Observations & Insight
JLN Special Report: Chicago Trading Community Faces Off In Spoofing Fight
In our special report about spoofing, “Chicago Trading Community Faces Off In Spoofing Fight,” the team at John Lothian News digs into one of the most controversial trading infractions since futures trading moved out of the trading pits. We started by inviting some traders, lawyers and software experts to discuss their views of current trends in anti-spoofing regulation. Then we looked at a couple of the major criminal cases, whose hallmarks were either brazenness or sheer volumes. Attorney Renato Mariotti, who as a government attorney successfully led the first criminal spoofing prosecution, contributed an essay that contains well-considered advice for firms and their traders in this era of aggressive enforcement.
Read the article HERE
OCC March Total Volume Up 62.8 Percent from a Year Ago – Highest Volume Month Ever for U.S. Equity Options Industry
OCC, the world’s largest equity derivatives clearing organization, announced today that March 2020 total cleared contract volume was 670,646,998 contracts, the U.S. equity options industry’s highest month ever – up 62.8 percent from March 2019. This exceeds the previous record of 568,899,108 cleared contracts set in February 2020. OCC’s year-to-date average daily total cleared contract volume is 28,407,644 contracts.
Coronavirus: Markets Can’t Ignore Four Crucial Uncertainties
Mohamed A. El-Erian – Bloomberg
Falsely reassured by large end-of-quarter rebalancing inflows into stock markets, many analysts and market participants still seem to be resisting four significant uncertainties. Until these are incorporated into corporate earnings expectations and asset valuations more fully, the risk of sudden bouts of market volatility and dislocations could spill over into an economy already hard hit by the coronavirus.
‘Indiscriminate’ and ‘haphazard’ selling ravages emerging markets, says Goldman Sachs
Sunny Oh – MarketWatch
A common refrain from seasoned investors is that emerging markets is a poor label for a basket of economies that share little in common, and that it therefore pays to be selective when looking for attractive investments.
Yet as the COVID-19 pandemic weighs on all corners of financial markets, even investments in countries with smart financial management and astute policymakers experienced “indiscriminate” selling, according to a Tuesday note from Goldman Sachs.
CME, LBMA say gold stocks healthy in New York and London
Eileen Soreng – Reuters
U.S. exchange operator CME Group Inc (CME.O) and London Bullion Market Association (LBMA) said on Wednesday that gold stocks remain healthy and depositories are operating normally, as the markets work toward easing market volatility.
Oil Tanks at Vital Africa Hub Almost Full as Crude Floods Market
Paul Burkhardt and Serene Cheong – Bloomberg
Oil tanks at one of the world’s largest storage hubs on Africa’s southern tip are already almost full, limiting traders’ options as a historic flood of crude hits the market. The 45 million-barrel Saldanha Bay crude oil storage terminal, the largest in the southern hemisphere, has been a vital outlet for surplus crude in past slumps, such as the great recession of 2008 to 2009. This time around, as the combination of the coronavirus pandemic and Saudi Arabia’s price war with Russia creates a record-breaking oversupply, its role may be more short-lived.
This Hedge Fund Saw Risks of Coronavirus Early. Now It’s Up 36%
Juliet Chung – WSJ
Chris Hansen saw it coming. Mr. Hansen, who runs San Francisco hedge fund Valiant Capital Management, had an early conviction the novel coronavirus would wreak havoc on the global economy. Mr. Hansen and his team homed in early on the risks the virus posed and placed wagers accordingly, said people familiar with the firm. In late January, Valiant boosted its bet against stock indexes as it became more concerned about the virus.
When Volatility Surges, SEC’s Trade-Monitoring System Has Struggled
Cezary Podkul – WSJ
The stock market is gyrating wildly but the Securities and Exchange Commission may not have a complete picture of what’s going on. A decade ago, a “flash crash” in the stock market shocked investors and drove the SEC to try to improve its ability to monitor unexpected swings in trading. That effort has produced some disappointing results. Regulators spent millions of dollars on an interim database that has failed to provide accurate and timely data during some periods of turmoil, according to SEC documents obtained under a public-records request. A larger, more-detailed database that was originally supposed to be completed in November 2019 has been delayed until 2022.
Markets Enter The Eye of the Coronavirus Storm
Phil Mackintosh – Trader’s Magazine
The past month has been pretty extraordinary. But there are signs that the market is starting to act more rationally and waiting on new data to see whether valuations are oversold, or need to be ratcheted down some more. That’s evident from the fact that the market has not sold off much on days with decidedly bad economic data, like the record 3.3 million weekly unemployment claims March 26, the 6.65 million April 2, and the significant drops in Purchasing Managers’ Indexes (PMIs) now being published. That shows the market has already priced in a lot of bad news. Even a poor upcoming earnings season is now “expected,” although forward-looking comments will be important to some companies and industries.
Exchanges and Clearing
Cboe Global Markets Lists for Trading the First Semi-Transparent ETFs in the U.S.
