavirus Hard to Beat
Jason Gale – Bloomberg
A lot of people infected with the coronavirus have very mild or even no symptoms, or ones that don’t match the usual markers of fever, dry cough or difficulty breathing. The discovery of larger numbers of so-called asymptomatic cases, initially thought to be rare, underscores a key challenge in stopping the pandemic: If people don’t know they’re infected, they’re probably not taking steps to prevent transmitting it.

When and How Will the U.K. Coronavirus Lockdown End?
Joe Mayes – Bloomberg
Government has set five key tests for lifting the restrictions; Prime Minister is wary of a potential second wave of the virus
The U.K. has been in a nationwide lockdown since March 23 in an effort to slow the spread of the coronavirus. But closing schools, shops and businesses has come with a heavy economic price, and pressure is building on the government to relax the confinement.

UK diplomat in U-turn over EU ventilators ‘political decision’
James Brownsell – Al Jazeera
The head of the United Kingdom’s diplomatic service was on Tuesday forced into a U-turn after admitting the government had made “a political decision” not to join a European Union-wide scheme to buy medical ventilators in bulk as the scale of the coronavirus outbreak was becoming known.

Singapore Proves There’s No Textbook Virus Response; Even small, rich countries are getting caught off-guard.
Daniel Moss – Bloomberg
Once lauded as a beacon in the fight against Covid-19, Singapore reached an unenviable milestone this week: the most cases in Southeast Asia. Soaring infections suggest rapidly tightening restrictions on social and economic activity are unlikely to cease anytime soon; the prime minister said Tuesday that schools and most workplaces will remain closed until June 1. The struggle to contain this pandemic even in a well-run, rich nation casts doubt on whether any country can become a global standard-bearer.

Van Jones says states reopening businesses amid coronavirus is ‘a death sentence for communities of color’
Paul LeBlanc, CNN
CNN political commentator Van Jones said Tuesday that the decision by some states to ease stay-at-home restrictions and open businesses is effectively “a death sentence for communities of color,” which have been disproportionately affected by the novel coronavirus.

Exchanges, OTC and Clearing

LSE to pay dividend after riding market turbulence; Frantic trading across financial markets pushes revenues up at the exchange and financial data group
Philip Stafford – FT
The London Stock Exchange Group has pledged to pay its final dividend after emerging as one of the winners from the market turmoil unleashed by the coronavirus crisis.

Nasdaq goes live with cloud data service via Amazon Web Service; New Cloud Data Service from US exchange group Nasdaq will provide industry players around the world with real-time data.
Kiays Khalil – The Trade3
Nasdaq has confirmed the launch of its new cloud-based data service, which will give customers access to real-time exchange data, index, and fund data.

***SR: The Nasdaq press release is here.

Nasdaq is starting to stream real-time market data to the public cloud as Wall Street demands more flexible access to critical information
Dan DeFrancesco – Business Insider
In an effort to meet clients where they are, Nasdaq is streaming real-time market data in the public cloud for the first time.

Transforming the Nasdaq Stockholm Listing Process; Consultation aimed at improving the Swedish IPO market
Nasdaq Nordic, in particular Nasdaq Stockholm, has for many years been one of the leading markets for IPOs and new listings in Europe. Since 2015, we have welcomed 440 new listings across our Nordic markets, raising more than 22.6 billion Euros in growth capital.

ICE Data Services Launches Market-Based Index to Track and Benchmark the Global Price of Carbon; Creates critical component for enabling the energy transition
Intercontinental Exchange, Inc.
Intercontinental Exchange, Inc. (NYSE: ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today announced the launch of a new index designed to track and benchmark the global price of carbon. This is an important part of efforts to measure and reduce the emission of carbon dioxide CO2 and other pollutants in economies around the world.

