Libor Alternative Is Winning Over Derivatives Traders

Sep 10, 2021

Observations & Insight

****JJL: Yesterday I interviewed Doug Engmann for the Open Outcry Traders History Project. Engmann was a market-maker on the Pacific Stock Exchange options floor and served as its acting chairman. He told me the story of what he called the “greatest moment” in the history of options trading, which was following the 1989 earthquake in San Francisco that left the PSE traders unable to trade on their exchange as the building had no power and was being inspected in the earthquake’s aftermath.

The greatest moment was when the four exchanges, the SEC and the OCC collaborated to allow the PSE traders to trade on quickly constructed trading pits in Chicago, Philadelphia and New York on the CBOE, PHLX and NYSE, respectively. In this week’s version of “John’s Take” in The Spread I tell this story and show cuts of my interview with Engmann as he shared this greatest moment. He said this saved the PSE and may have even saved the options industry.

HERE is a 1989 memo from the CBOE announcing the plan for the four exchanges to facilitate the PSE traders and the CBOE’s specific instructions for it.

Lead Stories

Libor Alternative Is Winning Over Derivatives Traders; Trading in financial contracts tied to Wall Street’s preferred alternative, SOFR, has surged
Julia-Ambra Verlaine – WSJ
Efforts to replace the troubled London interbank offered rate are showing signs of progress. Trading in derivatives tied to Wall Street’s preferred alternative, the Secured Overnight Financing Rate, surged 78% in August, according to TD Securities. The increase comes ahead of a year-end deadline to phase out Libor, which helps set interest costs on trillions of dollars in financial products but was marked for scrap several years ago after a manipulation scandal.

Grain Traders Shrug Off U.S.’s Outlook for Bigger Supplies
Kim Chipman and Michael Hirtzer – Bloomberg
Grain traders were pushed and pulled Friday by prospects for bigger U.S. supplies, but also more overseas sales.
The U.S. Department of Agriculture’s supply-and-demand report, or WASDE, said farmers would reap bigger soybean and corn harvests this season, and inventories would rise. That may be offset by higher overseas sales later this year.

Investors are ‘obsessing too much’ over interest rates and should focus on growth and consumer conditions, says SoFi’s head of investment strategy
Carla Mozée – Markets Insider
Stock investors have been engrossed this year by moves in the US 10-year Treasury yield, but they would be better off concentrating on broader factors such as economic growth, said the head of investment strategy at online loan services company SoFi.
“We’re obsessing too much. Rates matter, but they shouldn’t drive too much of your allocation decisions and they can be a poor indicator of equity market behavior,” said SoFi’s Liz Young in a blog post Thursday that zeroed in on the 10-year yield. The yield is tied to a range of lending programs including mortgages. Bond yields rise when prices fall.

FIA reflects on 20-year anniversary of September 11, 2001
Today, FIA reflects on the events of September 11, 2001, and honors the many acts of bravery and courage shown on that day. We mourn the loss of life from the terrorist attacks, and we pay tribute to the heroism of the first responders who were responsible for saving so many. None of us can forget the shocking collapse of the World Trade Center towers that contained hundreds of people from our industry. Today we honor those men and women who lost their lives and express our condolences to the friends and families they left behind.

Why Hedge Funds Are Turning Bullish On Oil Again
Yahoo Finance
Money managers put an end to weeks of sell-offs in the most traded petroleum contracts last week, signaling that the oil price correction seen in August may have run its course.
Last month, oil prices registered their first monthly loss since March, and the biggest such loss since October 2020, with both WTI and Brent benchmarks dipping more than 7 percent in August.


