‘Quadruple witching’ may spell some relief to stressed stocks
Saikat Chatterjee and Thyagaraju Adinarayan – Reuters
In calm markets “quadruple witching” usually passes unnoticed, but some market players are hoping this Friday’s concurrent quarterly expiration of U.S. options and futures contracts could shake some sense back into stocks. The expiration of stock options, stock index futures and index option contracts on the same day on the third Friday of the last month each quarter usually heralds hectic trading and volatility as investors unwind old positions and take new ones.
Volatility in financial markets at record highs: S&P Global
Shreyashi Sanyal – Reuters
Volatility in financial markets across geographies and asset classes is at record highs as the relentless spread of the coronavirus outbreak threatens to derail global economic growth, analysts at U.S. stock market index operator S&P Global said.
Virus Revives Beaten-Down CFD Firms as Britons Bet on Markets
Donal Griffin – Bloomberg
For a group of firms selling risky derivatives to retail investors in Britain and beyond, the coronavirus has meant good business.
CMC Markets Plc reported client-trading activity in March was more than double that of “more normalized market conditions,” and expects full-year profit to beat expectations, according to a statement Friday. Rivals IG Group Holdings Plc and Plus500 Ltd. have both reported similar surges in revenue this week.
Quadruple Witching: Chaotic Market Braces for More Volatility
$1.5 trillion of options and futures on indexes and equities are scheduled to expire Friday, adding an extra layer of uncertainty to already volatile markets. Bloomberg’s Dani Burger reports on “Bloomberg Surveillance.”
Quant hedge funds are getting slammed thanks to coronavirus volatility
Bradley Saacks – Business Insider
For long-running quant funds, their financial crisis happened in 2007, not 2008.
The “Quant Quake” decimated prestigious computer-investing units like Goldman Sachs’ Quantitative Investment Strategies, and, according to the FT’s 10-year anniversary piece on the event, “scarred a generation of financial scientists on Wall Street.”
The last seven days, quant investors and industry observers say, have been worse — or, at least, have felt worse.
Investors are pulling an unprecedented amount of money from the market as coronavirus rages. Here are 7 records they’ve set this week alone.
Ben Winck – Markets Insider
In what Bank of America is already calling “The Crash of 2020,” investors ran for exits the most on record as coronavirus risks slammed a wide range of assets.
A month of intense volatility and pronounced sell-offs wiped out as much as $24 trillion in global stock market cap from equities’ peak to their last lowest level, Bank of America analysts detailed in a Thursday note. Risk assets and expensive bonds were exchanged for cash as banks called for near-term economic recession and coronavirus cases continued to spike across the US.
Costs for short-selling U.S. ETFs surge in coronavirus-ravaged market: S3
April Joyner – Reuters
The price of short-selling U.S. exchange-traded funds has jumped dramatically since the beginning of March as investors seek to stem heavy losses in the wake of the coronavirus epidemic, according to data from S3 Partners.
The average cost to borrow ETF shares for shorting rose to 105 basis points on Mar. 18 from 75 basis points on Mar. 1, a 40% increase, the market analytics firm said. The jump amounts to an extra $1.2 million a day in borrowing costs for ETF short-sellers as a group, or $443 million on an annual basis.
How is the derivatives industry responding to COVID-19?
Staff of Marketvoice
Since the beginning of 2020, global derivatives markets have absorbed increasingly large waves of trading volume and volatility as market participants have struggled to assess the potential impact of the coronavirus (COVID-19) on economic activity. While the industry has succeeded in managing these massive flows, the pandemic has put a severe strain on its capacity to process trades and has forced many market participants to make difficult adjustments to new working conditions. The full impact of the pandemic on global trading of futures and options is not yet known, but several important trends have already emerged.
Swaps benchmark vanishes as traders flee firm price venues
Helen Bartholomew – Risk.net
A rate underpinning trillions of dollars’ worth of swaptions and structured products has failed to publish for more than two weeks as the firm swap prices required to produce the benchmark were pulled from electronic order books amid wild market swings. The Ice swap rate, a daily measure of term Ibor-referencing swap rates from one to 30 years, has not yet published across any of the 13 dollar maturities during March.
China approves near simultaneous debut of Dalian LPG futures, options
China has approved the launch of liquefied petroleum gas (LPG) futures and options on the Dalian Commodity Exchange, the first time the derivatives will debut nearly simultaneously on a Chinese commodities exchange. The China Securities Regulatory Commission announced the approvals on Thursday and said the LPG futures contract will be launched on March 30, with trading in LPG options to begin the following day.
Exchanges and Clearing
Cboe Global Markets Launches Business Continuity Webpage for COVID-19 Updates
Cboe (press release)
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, today launched a webpage detailing its Business Continuity Plans amid the developing novel coronavirus (COVID-19) situation. Cboe’s top priority remains the well-being and safety of its associates, customers and broader community. The company continues to closely monitor the developments concerning COVID-19 and the guidance provided by governmental agencies, Centers for Disease Control and Prevention (CDC) and the World Health Organization (WHO).