Nasdaq Announces 4% Increase in Quarterly Dividend to $0.49 Per Share
The Board of Directors of Nasdaq, Inc. (Nasdaq: NDAQ) has declared a regular quarterly dividend of $0.49 per share on the company’s outstanding common stock. The dividend is payable on June 26, 2020 to shareholders of record at the close of business on June 12, 2020. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to approval by the Board of Directors.

SGX RegCo grants auto-extension for release of unaudited financial results for FYs ended Feb, Mar and April 2020
Singapore Exchange Regulation (SGX RegCo), in consultation with the Monetary Authority of Singapore (MAS), will grant an automatic 2-month extension to issuers with financial year-ends (FY-end) of 29 Feb 2020 or 31 March 2020 ; and a 1-month extension to issuers with a 30 April 2020 FY-end, to release their full year unaudited results (Waiver)[1].

Regulator’s Column: What SGX expects of issuers’ disclosures during COVID-19
The COVID-19 outbreak has given rise to high levels of volatility in the global financial markets. COVID-19 and the resultant actions taken by the governments and businesses around the world to protect public health and safety are unprecedented on many fronts. Companies and individuals alike have had to make major adjustments amid the current challenges.

Powerwrap adds Chi-X TraCRs and Funds to HNW platform
Will Davidson –
Powerwrap, the listed platform provider for high net worth investors, has become the latest in a growing number of wealth management groups to add Chi-X Australia’s innovative product suite to its offering.


SoFi goes international with acquisition of Hong Kong-based investment app 8 Securities
Catherine Shu – Techcrunch
Consumer financial services platform SoFi is making its first expansion outside of the United States with the acquisition of Hong Kong-based investing app 8 Securities. The terms of the deal were not disclosed. Targeted to personal investors, 8 Securities will rebrand to SoFi Hong Kong and retain its team, who will began launching services in other markets as well.

Five startups join Investment Association’s rebranded FinTech scheme; Formerly known as Velocity, the buy-side trade group’s FinTech initiative has been renamed Engine.
Kiays Khalil – The Trade
Five startups have been chosen to participate in the Investment Association’s FinTech accelerator programme, following a rebrand of the initiative.

US consolidated audit trail timeline disrupted due to COVID-19; The US watchdog has extended a delay for broker-dealers reporting to the CAT after system officially went live earlier this month.
Hayley McDowell – The Trade
The timeline for broker-dealers reporting to the consolidated audit trail (CAT) for equity and options trades in the US has been delayed a second time due to the ongoing coronavirus pandemic.


Crypto site The Block names new CEO
John Roberts – Fortune
At a time when many media companies are reeling from the economic damage of the pandemic, a startup focused on cryptocurrency news and research says it is thriving. On Tuesday, New York-based The Block boasted of soaring revenues while announcing its 24-year-old Chief Operating Officer, Mike McCaffrey has taken on the top job at the company.

Speculative bet or inflation hedge? Bitcoin in the coronavirus crisis
Tom Wilson, Ritvik Carvalho – Reuters
Bitcoin has fared better than stocks but worse than gold and U.S. Treasuries during the coronavirus pandemic, with investors ascribing its performance to speculative bets and bids to hedge against inflation linked to stimulus measures. Enthusiasts have laid out numerous narratives for bitcoin as an investment proposition through its first 12 years – from a rebel technology set to upend the financial system to a groundbreaking payments network; from an uncorrelated asset to a hedge against inflation-inducing government policies.

Bitcoin Can’t Be a Safe Haven and 100x Leverage Is the Reason Why
Vishal Shah – Coindesk
Vishal Shah is founder of Alpha5, a new bitcoin derivatives exchange backed by Polychain Capital. Despite some championing, it is clear bitcoin is still a risky asset on a peripheral investment frontier, and not a safe haven at all. Bitcoin is simply not going to be a primary concern for capital swimming around in traditional markets. Remember, this is a time when assets like U.S. equities are enduring unprecedented volatility. There would need to be a return to frothy markets and the comeback of marginal greed to see more institutional players wandering inside the crypto gates.