FEX Global Begins the First Week of Trading on its Australian Futures Exchange; 10,920 Megawatt Hours of VIC $300 Strike 5 Minute Cap Contracts traded.
FEX Global
Despite hard Covid Lockdown in Sydney, FEX Global in its first week of trading has seen market participants utilize the FEX energy futures market to manage their electricity volatility. The first trade on the market being in VIC $300 Strike 5 Minute Settlement Quarter 2, 2022. FEX Global has opened with futures and options in Australian power and will continue to further expand its product offering in Q4 2021 subject to regulatory approvals. The first trade was transacted via Trading Technologies, CME clearing and displayed on Refinitiv and Bloomberg terminals. Snowy Hydro Australia Ltd, the Australian dynamic and growing integrated energy business, was on one side of the first trade. Cameron Fisher General Manager Trading commented “Snowy Hydro has long been an active supporter of competition in energy markets and we are pleased to help drive innovation of risk management markets in Austra
**** FEX Global had its first trades. This is a great story, which I hope to have more about soon.~JJL

Equity Derivatives: Introduction of Single Stock Futures, Equity Options and Single Stock Dividend Futures
The Management Board of Eurex Deutschland took the following decisions with effect from 4 October 2021:
Introduction of 9 Single Stock Futures pursuant to Annex A of Attachment 2,
Introduction of 11 American-style Equity Options pursuant to Annex B of Attachment 2,
Introduction of 24 Single Stock Dividend Futures pursuant to Annex D of Attachment 2,
Inclusion of the new Single Stock Dividend Futures in the existing Liquidity Provider (LP) scheme effective from 1 November 2021
Annual prolongation of Single Stock Dividend Futures Liquidity Provider (LP) scheme until 31 December 2022

SGX reports market statistics for August 2021
Uneven economic recovery in Asia spurs investment and risk-management demand; SGX’s commodities offering enables participants to hedge against cargo and freight volatility
Singapore Exchange (SGX) today released its market statistics for August 2021. An uneven economic recovery in Asia spurred demand to invest and manage risk across multiple asset classes. SGX’s commodity derivatives suite was a standout performer as price swings and supply-chain disruptions continued to challenge physical markets.

Miami International Holdings Reports August 2021 Trading Results, MIAX Exchange Group Sets New Market Share and Volume Records; SPIKES Futures Volume at Record Levels
Miami International Holdings, Inc. today reported August 2021 trading results for its U.S. exchange subsidiaries – MIAX , MIAX Pearl and MIAX Emerald (together, the MIAX
Exchange Group™) and the Minneapolis Grain Exchange (MGEX).

CME Group Inc. Announces Third-Quarter 2021 Earnings Release, Conference Call
CME Group
CME Group Inc. will announce earnings for the third quarter of 2021 before the markets open on Wednesday, October 27, 2021. Written highlights for the quarter will be posted on the company’s website at 6:00 a.m. Central Time, the same time it provides its earnings press release. The company will also hold an investor conference call that day at 7:30 a.m. Central Time, at which time company executives will take analysts’ questions.

Sep. 10, 2021
Never Forget: Sept. 11th 20 Years Later
Tomorrow marks the 20th anniversary of September 11, 2001, a day where we honor and remember those who lost their lives in the horrific terrorist attacks carried out on the World Trade Center, the Pentagon, and in a field near Shanksville, Pennsylvania. Nearly 3,000 people fell victim to the attacks: loved ones, friends, colleagues, and first responders.

Equity Trader Alert #2021 – 68
Nasdaq to Observe a Moment of Silence in Remembrance of 9/11
Tuesday’s Children, an organization founded to promote long-term healing to all those directly impacted by the events on Tuesday, September 11, 2001 and those forever changed by terrorism, military conflict, or mass violence, will visit the Nasdaq MarketSite in Times Square.


Will the Stock Market Climb or Drop 10%? Here’s One Trade to Handle Both Scenarios.
Randall W. Forsyth – Barron’s
Derek Jeter finally made it to Cooperstown this past week after his induction into the Baseball Hall of Fame was delayed a year by the Covid-19 pandemic. And while Yankee haters may quibble about some of the former captain’s statistics or shortcomings at shortstop, he stands in contrast to some of his prominent contemporaries who have been shut out of the Hall for suspected or admitted steroid use, most notably home run record holder Barry Bonds.

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