The Spread: Ronin Runs Into Liquidity Issues

Matt Raebel

Matt Raebel



This week on The Spread, the OCC’s daily clearing volume for March exceeds its average for the past three months; Ronin Capital suffers from liquidity setbacks, major exchanges plead for flexibility, and more.

Produced by Mike Forrester.


Welcome back to The Spread, which is currently based out of my living room until further notice. I’m Matt Raebel. The COVID-19 pandemic has continued to pervade every aspect of life all over the United States – causing market liquidity to slow to a molasses-like trickle. I’ll tell you what isn’t moving at a trickle – the OCC’s cleared options volumes. The OCC cleared an average of more than 31 thousand options contracts per day for the month of March, which was about 3 thousand contracts more than the OCC’s daily average for the year so far. Hats off to them for keeping things moving. Speaking of which – when it comes to liquidity, the markets have been running dry. Ronin Capital, a direct clearing member of the CME, recently took a hit because of complications related to the virus. The CME announced Monday it was liquidating Ronin’s portfolios because the firm was unable to meet its capital requirements. That’s the danger in times like these – either the markets get liquid or you get liquidated. Ronin were samurai in feudal Japan who wandered because they were cut loose from the service of local leaders. Unlike its namesake and despite the liquidation, Ronin was still listed as a clearing member at the CME and CBOT as of Friday morning. JLN’s Thom Thompson wrote a great article about it for John Lothian News that you should definitely check out.Though options trading volume slowed somewhat, puts were traded left and right this week as investors scrambled to hedge – I haven’t seen anything like it since the last time I went to the grocery store. This activity has put a lot of market makers close to capping the regulated risk limits of banks that clear those trades. You may remember a *certain* JLN editor who published a story about a little thing called the SA-CCR a few months back. The SA-CCR is, among other things, an attempt to improve market liquidity by improving how banks calculate counterparty risk for trades. It’s not supposed to go into effect until late April, but Cboe, Nasdaq, and the NYSE apparently sent a letter to the Fed back on March 18 asking the Fed to let banks start using the SA-CCR this month. I haven’t read the full letter, but I’m imagining the words, “pretty please with sugar on top” were used. Thanks for joining me for this week’s edition of The Spread. Stay safe out there, and happy trading.


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