The pandemic was bitcoin’s chance to shine. It hasn’t…yet
Kyle Torpey – Wired UK
In the aftermath of the World Health Organisation’s decision to officially declare Covid-19 a pandemic last month, pretty much every asset in the world fell in value, even supposed safe haven assets such as gold and bitcoin. While gold has since recovered and reached levels not seen since 2012, the so-called “digital gold” is still down more than 30 per cent from the year-to-date highs made back in February.

Dutch central bank wants to play a leading role in digital currency development
Mike Orcutt – The Block
The central bank of the Netherlands, De Nederlandsche Bank, says it wants to be a world leader in the development of central bank digital currencies. In a bulletin posted Tuesday, the bank said that the use of physical cash is “clearly” declining in the Netherlands, meaning that people are using less central bank-issued money to buy things. “A question that naturally springs to mind is whether central banks should provide a new type of money that is better attuned to the needs of citizens and firms.”

Winklevoss’ Gemini Cryptocurrency Exchange Scores Another Security Qualification
Ana Alexandre – Cointelegraph
The Winklevoss brothers’ Gemini cryptocurrency custodian and exchange has obtained a new security qualification, SOC 1 Type 1. According to an April 21 blog post by the company’s head of risk, Yusuf Hussain, Gemini became the world’s first digital currency custodian and exchange that was granted a Service Organization Control (SOC) 1 Type 1 certification. The examination was carried out by Big Four accounting firm Deloitte.

Crypto derivatives exchange FTX launches crude oil futures
Yogita Khatri – The Block
Crypto derivatives exchange FTX has rolled out crude oil futures, at a time when oil prices for May contract fell below zero for the first time in history earlier this week. FTX’s oil futures contracts expire to the spot price of WTI crude oil, plus $100, meaning the exchange adds $100 to each contract in case the spot price goes negative.

Everledger Offers Diamond Industry Blockchain-Based Carbon Offsetting
Ian Allison – Coindesk
Track-and-trace blockchain pioneer Everledger is using its technology to help the diamond industry offset its carbon footprint. The firm’s new platform, being launched with India and U.S.-based Shairu & Atit Diamonds, allows diamond industry participants the option to purchase credits in carbon reduction projects. These work to counter greenhouse gas emissions by planting new trees, reducing deforestation, providing clean water access and investing in renewable energy.

Bitcoin’s belief problem: Only 26% trust decentralized cryptocurrency
Adriana Hamacher – Decrypt
Only 26% of people trust decentralized digital currency, according to a new survey. Bank-backed digital currencies were twice as likely to trusted The Economist survey also found a high take-up of cashless systems, while 85% of respondents said they were familiar with cryptocurrencies.

Miners Trick Stablecoin Protocol PegNet, Turning $11 Into Almost $7M Hoard
Paddy Baker – Coindesk
Rogue miners submitted phony price data that tricked decentralized stablecoin network PegNet into turning a small wallet balance into a $6.7 million stash. At approximately 05:00 UTC Tuesday morning, four mining entities – who together comprised as much as 70 percent of the PegNet hashrate – submitted data that artificially inflated the price of a “pJPY,” a stablecoin pegged to the price of Japanese Yen, according to a core developer going by the username “WhoSoup”.

Ripple sues YouTube over cryptocurrency scams
Katie Paul – Reuters
Blockchain firm Ripple sued Alphabet Inc’s YouTube on Tuesday, alleging the video-sharing platform failed to protect consumers from cryptocurrency “giveaway” scams that use fake social media profiles to dupe victims into sending money.

Crypto lender Dharma now allows sending money to any Twitter handle
Yogita Khatri – The Block
Dharma, an Ethereum-based peer-to-peer lending platform, has launched social payments. The new feature allows Dharma users to send U.S. dollars to any Twitter handle, even if recipients don’t have a Dharma account. To get started, users would need to deposit funds into their Dharma accounts.


