Observations & Insight
The Spread: Opportunity Knocks
This week on The Spread, MarketsWiki Education World of Opportunity goes virtual, the CFTC gets closer to finalizing new derivatives trading rules, and more.
Tom Chippas atTACks Bitcoin Volatility
ErisX CEO Tom Chippas is a member of the CFTC’s Technology Advisory Committee (“TAC”) and its cryptocurrency subcommittee. At the latest TAC meeting on July 16, which was conducted virtually, he gave a presentation about bitcoin and its volatility during this spring’s chaotic market action and how bitcoin fared versus other commonly traded equities and derivatives. John Lothian, also a member of the TAC, interviewed Chippas about his presentation and its findings. Here is the podcast interview.
Tesla’s market ride reflects larger forces at work
Eric Platt and Richard Henderson – Financial Times
Tesla bulls got exactly what they needed last week: blowout second-quarter figures from the electric car maker that helped justify a tripling in the company’s share price so far this year.
But the market reaction has once again left investors and analysts puzzled. Instead of powering yet higher after results that handily beat Wall Street estimates, Tesla shares suffered their first two-day run of declines in a month, shedding more than a tenth of their value.
Hedge Fund Managers Are Cutting Fees
Nishant Kumar, Demetrios Pogkas and Hema Parmar – Bloomberg
Hedge-fund fees had already been shrinking before the pandemic ripped through global markets. Now, they’re in terminal decline.
One of London’s fastest-growing hedge funds is enticing new investors by agreeing to forgo performance fees until returns hit a key threshold. In Hong Kong, a fund boss is offering to cover all losses, a concession that’s almost unheard of in this rarefied world. And famed investor Kyle Bass has told clients he’ll charge his usual 20% cut of profits only if he earns triple-digit returns in a new fund he has started.
Fed Meeting: Negative Real Yields Are All But Guaranteed
Brian Chappatta – Bloomberg
Federal Reserve Chair Jerome Powell has likely heard it all about negative U.S. real yields: How they’re devastating for pensions and life insurers, causing equity valuations to outpace the economic recovery, encouraging a stampede into gold and out of the dollar and giving the green light for American companies to gorge on cheap debt once again.
The message he and his colleagues are likely to convey at their meeting this week: That’s all fine with us.
Mexico moves to launch world’s largest oil hedge
Devika Krishna Kumar, Stefanie Eschenbacher – Reuters
Mexico has asked top Wall Street banks to submit quotes for its giant oil hedging program, sources familiar with the matter said on Friday, while trading in crude oil options has increased this week ahead of the megadeal. The finance ministry has asked banks for price quotes, one source with direct knowledge of the matter said, signaling the beginning of the process to execute the hedge. The ministry was not immediately available for comment.
You’d think a volatility index would be doing great now, right? Wrong.
Lynne Marek – Crain’s Chicago
The stock market was in wild flux this year in the wake of the coronavirus. So the company behind the volatility index known as the VIX fear gauge must be cashing in, right? Wrong. Cboe Global Markets, which invented the Cboe Volatility Index, witnessed an extraordinary second-quarter slump in the trading of its VIX-linked derivatives. That extended a two-year trend of “lackluster” trader interest in the VIX franchise, says a June 23 Goldman Sachs report.
The New Gold Rush: Investors Seek Out Known Unknowns
Jon Sindreu – WSJ
In a desert, oases can get a bit crowded. On Monday, the price of gold futures rose to a record. The precious metal is now up 27% in 2020, compared with a total return of less than 1% for the S&P 500. Gold produces no income but is a hedge against consumer-price rises, so a key driver of the rally has been the drop in the yields of inflation-protected Treasurys due to monetary stimulus and a recent rebound in inflation expectations. Also, the weakening of the dollar as Covid-19 cases rebound in the U.S. mechanically pushes up the prices of commodities invoiced in greenbacks.
Exchanges and Clearing
JPX completes commodity derivatives transfer and clearing organization integration
Japan Exchange Group, Inc. (JPX) today completed the scheduled transfer of futures and options on precious metals, rubber and agricultural products from Tokyo Commodity Exchange (TOCOM) to Osaka Exchange (OSE), and the integration of Japan Securities Clearing Corporation (JSCC) and Japan Commodity Clearing House (JCCH) . This concludes JPX’s transition to a Comprehensive Exchange.
Effective July 27, 2020 through July 31, 2020, MIAX Options and MIAX Emerald 2X Opening and Intraday Valid and Priority Quote Spread Relief in All Symbols
Issue Symbol: All Symbols Multiplier: 2X Reason: In maintenance of a fair and orderly market. Time: Opening and Intraday Subject Summary: Please be advised, effective July 27, 2020 through July 31, 2020, the MIAX Regulation Department has granted 2 times opening and intraday quote parameter relief for all symbols on MIAX Options and MIAX Emerald.
Regulation & Enforcement
A proposal to add the Consolidated Audit Trail industry member compliance rules to the list of minor rule violations in IM-9216 and in Options 11, Section 1.
A proposal to amend the Exchanges transaction fees at Equity 7, Section 118(a)
2020 US election: the impact on derivatives markets
MEMBERS ONLY virtual forum featuring political analyst Charlie Cook
29 July 2020 • 10:00 AM – 12:00 PM ET • Virtual Forum
FIA is proud to host an exclusive forum featuring Charlie Cook, editor and publisher of The Cook Political Report – an independent, non-partisan newsletter that analyzes American political trends. Cook will preview the 2020 US election season and how it may shape the political landscape in the coming years. Following his virtual presentation, FIA president and CEO Walt Lukken will host a panel of Washington insiders to discuss the practical implications of the election season on our markets. Each session will include a Q&A at the end.
Q2 2020 trends in futures and options trading
5 August 2020 • 10:00 AM – 11:00 AM ET • Webinar
Global futures and options trading grew by 32% to record-setting 21.9 billion contracts in the first half of 2020 compared to 2019, according to figures released by FIA. In the second quarter, the total number of traded contracts was 10.46 billion, down 8.4% from the record-breaking 11.41 billion contracts traded in Q1 2020, but up 21.8% from the second quarter of 2019. In fact, the second quarter volume was higher than any other quarter in the history of the industry aside from the first quarter of 2020.
Bitcoin surges to 10,000, could surpass $15,000, digital-currency experts say
Mark DeCambre – MarketWatch
Bitcoin prices were taking flight on Monday, pushing the digital currency to the highest level in about two months and ending the long dormancy of the world’s No. 1 virtual asset.
Bitcoin, the largest and most influential cryptocurrency, shot past the key $10,000 resistance marker—all eyes are now on the critical $10,500 level,” wrote Nigel Green, chief executive and founder of deVere Group, a financial firm, advising some $12 billion.