Observations & Insight
The Spread: Time for an Upgrade
This week on The Spread, Softbank ditches a controversial options investment, the CME becomes the new king of bitcoin derivatives, and more.
JPMorgan Warns of Crowded Trades Amid Markets’ ‘Clear Consensus’
Joanna Ossinger – Bloomberg
There’s strong consensus in markets right now and investors need to position to hedge against crowded trades, according to JPMorgan Chase & Co.
The last time such a strong agreement on strategy existed was in late 2017 and early 2018, and that time period serves as a reminder that such a consensus view rarely plays out in its entirety, strategists led by Nikolaos Panigirtzoglou wrote in a note Friday. Global stocks reached records in January 2018 amid massive inflows, but extended positioning in risk assets became a concern and the next month the “Volmageddon” volatility spike crushed trades that many investors had viewed as a sure thing.
Stocks will rally even further in 2021 as the coronavirus landscape rewrites the playbook for how quickly the market recovers from downturns, BlackRock says
Ben Winck – Markets Insider
Stocks already sit at record highs, but BlackRock sees equities climbing higher in 2021 amid a rapid economic rebound.
The investment management firm raised its tactical outlook on global equities to “overweight” from “neutral” on Monday, implying it expects stocks to rise over the next six to 12 months. The market has already rebounded from its March lows on hopes for a vaccine, and some strategists fear stocks’ rebound moved too quickly.
‘Sell’ signals indicate roadbump ahead for world equities
Thyagaraju Adinarayan and Saikat Chatterjee – Reuters
After a record November, a strong start for world equities this month has triggered some of the “sell” signals monitored by major investment banks, raising chances that the run to record highs is about to pause.
Ranging from retail investor surveys to derivative market positions, many such signals imply that some of the world’s biggest stock markets are ripe for a pullback from the euphoric levels hit after a slew of promising vaccine breakthroughs.
Oil sees more fund buying, but risks shifting
John Kemp – Reuters
Hedge fund managers were substantial buyers of petroleum futures and options last week for the fourth week in a row, a sign of increasing confidence coronavirus vaccines will drive a recovery in oil consumption next year.
Fund managers purchased crude and distillates, even as OPEC+ prepared to lift oil production, implying that a business cycle upturn and resumption of international aviation is expected to absorb extra output.
Exchanges and Clearing
Miami International Holdings Completes Acquisition of Minneapolis Grain Exchange
Miami International Holdings, Inc. Press Release
Miami International Holdings, Inc. (MIH), the parent holding company of the MIAX Exchange Group, and the Minneapolis Grain Exchange (MGEX), a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), today announced the completion of MIH’s previously announced acquisition of MGEX for a combination of cash and MIH common stock. MGEX will continue as a wholly owned subsidiary of MIH.
GFI Announces New Joint Venture in China
GFI Asia Partners Pte. ltd.
GFI Asia Partners Pte. Ltd (“GFI”), a subsidiary of BGC Partners, Inc. (NASDAQ: BGCP), a leading global brokerage and financial technology company, announced today that it took a majority stake in a newly established joint venture company in China, GFIGS Commercial Consulting (Shanghai) Co., Ltd (“GFIGS”), offering OTC derivatives brokerage service.
SONIA options go live at ICE; Cumulative contract volume for one month and three-month SONIA at ICE has reached more than GBP13 trillion notional as it launches SONIA options.
Annabel Smith – The Trade
Options and mid-curve options based on three-month SONIA index futures have gone live at exchange group ICE through its ICE Futures Europe business. ICE claims it is the first venue to launch the SONIA options after confirming plans to launch the contracts in late October.
LCH CDSClear goes live with US credit index options clearing
CDSClear launches clearing of credit index options on CDX investment grade (IG) and CDX high yield (HY) indices; Builds upon LCH CDSClear’s existing credit index options clearing offering and liquidity; Expansion provides members and clients with additional risk management, operational efficiency and funding benefits; Demonstrates continued growth and innovation of the service
LCH, a leading global clearing house, today announced that it has successfully extended its credit index options clearing offering to include the CDX Investment Grade 5Y and CDX High Yield 5Y indices. This builds upon the broad product offering at LCH CDSClear, which was the first clearinghouse to offer clearing of credit index options in 2017.