CME Globex Updates
Postponed – Mandatory iLink 3 Binary Order Entry Protocol for MSGW
To allow additional time for clients adjusting to the impacts of COVID-19, the launch of iLink 3, the new order entry protocol for trading futures, options, and BrokerTec products on CME Globex, has been postponed to Sunday, May 17.
Regulation & Enforcement
Options Regulatory Alert #2020 – 5 PHLX, NOM, BX, ISE, GEMX and MRX – Quarterly Quote Spread Parameter Relief through June 19, 2020
Effective March 23, 2020, the market maker quarterly quote width requirements on Nasdaq PHLX (PHLX), The Nasdaq Options Market (NOM), Nasdaq BX (BX Options), Nasdaq ISE (ISE), Nasdaq GEMX (GEMX) and Nasdaq MRX (MRX) will be effective through June 19, 2020. The exchanges may, in their discretion, amend these requirements by providing notice to members.
Options Regulatory Alert #2020 – 6 PHLX, NOM, BX, ISE, GEMX and MRX – Bid/Ask Differentials for “MKL”, “NDX” and “BKNG” Options Classes through June 19, 2020
Effective March 23, 2020, the below market maker quote width requirements for options overlying MKL, NDX and BKNG on Nasdaq PHLX (PHLX), The Nasdaq Options Market (NOM), Nasdaq BX (BX Options), Nasdaq ISE (ISE), Nasdaq GEMX (GEMX) and Nasdaq MRX (MRX) will be effective through June 19, 2020. The exchanges may, in their discretion, amend the bid/ask differentials by providing notice to members.
Options Regulatory Alert #2020 – 7 Nasdaq Options Exchanges Market Wide Circuit Breaker Halt Methodology
Nasdaq Phlx, Nasdaq BX Options, The Nasdaq Options Market, Nasdaq ISE, Nasdaq GEMX and Nasdaq MRX will determine obvious error submissions, in the event of a Market Wide Circuit Breaker Halt, based on the time each individual Nasdaq options market’s System completed the processing of the Market Wide Circuit Break halt as the official halt time. The Nasdaq options markets are not amending their processes with respect to obvious error reviews.
Wall Street’s muted finish conceals continued volatility
The S&P 500 has taken 14 sessions to notch up a daily move at the closing bell of less than 1 per cent in what might seem like a relative relief after days including the biggest plunge since 1987’s Black Monday and the largest one-day gain since 2008.
Analysts point finger at ‘risk parity’ strategy in market rout
Robin Wigglesworth – Financial Times
When financial markets were rattled across the board last week, some investors and analysts thought they knew where to point the finger. “The risk parity kraken has finally been unleashed,” one tweeted.
Risk parity is a strategy pioneered by Bridgewater’s Ray Dalio. His pioneering fund, All Weather, has been hit hard in the recent turmoil, sliding 12 per cent this year. That is quite a fall, for a strategy designed to function well in almost any market environment, by seeking to find a perfect balance of different asset classes such as stocks and bonds.
Hedge Funds and Exchanges Warn of Devastation If Markets Close
Benjamin Bain – Bloomberg
Hedge funds, stock exchanges, banks and even brick-and-mortar businesses have a unified message for Washington policy makers: Shutting markets because of coronavirus-fueled volatility would wreak havoc on the U.S. economy.
“The markets continue to serve the needs of participants to raise capital, manage investments, access cash and manage risk,” more than a dozen corporate trade groups and companies wrote in a Thursday letter to Treasury Secretary Steven Mnuchin, Federal Reserve Chairman Jerome Powell and financial regulators. “Closing the markets would have a devastating impact on the U.S. economy.”
Income tax filing deadline moved to July 15 from April 15
Martin Crutsinger – AP News
The income tax filing date has been pushed back from April 15, to July 15, Treasury Secretary Steven Mnuchin said.
Mnuchin announced the decision in a tweet Friday saying that at President Donald Trump’s direction “we are moving Tax Day from April 15 to July 15. All taxpayers and businesses will have this additional time to file and make payments without interest or penalties.”
FIA joins trade associations and businesses to urge Trump Administration and Federal officials to keep markets open
FIA today joined Managed Funds Association, U.S. Chamber of Commerce, Securities Industry and Financial Markets Association, American Bankers Association, American Cotton Shippers Association, Bank Policy Institute, Cboe Global Markets, Inc., CME Group, Commodity Markets Council, Financial Services Forum, Institute of International Finance, International Swaps and Derivatives Association, Investment Company Institute, Nasdaq, Alternative Investment Management Association and World Federation of Exchanges in a letter to Treasury Secretary Steven Mnuchin, Federal Reserve Chairman Jerome Powell, CFTC Chair Heath Tarbert and SEC Chair Jay Clayton urging that they work to keep the financial markets open during the Coronavirus (COVID-19) outbreak.