The new actively managed, semi-transparent ETFs from American Century Investments utilize Precidian Investments’ ActiveShares structure
ETFs now primarily listed on Cboe BZX Exchange
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, today announced it has listed for trading the first actively managed, semi-transparent exchange-traded funds (ETFs) in the U.S. – the American Century Focused Dynamic Growth ETF and American Century Focused Large Cap Value ETF – on the Cboe BZX Exchange.
CME Group Reports All-Time High ADV for March and First-Quarter 2020
PRNewswire (press release)
CME Group, the world’s leading and most diverse derivatives marketplace, today reported its March and first-quarter 2020 market statistics, showing it reached a record average daily volume (ADV) of 32.1 million contracts during the month of March, up 68% from March 2019. First-quarter 2020 ADV reached a record 27 million contracts, an increase of 45% from first-quarter 2019. Open interest at the end of March was 123 million contracts. Market statistics are available online in greater detail at https://cmegroupinc.gcs-web.com/monthly-volume.
Miami International Holdings Reports March 2020 Trading Results, New Records for MIAX Exchange Group and MIAX Emerald Including 16% Increase in the MIAX Exchange Group’s Market Share
Miami International Holdings, Inc.
Miami International Holdings, Inc. (MIH) today reported March 2020 trading results for its three fully electronic options exchanges – MIAX, MIAX PEARL and MIAX Emerald (together, the MIAX Exchange Group). With industry volume up over 60% compared to March 2019, the MIAX Exchange Group collectively executed over 68 million equity option contracts in March 2020 for a combined average daily volume (ADV) of 3,097,343 contracts. The contracts executed by the MIAX Exchange Group represent a total U.S. equity options market share of 11.53%, a new record for the MIAX Exchange Group and an over 16% increase from the 9.89% market share achieved in March 2019.
Regulation & Enforcement
When Volatility Surges, SEC’s Trade-Monitoring System Has Struggled
Cezary Podkul – WSJ
The stock market is gyrating wildly but the Securities and Exchange Commission may not have a complete picture of what’s going on.
A decade ago, a “flash crash” in the stock market shocked investors and drove the SEC to try to improve its ability to monitor unexpected swings in trading.
Special Executive Report
SUBJECT: Amendments to the Option Exercise and Assignment Rule for Thirteen (13) Foreign Exchange (“FX”) Dollar-Based Option Contracts
Effective Sunday, April 19, 2020 for trade date Monday, April 20, 2020, Chicago Mercantile Exchange Inc. (“CME” or “Exchange”) will implement amendments to the option exercise and assignment rule (the “Rule Amendments”) of thirteen (13) Foreign Exchange (“FX”) dollar-based option contracts (the “Contracts”) as noted in Table 1 below.
Special Executive Report
SUBJECT: Establishment of Alternative Quoting Requirements for April 2020 in Certain CME, CBOT, NYMEX, and COMEX Market Maker Programs
As a direct result of the COVID-19 virus’ impact on volatility in the marketplace and many regions issuing stay-at-home orders which have adversely affected trading activity, Chicago Mercantile Exchange Inc. (“CME”), The Board of Trade of the City of Chicago, Inc. (“CBOT”), New York Mercantile Exchange, Inc. (“NYMEX”), and Commodity Exchange, Inc. (“COMEX”) (collectively, “the Exchanges”) are establishing alternative quoting requirements in certain market maker programs offered by the Exchanges for the month of April 2020, pending CFTC regulatory review.
CME Globex Notices: March 30, 2020
Sharp Move Up or Down
***** MR: From an email sent by the OIC: “During this period of social distancing, we encourage you to take advantage of our online educational resources and contact us with your questions about options investing. Recently, we have heard from many investors wanting to know how they can use options to manage the risk of volatile markets. Here are links to strategies designed to do that: Hedging & Risk Mitigation and Volatility.”
Investing advice, coronavirus volatility tips from Charles Schwab CIO
Marley Jay – Business Insider (SUBSCRIPTION)
A lot of veteran traders and experts say the market’s recent skid is unlike anything they’ve ever seen. But Omar Aguilar is focusing on how familiar it is.
Not only is Aguilar the chief investment officer for equities at Charles Schwab Investment Management — which manages $485 billion in assets — he’s also an expert in behavioral finance. And when he looks at how investors have been acting lately, the market volatility seen in March suddenly doesn’t feel so new.
Foreign central banks sold off more than $100 billion in US Treasuries as cash demand surged
Ben Winck – Markets Insider
Central banks around the world dumped US Treasuries through March as the coronavirus’ economic toll stifled liquidity and drove massive demand for dollars, Bloomberg first reported Wednesday.
Foreign monetary institutions sold off more than $100 billion in Treasury notes in the three weeks ended March 25, according to Federal Reserve data. The period ended days before the Fed opened a new repurchase agreement, or repo, facility aimed at giving foreign central banks an alternative method for offloading Treasuries.
US weekly jobless claims double to 6.6 million
Jeff Cox – CNBC
The torrent of Americans filing for unemployment insurance skyrocketed last week as more than 6.6 million new claims were filed, the Labor Department reported Thursday. That brings to 10 million the total Americans who filed over the past two weeks.