OCC liquidity risk doubles to all-time high in Q2

Sep 22, 2023

Lead Stories

OCC liquidity risk doubles to all-time high in Q2; Concentration of activity around June expiration responsible for record rise
Joshua Walker – Risk.net
The estimated largest payment obligation Options Clearing Corporation (OCC) could have faced had a single member and its affiliates defaulted hit an all-time high in the second quarter. Liquidity risk as measured by this metric was $12 billion as of the end of June – more than double the $5.84 billion recorded three months prior.

China’s Yuan Defense Runs the Risk of Hurting Global Bond Demand
Bloomberg News
A tool deployed by the People’s Bank of China to defend the yuan may result in some collateral damage: a weakening in demand from bond investors who like to hedge their currency exposure. With the PBOC ramping up overseas yuan funding costs to deter short sellers, the premium that dollar-based investors enjoyed for swapping their US currency has evaporated. That has turned hedged purchases of Chinese bonds into a lower-return proposition than Treasuries. As a result, global funds which employ such a strategy may well set their sights on other bond markets instead.

Wall Street Strategists Turn Ever Bullish Just as Stocks Slump
Alexandra Semenova – Bloomberg
Call it another case of bad timing for Wall Street strategists.
The group, historically known to have a bullish bent, spent most of this year saying US stocks would end lower in 2023. Instead, the S&P 500 Index rallied 16% in the first half.


New Cboe CEO Has Crisis Experience
Shanny Basar – Traders Magazine
In 2008 Fredric Tomczyk took over as president and chief executive of discount brokerage TD Ameritrade in the midst of the great financial crisis and he believes that no time tests a leader’s limits more than a crisis.
In a LinkedIn post in 2013 Tomczyk described his first earnings day as TD Ameritrade CEO on 23 October 2008 when he had been in his position for just 23 days. In a TV interview he was asked what it was like to take over as CEO of a financial services company during the biggest financial crisis since the Great Depression as Lehman Brothers had collapsed, Merrill Lynch had been sold to Bank of America and the first money market mutual fund “broke the buck” in 20 years.

BIT exchange launches Filecoin (FIL) options trading
Kalkine Media
BIT, a crypto derivatives trading platform based in Dubai, has launched options trading for Filecoin (FIL), opening up the options trading market to professional traders within the Filecoin ecosystem.
The exchange is partnering with key industry market makers Coinhako and Orbit Markets to offer the product.

Borsa Italiana Optiq migration: successful completion of Phase Two
Borsa Italiana Fixed Income, Warrants and Certificates markets opened for trading on the Euronext Optiq trading platform for the first time last week. The second phase of the migration plan of Borsa Italiana markets to Optiq saw over 32,500 instruments switch to Euronext’s proprietary trading technology, just six months after Borsa Italiana’s Equities and ETFs migrated in phase one. Derivatives will follow in 2024.

GlobalCapital Names OCC Americas Derivatives Clearing House of the Year
OCC, the world’s largest equity derivatives clearing organization, has been honored as the Americas Derivatives Clearing House of the Year in 2022 by GlobalCapital. “We are proud of this recognition and are committed to the ongoing improvement of our operations, services and offerings to ensure we continue to meet the needs of all market participants, and to serve as the foundation for secure markets.”

SGX Group wins Asia Pacific Derivatives Exchange of the Year again at GlobalCapital Derivatives Awards 2023
SGX Group
Win underscores SGX Group’s leadership in Asian derivatives and customer-focused offering across asset classes. Singapore Exchange (SGX Group) today announced its outstanding achievement as the Asia Pacific Derivatives Exchange of the Year in the leading GlobalCapital Derivatives Awards 2023. This marks the ninth time in the last decade that SGX has claimed the coveted spot, reaffirming its position as a leader in the derivatives market in Asia.

Eurex wins Global Capital Derivatives Award
Being awarded “European Derivatives Exchange of the Year” – is music to our ears. Especially since we were able to hold on to this title for the third straight year. In the words of the award committee:
“Judges were impressed by the innovative solutions offered by Eurex across a variety of asset classes, as well as its forward-looking view of the market. Eurex particularly stood out for its substantial growth, strong value proposition in FX and position as the first exchange to offer Bitcoin futures in Europe.”

Robinhood Is Cutting Jobs and Focusing on Credit Cards to Solve a Shrinking User Base, Insiders Say
Ashley Stewart and Rebecca Ungarino – Business Insider
Robinhood is laying off more employees and reorganizing teams as part of a new focus on credit cards as the company tries to mitigate a shrinking user base, insiders say.
In June, Robinhood announced plans to acquire no-fee credit card startup X1 for $95 million. Insiders say the company is planning to merge X1 with its Robinhood Money organization, the subsidiary focused on cash management and spending features of the app like its debit card, direct deposit, and peer-to-peer payments. Credit cards are much higher-margin products than stock-trading and generally less exposed to volatile markets.

