Observations & Insight
ISDA 35th AGM: Are Derivatives a Green Solution?
Suzanne Cosgrove – John Lothian News
“None of this is easy; we are making this up as we go along.”
Unraveling how to effectively mitigate the economic and market risks associated with climate change was the focus of an ISDA meeting session on Tuesday, but while the panel of international regulators and banking officials outlined their considerable and ongoing efforts, a clear path to a uniform solution remained elusive.
“We in derivatives understand complexity,” said panel moderator Steven Kennedy, ISDA’s global head of public policy. Even so, he said, understanding the breadth and scope of ESG and climate change is truly a challenge.
Sarah Breeden, executive director, Bank of England, said her mission was “green finance and finance green” to support the orderly transition of the economy to net zero.
To read the rest of this story, go here.
5 Questions with Michael Andreadis of Athens Stock Exchange
Elise Fleischaker – Trading Technologies’ Trade Talk Blog
One of TT’s key differentiators is the ease with which we can connect new markets to the platform. In fact, we have added more than 10 exchanges to TT over the last 18 months. The most recent addition to our expanding portfolio of market connectivity offerings is the Athens Stock Exchange, or ATHEX, which is the national exchange of Greece. On the heels of announcing the availability of ATHEX Derivatives Market on TT, we invited Michael Andreadis, Chief Markets Operation and Business Development Officer of ATHEX, to tell us more about the exchange and share his perspectives on some of the issues facing that region. We hope you enjoy this conversation with Michael. For more information, please visit the ATHEX website.
***** JJL: I am sure Elise Fleischaker would have preferred to travel to Greece for this interview. So would I.
The Options Market May Be Fueling the Turbulence in Tech Shares
Yakob Peterseil and Katherine Greifeld – Bloomberg
Inflation, valuations, rising rates — all are being suggested as causes for this week’s tech implosion, but a less-publicized catalyst may be the market for stock options.
This alternate theory has it that Wall Street derivatives dealers are exacerbating market swings through hedging their books to offset brisk demand for protection against a selloff, through what’s known as gamma hedging. That’s when options market makers buy or sell an underlying stock to manage their risk as the price of the shares moves.
Options Traders Pile Into Leveraged Bet Against Chip Stocks
Lu Wang – Bloomberg
As chipmakers head for their worst month since the pandemic outbreak, options traders are betting the selloff has further to go.
The bearishness was evident in the Direxion Daily Semiconductors Bear 3x Shares (SOXS), an exchange-traded fund that pays three times the inverse return of the Philadelphia Semiconductor Index. As the benchmark tumbled as much as 3.2% Tuesday, call options on the ETF, which amount to wagers against chip stocks, saw volume exploding to a record 164,000 contracts.
Taiwan Stock Crash Shows World Dangers of Too Much Leverage
Sofia Horta e Costa and Cindy Wang – Bloomberg
Few things evoke fear in equity markets like a margin call. On Wednesday that fear turned into panic in Taiwan, offering another warning for the world on what can happen when leverage unwinds.
The trading day started out quiet in Taipei’s $2 trillion stock bourse. But before the morning was over, the local benchmark index had plummeted almost 9% in the worst one-day performance in its 54-year history.
Stocks Fall as Dow Posts Worst Day Since February
Caitlin McCabe, Will Horner and Xie Yu – WSJ
Investors around the world retreated from stocks Tuesday, with a selloff in technology companies spreading to other sectors as concerns about inflation dragged U.S. indexes down for a second consecutive day.
The Dow Jones Industrial Average tumbled nearly 475 points as investors pulled back bets on many of the financials, industrials and energy stocks that have outpaced the broader market this year. The fall marked the blue-chip index’s steepest one-day decline since late February when worries about a sharp rise in bond yields blunted momentum in the stock market.
The number of bitcoin whales fell to a more than 5-month low on Monday in a bearish sign for the cryptocurrency
Will Daniel – Markets Insider
The number of bitcoin whales fell to a five and a half month low on Monday in a bearish sign for the cryptocurrency, according to data from Glassnode.
Specifically, the number of bitcoin whales – defined as wallet addresses from a single network participant with more than 1,000 bitcoin – fell to 1,943 on Monday.
That’s a 13% drop in the number of bitcoin whales since the record figure of 2,237 on February 7.
Bitcoin has lost more than 60 whales or 3% of the total in the past five days alone.