How Donald Trump could help the US oil sector back on its feet; Options range from tapping Chinese buyers to paying producers for crude left in the ground
Derek Brower – FT
Only a few months ago, Donald Trump was proclaiming a “golden era” of American energy dominance as the US produced more crude oil than any other country in the world. Now, the president is vowing to use the powers of the federal government help the sector back on its feet.

Senator Benjamin L. Cardin, Democrat of Maryland, speaking to reporters on Tuesday at the Capitol.
Emily Cochrane and Jim Tankersley – NY Times
The Senate approved a $484 billion coronavirus relief package on Tuesday that would revive a depleted loan program for distressed small businesses and provide funds for hospitals and coronavirus testing, breaking a partisan impasse over the latest infusion of federal money to address the public health and economic crisis brought on by the pandemic.

Attorney General Barr, DOJ may target states over coronavirus shutdowns
Bob Fredericks – NY Post
The Justice Department could take legal action against governors who maintain tough rules over coronavirus that Attorney General William Barr said infringe on constitutional rights even after the pandemic subsides, Bloomberg News reported Tuesday.

Barr Threatens Legal Action Against Governors Over Lockdowns
Chris Strohm – Bloomberg
Businesses need ‘more freedom,’ the attorney general says; Trump has undercut his guidance on how states should reopen
The Justice Department will consider taking legal action against governors who continue to impose stringent rules for dealing with the coronavirus that infringe on constitutional rights even after the crisis subsides in their states, Attorney General William Barr said.

Americans’ Fear of Job Loss Surges to 45-Year High, Poll Shows
Christopher Condon – Bloomberg
A quarter of working Americans believe it’s “very likely” or “fairly likely” they will lose their job or be laid off in the next 12 months, according to a Gallup poll. That’s a 17 percentage-point swing in one year, from matching its lowest reading since 1975 to its highest, driven by the rapid impact of the coronavirus pandemic on the U.S. economy. The survey, released Wedensday, was conducted April 1 through 14.

Stop Trashing the Programs That Help Small Business; Yes, the Paycheck Protection Program and the Fed’s “Main Street” lending plan have flaws. So let’s fix them.
Michael R. Strain – Bloomberg
The challenge facing U.S. economic policy right now is that the government is building a new car while driving it at the same time. There are bound to be expensive repairs and some collisions along the way. The good news is that the car is headed in the right direction.


French markets regulator fines hedge fund Elliott EUR20m; Levy against US activist marks one of the largest in AMF’s history
David Keohane – FT
The French markets regulator has levied one of the largest fines in its history against activist hedge fund Elliott Management, imposing a EUR20m penalty for obstructing an investigation into a takeover bid and not adequately disclosing its positions.

ASIC notes financial reporting changes; ASIC notes the decisions by the following companies:
Authorised Investment Fund Limited – The decision to write down investment assets by $9.36 million in its financial report for the half-year ended 31 December 2019. ASIC had raised questions about the company’s assessment of the value of investment assets in its financial report for the year ended 30 June 2019.

SEC Proposes to Modernize Framework for Fund Valuation Practices
The Securities and Exchange Commission today announced that it has voted to propose a new rule that would establish a framework for fund valuation practices. The rule is designed to clarify how fund boards can satisfy their valuation obligations in light of market developments, including an increase in the variety of asset classes held by funds and an increase in both the volume and type of data used in valuation determinations.

ICYMI: Chairman Tarbert Discusses Crude Oil Futures on CNBC’s Squawk Alley; Chairman Tarbert on State of Oil Futures Markets:
“[T]he CFTC obviously is watching these markets closely and in real time. Our main job as a regulator is to make sure that whatever is going on in the markets is actually reflective of real supply and demand and not anything else. I think when we look at this situation; it does appear to be a fundamental supply and demand issue … [I]t’s not a financial markets issue at this point. Obviously we’re looking into it to make sure we understand all the factors, but basically it can be explained by what’s actually going on in the real markets, which obviously is a tremendous amount of dislocation with respect to storage, supply, capacity, and dramatically decreased demand. So, the markets are just simply reflecting at this point what’s going on in the real economy, which obviously is a lot of volatility … The volatility that we saw yesterday—even though the WTI contract reached a historic low—we didn’t see that across other commodity classes.”