Regulation & Enforcement

CFTC Rejects Bid to Launch Political Election-Betting Market
Alexander Osipovich and Paul Kiernan – WSJ
Regulators rejected a proposal for a marketplace that would allow betting on congressional elections.
The Commodity Futures Trading Commission said Friday that it blocked a financial startup from launching a political-betting market. The commission made the decision in a 3-1 vote, with all three Democratic commissioners endorsing a recommendation by CFTC staff to reject the proposal, according to people familiar with the matter. One commissioner, Republican Caroline Pham, abstained from the vote.


Trading Technologies’ TT platform named Derivatives Trading System of the Year at 2023 FOW Asia Capital Markets Awards
Trading Technologies
Trading Technologies International, Inc. (TT), a global capital markets technology platform provider, has just won the FOW Asia Capital Markets Award for Derivatives Trading System of the Year for its TT platform. Global Investor Group presented the award at a dinner ceremony in Singapore. The FOW Asia Capital Markets Awards recognize the best and brightest innovations in the Asian derivatives industry. Winners are selected by a panel of independent judges with extensive experience in the industry.


JPMorgan says the coming energy crisis may be worse than what Europe experienced
Steve Goldstein – MarketWatch
JPMorgan on Friday pounded the table for energy stocks, as higher-for-longer interest rates further squeezes the flow of capital into new supply.
Europe’s energy stocks have only gained 10% since June while oil prices CL.1 have jumped 30%. JPMorgan said it’s recommending the majors over midcaps, upgrading Eni ENI to overweight, reiterating overweights on Shell TotalEnergies TTE and Neste, and lifting Repsol to neutral. The bank raised its rating on global energy stocks to overweight from neutral, as it sees an emerging supply-demand gap beyond 2025, coupled with strengthening sector fundamentals.

‘Defensive’ Stocks Are Getting Crushed in a Falling Market. It’s Time to Buy.
Jacob Sonenshine – Barron’s
The stock market has dropped recently, and so have so-called defensive stocks. That unusual move makes the group look more like a buying opportunity.
The S&P 500 is down almost 5% from the high for the year it hit at the end of July. The main concern is that as the Federal Reserve keeps monetary policy tight in its fight against inflation, the economy will weaken. The latest indication from the central bank is that interest rates will be higher for longer than expected. And much of the effects of the five percentage points of rate increases the Fed rolled out since March 2022 likely have yet to be felt.

0DTE Options: Are Higher Spreads Imminent?
Emma Duncan – Schaeffer’s Investment Research
While we’ve covered 0TDE options on our site and in this space before, we thought it’d be educational to share a recent Q&A our Senior Quantitative Analyst Rocky White did with Bloomberg. This Q&A is not only a deep dive into the world of 0DTE, but also encompasses the average spread option priced in on the SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust Series 1 (QQQ).

PCE Data Coming Next Week
In #Vol411, Dan Deming @Djd551 lets us know that 10-day realized volatility is moving higher week-over-week and is up from 8 to 13, reminds us of events coming up next week like Fed speak, consumer confidence data, PCE data and more.


OCC and OIC Support World Investor Week 2023
World Investor Week (WIW) is an annual global campaign promoted by the International Organization of Securities Commissions (IOSCO) to raise awareness about the importance of investor education and financial protection.
During October 2-8, OCC and The Options Industry CouncilSM (OIC) are joining organizations across the globe in support of this important initiative to promote investor resilience and sustainable financial practices. Explore the World Investor Week website for details on events and other ways to get involved.


Well, actually: Our ‘Dumb Money’ movie review; The new movie ‘Dumb Money’ tackles some complicated finance. Does it get it all right?
FT Podcast
Dumb Money, out this week, stars Seth Rogen, America Ferrera and several very tricky finance moves. We liked Seth and America, but we definitely have questions about the portrayal of clearing houses, order flow, and stock dilution. If you’ve watched Star Wars and wondered how the Millenium Falcon could carry enough fuel to travel at the speed of light, this episode is for you. Also we go long Jay Powell and long auto workers.

***** I asked AI what is dumb money and it gave me the perfectly logical answer: “Dumb money” is a colloquial term used in finance and investing to describe individuals or investors who make uninformed or irrational decisions when it comes to managing their investments. Dumb money typically refers to those who lack a deep understanding of financial markets, investment strategies, or risk management. They may make impulsive or emotional investment choices, follow market trends blindly, or fall for investment scams.” What it did not say is that dumb money was a bunch of impulsive investors who had the shorts of GameStop on the run. ~JJL

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