Beware heightened risks of ‘fragility shocks’ in a market too dependent on the Fed, BofA warns
Christine Idzelis – MarketWatch
Fragility risks in the market are at the highest ever, as investors keep looking to the Federal Reserve to extend a massive stock-market rally that repeatedly has risen to fresh records this year, according to analysts at Bank of America Corp.
“Markets remain overly dependent on the Fed and are inherently fragile,” the bank’s equity-linked analysts said in a BofA Global Research note Tuesday. Two of the four biggest “fragility shocks” since 1928 were seen in the S&P 500 index in just the last three and a half years, they said in the equity derivatives report.
FX Futures and Options Innovation in Focus
Paul Houston, Global Head of FX Products, CME Group, recently caught up with Traders Magazine to discuss the drivers causing change in the FX derivatives market, what CME Group has been doing to alleviate the pain points from these changes, and the exchange’s future plans.
People Are Talking About Options Roiling Tech Stocks Again
Tracy Alloway – Bloomberg
One theory behind the recent selloff in tech stocks is that with inflationary pressures building, the cycle that propelled tech and other growth companies to higher valuations than pretty much anything else will now come to an end. The thinking here is that higher interest rates will make such stocks look less appealing, destroying lofty P/E ratios and generally boosting value stocks instead.
Could a Spiking VIX Mean Stocks and Index ETFs Move Higher?
Ian Young – ETF Trends
With stocks and index ETFs losing more than 3% over the last couple of days, volatility, as measured by the VIX, has been spiking. After a period of enduring complacency, the CBOE Volatility Index, a measure of fear in the markets based on option prices on the S&P 500, surged as high as 23.73 this week, to levels not seen since March. A rising VIX is often accompanied by falling markets, and a score above 20 can indicate a protracted period of declines. Yet, with the VIX moving toward its highest in two months, some analysts are now suggesting that the index is actually sending a bullish signal for a relentless stock rally that has continued to run despite lofty valuations.
Exchanges and Clearing
CME Group Announces Record Copper Options Volume on May 10
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that a record 25,010 Copper options contracts were traded on May 10, 2021, surpassing the previous record of 16,029 contracts set on November 7, 2019. “As economies reopen and boost their investments in infrastructure and sustainable energy initiatives, we are increasingly seeing our customers utilize the transparency and liquidity of our Copper options markets to manage their price risk,” said Young-Jin Chang, Managing Director and Global Head of Metals at CME Group. “CME Group is home to the world’s leading commodities marketplace, and we remain focused on providing our customers with the benchmark metals products they need to manage today’s fast-evolving metals markets.”
Broadridge Completes Acquisition of Itiviti, Extending Capital Markets Franchise
Broadridge Financial Solutions, Inc. (NYSE:BR), a global Fintech leader, has completed its previously announced acquisition of Itiviti Holding AB (“Itiviti”), a leading provider of trading and connectivity technology to the capital markets industry. The acquisition enhances Broadridge’s position as a global Fintech leader and significantly strengthens Broadridge’s Capital Markets franchise. It extends Broadridge’s market leading back office capabilities into the front office and deepens its multi-asset class solutions, better enabling the company to help financial institutions adapt to a rapidly evolving marketplace. The addition of Itiviti’s footprint in APAC and EMEA also increases Broadridge’s scale outside of North America to better serve global clients.
Virtu Hits RFQ-hub Record in Single Stock Options
Traders Magazine (press release)
Virtu Financial, a leading, global provider of multi-asset liquidity, execution services, workflow technology and trade analytics reporting and data, today reported that in 1Q 2021, RFQ-hub surpassed its previous quarter record in single stock options by 37%. The bilateral multi-asset and multi-dealer request for quote platform delivered a notional trading volume of EUR24.6B (US$29.7B) for the quarter. Attracted by RFQ-hub’s transparency, competitive liquidity, operational efficiency, audit trail and embedded analytics, asset managers are increasingly relying on RFQ-hub to negotiate derivatives transactions.
These ‘panic events’ could soon spell relief for stock markets, says top strategist Thomas Lee
Barbara Kollmeyer – MarketWatch
Hold on tight for another bumpy ride on Wednesday. A big reading on U.S. consumer price inflation has topped analysts forecasts, and stocks are selling off.
Tech is once again getting hit the hardest as investors ponder the possibility of higher rates. The dip buyers pulled the Nasdaq Composite back from the brink on Tuesday, while the Dow Jones Industrial Average DJIA, -1.22% had its biggest one-day drop since the February rout.