LabCFTC Launches “Project Streetlamp” Science Prize Competition; Seeking to Enhance Enforcement Capabilities, CFTC Launches Inaugural Competition Under the Science Prize Competition Act
The Commodity Futures Trading Commission today announced its inaugural competition under the Science Prize Competition Act of 2015, called Project Streetlamp. Under the Science Prize Competition Act, the CFTC may sponsor contests in order to stimulate innovation that can advance the CFTC’s goals.

Bank of England mandates banks for bond issuance
The Bank of England said on Wednesday it had mandated BofA Securities, HSBC, RBC Capital Markets and TD Securities as joint lead managers for an annual bond issuance to finance its foreign exchange reserves.

Investing and Trading

Investors adapt to ‘new normal’ on corporate bond trading; Gaps between bids and offers remain elevated despite market volatility dying down
Samuel Agini and Eric Platt – FT
The cost of trading corporate debt remains about three times the average in the weeks before the coronavirus crisis, despite unprecedented action by central banks in the US and Europe to ease market strains.

The collapse in oil is a wake-up call for stock markets; Any idea that economies are through the worst of coronavirus seems misplaced
Katie Martin – FT
The collapse in oil prices is a warning. Anyone who has been swept up by the rally in stock markets since late March would be foolish to ignore it.

Why the European Central Bank can save the eurozone; It has near-unlimited firepower and is the only EU institution willing and able to act
Martin Wolf – FT
Will the eurozone survive Covid-19? If it does, it will be for the same two reasons it survived the financial crisis: fear of a ruinous break-up and action by the one institution able to do so on the scale needed. In July 2012, Mario Draghi told an audience in London: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” The ECB is saying this now. It should be enough.

We’re Not Floating to Hell on an Oil Barrel; Beware of grand narratives that extrapolate the present into the future.
John Authers – Bloomberg
From Drowning in Oil, to Peak Oil, and Back
We have a new narrative, and it has us floating inexorably to hell, borne on a flood of oil. That, at least, is the story being offered to explain why markets have turned decidedly risk-averse again, with U.S. stocks suffering their worst day since April 1. Meanwhile bond yields are falling, with the 10-year Treasury below 0.6% once more. Put these together and stocks are lagging behind bonds by 33% since they peaked in January:

The Professor Who Turns Climate Change Into a Game
Eric Roston – Bloomberg
John Sterman has spent his life explaining why big systems fail. A professor at MIT Sloan School of Management since the early 1980s, his research extends from global supply chain disruptions to the collapse of the biosphere. He literally wrote the book on how to manage complexity, Business Dynamics, and has guided generations of MBA students and executives. Now he focuses on sustainability and climate change.

More oil ETF shenanigans
Izabella Kaminska – FT
A quick take on news that the London-listed WisdomTree WTI Crude Oil 3x Daily Short product has been suspended.

‘I’m Just Living a Nightmare’: Oil Industry Braces for Devastation; Across the United States, companies are laying off workers, shutting down wells and preparing for a prolonged slump as oil prices tumble.
Clifford Krauss – NY Times
Workers at Marathon Petroleum’s refinery in Gallup, N.M., are turning off the valves. Oil companies in West Texas are paying early termination fees to contract employees rather than drill new wells. And in Montana, producers are shutting down wells and slashing salaries and benefits.

Powell Looks Prescient as Oil Price Collapses; Crude is just the first and most extreme example of how the economic standstill will send deflationary shockwaves through markets.
Brian Chappatta – Bloomberg
“One thing I don’t worry about is inflation right now.” When Federal Reserve Chair Jerome Powell said this during a webcast on April 9, I admit my first thought was that it could end up being a contrarian signal — it’s the risks no one sees coming that are the scariest, after all. Inflation obviously won’t surge with much of the U.S. on lockdown to combat the spread of the coronavirus, but it’s possible that huge fiscal and monetary policy interventions will lead to rapid price growth once the economy restarts.