Amendments to the Strike Price and Listing Schedule for Certain Options on Great British Pound/U.S. Dollar (GBP/USD) Futures Contracts
Effective Sunday, January 31, 2021, for trade date Monday, February 1, 2021, Chicago Mercantile Exchange Inc. (“CME” or “Exchange”) will amend the strike price and listing schedule for certain Options on Great British Pound/U.S. Dollar (GBP/USD) Futures contracts (collectively, the “Option Contracts”) as described below.
LCH CDSClear launches US credit index options clearing
Annabel Smith – The Trade
The London Stock Exchange Group’s clearinghouse LCH has gone live with US credit index options clearing via its LCH CDSClear business. LCH said it was the first to offer clearing of credit index options back in 2017, with the recent expansion now including the credit default swap index (CDX) investment-grade 5Y and CDX high yield 5Y indices. The expansion covers one month, two month, and three-month expiries on the CDX.IG 5YR OTR and OTR-1 series and CDX.HY 5YR OTR and OTR-1 series.
Regulation & Enforcement
Whistleblowers Worry SEC’s Interpretation of ‘Independent Analysis’ Could Discourage Tipsters
Mengqi Sun – WSJ
A new Securities and Exchange Commission rule interpretation threatens to weaken the incentive for external whistleblowers to come forward with details about potential corporate fraud, tipsters and lawyers who represent them said.
The clarification, which goes into effect Monday, states that a whistleblower’s tip has to offer insight “beyond what would be reasonably apparent” to the agency from publicly available information. That worries whistleblower lawyers and tipsters who have received awards. They fear the clarification could make it harder for tipsters from outside of a company to be awarded in a fast-growing program where the odds of getting a payout are already long.
Nasdaq BX, Inc.; Notice of Filing of Proposed Rule Change to Amend Options 4, Section 5, to Limit Short Term Options Series Intervals between Strikes Which are Available for Quoting and Trading on BX (File No. SRBX-2020-032)
SIFMA comment letter to the Securities and Exchange Commission (SEC) on Nasdaq BX’s Proposal to Amend Options 4, Section 5, to Limit Short Term Options Series Intervals between Strikes Which are Available for Quoting and Trading on BX.
Stanford University Economics Professor Susan Athey to Receive CME Group-MSRI Prize in Innovative Quantitative Applications
CME Group, the world’s leading and most diverse derivatives marketplace, and the Mathematical Sciences Research Institute (MSRI), announced its 14th Innovative Quantitative Applications Prize recipient. Susan Athey, Economics of Technology Professor at Stanford Graduate School of Business, is the 2019 CME Group-MSRI Prize winner for her work in the economics of digitization and marketplace design. A virtual event honoring Athey will be hosted by CME Group on Dec. 11, 2020 at 10:00 a.m. CT.
ON THE MOVE: LSEG Adds Hoggett, Bakhshi; BMO Hires Stockland
London Stock Exchange Group plc appointed Julia Hoggett as CEO of London Stock Exchange plc, a regulated subsidiary of LSEG. She will report to Murray Roos, Group Director, Capital Markets, LSEG and will start her position next year. Denzil Jenkins will continue as interim CEO of London Stock Exchange plc until she joins the Group.
CFTC position limits: looking ahead to implementation and compliance
10 December 2020 • 10:00 AM – 11:30 AM EST
On 10 December FIA will provide members with a detailed overview of the CFTC’s final position limits rule. Panelists from FIA, the CFTC, CME, ICE and Willkie Farr & Gallagher LLP will discuss the development, effective and compliance dates, and requirements of the final rule. Special emphasis will be placed on implementation issues and the expanded role of the exchanges in administering federal position limits and hedge exemptions. The panelists also will respond to questions from the attendees.
Some Small Hedge Funds Reap Big Gains in Tough Times
Julie Steinberg and Ben Dummett – WSJ
Hedge funds are trailing the U.S. stock market this year. Some of the smallest funds are emerging as some of the best performers, driving greater demand for these types of managers.
Funds with less than $1 billion in assets are benefiting from their more manageable portfolios. They can dart in and out of holdings to protect gains or minimize losses amid the market volatility that has characterized this year. They also get more bang for their buck—making investments that require less firepower to affect their overall performance.
(Podcast) Volatility Views 425: Frozen Volatility Line of Death
Options Insider Network
“This is the lowest implied volatility level we’ve seen in the covid era.” – Andrew Giovinazzi on this episode of Volatility Views.