But could the worst soon be over?
2 rare signs of market fear have aligned to create an extremely bullish situation for stocks, Fundstrat’s Tom Lee says
Emily Graffeo – Markets Insider
The recent movements of two market fear signals are setting the stock market up for massive gains, Fundstrat’s Tom Lee said.
In a Wednesday morning note the head of research detailed two four-standard deviations events that took place on Tuesday that could be bullish signs for stocks.
The first was that the Cboe Volatility Index – or VIX, also known as the stock market’s fear index – spiked 40% in just two days on Monday and Tuesday. According to Lee, this has happened only 20 times since 1990.
FX Volatility Won’t Play Out: Barclays’ Macleod
Kristen Macleod, Barclays Co-Head of FX Sales, says volatility in currency markets isn’t expected to play out as the U.S. exceptionalism narrative fades and the rest of world catches up. She spoke to Bloomberg’s Alix Steel and Guy Johnson on “Bloomberg Markets.”
(Podcast) OIR Interviews: Talking Volatility, Volume, And Risk With Dash
Options Insider Radio Interviews
Guest: DAVID CROSS, Managing Director- Head of Sales & Business Development at Dash Financial Technologies
Mark and David discuss: the opportunities and challenges posed by pandemic volatility, how the meme stock explosion has changed the way we monitor and manage risk; can the options volume party continue throughout 2021? Should we make it more difficult for retail customers to trade options? What does dash have planned for the crypto markets? And much more…
Asset Management Derivatives Forum 2021; Co-hosted with SIFMA AMG
8 June 2021 – 9 June 2021 • 10:15 AM – 1:30 PM ET Daily • VIRTUAL
FIA and SIFMA AMG are bringing you a virtual take on the Asset Management Derivatives Forum in 2021. Join us for virtual programming on June 8 and 9, during which market participants from all sides of a trade and leading regulators will examine the latest developments impacting the use of derivatives by asset managers, including business, clearing, regulatory and operations issues.
With keynote speakers and panels, this virtual Forum presents a unique opportunity to gain insights into how investors, sell-side firms and market structure operators view the landscape for derivatives activity by the asset management community, attracting attendees from the joint membership of FIA and SIFMA Asset Management Group.
Anti-money laundering considerations for security and commodity derivatives
Part of the L&C webinar series
May 13, 2021 • 10:00 a.m. – 11:00 a.m. ET
In 2018, the CFTC Division of Enforcement established a Bank Secrecy Act task force dedicated to investigating and enforcing AML regulations. In October 2019, the CFTC, the SEC and FINCEN issued a joint statement highlighting the importance of AML compliance in matters involving securities, commodities, derivatives and digital assets. Since then the CFTC, SEC, FINCEN and DOJ have initiated numerous investigations of alleged AML deficiencies, and pursued civil and criminal actions enforcing AML compliance. In this webinar, we will discuss recent AML enforcement investigations and actions, cooperation among the various U.S. and foreign agencies, best practices and compliance considerations for security- and commodity-based instruments and digital assets, and risk mitigation measures.
Clearing 101: Exchanges, Clearinghouses and CCPs
Dates: Sep. 15, 2021 12:00 p.m. – Sep. 16, 2021 1:30 p.m. ET.
Location Virtual Live. Two 90-sessions over 2 days.
Instructor: Marti Tirinnanzi
Registration is limited to approximately 20 participants to promote student participation and interaction.
Join us for a short program (90 minutes each day for 2 days) that explains the multilateral systems that provide the infrastructure for transferring, clearing and settling payments, derivatives and other financial transactions among financial institutions and end users. Following Dodd Frank, clearinghouses became designated as Systemically Important Financial Market Utilities, vital to the operations of the financial markets and subject to heightened regulatory scrutiny. Buyers and sellers in exchange transactions rely on clearinghouses to intermediate transactions and to manage credit risks between trading parties. As such, clearinghouses promote transparency, efficiency, and stability by providing market-based pricing, daily settlement, and ensuring adequate capitalization for markets to function.
Here’s Why Taiwan’s Stock Market Went Into Free Fall on Wednesday
Barbara Kollmeyer – Barron’s
There are bad market days, then there’s the 8%-plus free fall that gripped Taiwan stocks earlier on Wednesday.
A double whammy of COVID-19 worries and a selloff for semiconductor stocks engulfed the TAIEX index, which managed to recoup half those losses and close down 4.1%.