UK’s top asset manager urges companies to take care of employees; LGIM to hold businesses to account for their stakeholder responsibilities during pandemic
Attracta Mooney – FT
Legal & General Investment Management, the UK’s largest asset manager, has warned companies it will “hold them to account” if they fail to treat employees and suppliers well as they grapple with the fallout from the coronavirus.

Investors pull EUR250bn from European funds; Pimco battered in March as bond funds suffer wave of redemptions
Attracta Mooney and Peter Smith – FT
Investors fled mutual funds in Europe at the fastest rate on record in March when they redeemed EUR246bn, a number that dwarfs the worst month in the global financial crisis, as concerns mounted over the impact of coronavirus.

JPMorgan’s Small Business Loans Instead Went to Its Biggest Customers
David McLaughlin and Michelle F Davis – Bloomberg
Only 6% of smaller customers got paycheck-protection loans; Most of Chase’s larger commercial clients got small-biz loans
JPMorgan Chase & Co. provided loans to virtually all of its commercial banking customers that sought financing through the small business relief program, while the lender’s smallest customers were almost entirely shut out, according to data disclosed by the bank.


Hong Kong Readies $10 Billion for Banks Amid Virus Stress
Alfred Liu – Bloomberg
Hong Kong’s de facto central bank is making $10 billion available under a temporary U.S. dollar liquidity facility for the city’s lenders amid the coronavirus outbreak.

How Hong Kong’s Intervention Battle Will Chill The Carry Trade
Tian Chen – Bloomberg
The spread between local and U.S. rates is expected to narrow; Lowering of borrowing costs will be timely for city’s economy
Hong Kong’s defense of its currency peg will likely boost the interbank liquidity pool to a level unseen in two years, lowering local borrowing costs and weakening its dollars.

Commodities Slump Takes a Bite Out of Ukraine’s Richest Man
Alexander Sazonov and Volodymyr Verbyany – Bloomberg
Akhmetov’s fortune has tumbled 80% over the past seven years; His DTEK seeks to restructure more than $1 billion of debt
Rinat Akhmetov has survived war, the murder of a business partner and attempts by a former comedian-turned-president to curb his monopoly. But it has come at a hefty price. His fortune, once worth $22.4 billion, tumbled 80% over the past seven years, one of the largest declines tracked by the Bloomberg Billionaires Index. The Ukrainian tycoon’s latest challenge is to keep his businesses afloat as the coronavirus pandemic crushes industrial commodity prices.

U.K. Bonds Brace for Virus Debt Deluge Topping Crisis Highs
John Ainger – Bloomberg
Gilt issuance will surge to 270 billion pounds, survey shows; BOE debt buying may help check any increase in borrowing costs
The U.K. bond market looks set to face a flood of bond sales that dwarfs the current record for government borrowing set during the global financial crisis.


General election 2019: Misleading campaigns ‘undermined trust’
BBC News
Misleading campaign techniques risk undermining trust in elections, the UK’s polling watchdog has warned. In a report, the Electoral Commission said it had received a “large number of complaints” relating to the 2019 general election. Examples included unclearly branded social media pages, edited video clips, and leaflets mimicking local newspapers.

Coronavirus: Philip Pullman says ministers should face charges if PPE supplies were delayed for ‘political reasons’
Roisin O’Connor – The Independent
Philip Pullman has written a scathing essay aimed at the UK government, criticising its failure to supply adequate PPE for British healthcare workers. The essay, published by Penguin as part of its new series, Perspectives, claims the government should be “arranged on charges of conspiracy to murder” if it is found that MPs did not take part in the EU scheme to procure PPE for “Brexit-related reasons”.

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