Observations & Insight
The Spread: This Is How It’s Done
This week on The Spread: record high $1 billion worth of bitcoin options expire, the OCC publishes best practices and a plan for the future, and more.
The volatility wake-up call for investors
Mohamed El-Erian – Financial Times
The volatility of the past two weeks in financial markets should serve as a timely wake-up call to return-hungry investors who had driven stock valuations to record levels, comforted by ample and predictable central bank liquidity injections.
Not only are the liquidity injections proving less potent in reliably overcoming a weakening economic recovery and less responsive fiscal policy support, but there are no easy ways to protect portfolios against major sell-offs. That is due to the deeply distorted nature of today’s markets. Government bonds and gold, the principal tools used for portfolio risk mitigation, have offered little protection recently to investors looking for diversification.
Investors Ramp Up Bets on Market Turmoil Around Election
Amrith Ramkumar and Julia-Ambra Verlaine – WSJ
Investors are betting on one of the most volatile U.S. election seasons on record, wagering on unusually large swings in everything from stocks to currencies as they brace for what could be a weekslong haul of unpredictable events.
The bets go beyond the Wall Street hedging that typically precedes an election. Traders are scooping up a variety of investments that would pay out if volatility extends far beyond Election Day itself, concerned that the outcome of the presidential contest could remain unclear into December.
Emerging Markets on Edge as Goldman and Deutsche Bank Flag Risks
Netty Idayu Ismail, Karl Lester M Yap, and Sydney Maki – Bloomberg
Emerging markets are heading toward the end of the third quarter with more reasons to be cautious than optimistic.
Developing-nation stocks, currencies and bonds had their worst week in the five days through Friday since the coronavirus pandemic rocked global markets in March. The gap between implied volatility in emerging-market currencies and their Group-of-Seven peers is at the widest since June amid concerns over renewed lockdown measures and delays to further U.S. fiscal stimulus.
Sterling traders not panicked yet by new Brexit brinkmanship
Britain may be heading for a no-deal Brexit in three months, but among traders in London the feeling so far is one of deja vu rather than a panicky rush to dump UK assets.
After Britain threatened to ditch parts of its European Union divorce deal this month, markets are pricing in a 40%-45% chance of exiting the EU trading bloc without any alternative arrangements at the end of 2020. Some banks see it higher.
Nominee to Financial Regulator CFTC Traded Stocks, Options While in Government
Paul Kiernan – WSJ
President Trump’s nominee to the agency that regulates the vast derivatives market is no stranger to risky bets.
Robert Bowes, a political appointee in the Department of Housing and Urban Development, has reported 140 trades of stocks and options that collectively amount to between $671,000 and $3.2 million since joining the government in early 2017. Three bets on options or individual stocks were larger than $50,000 each.
Wall Street Week Ahead: Trump-Biden debate could spark stock volatility
Noel Randewich – Reuters
Some U.S. stocks could face more volatility next week as President Donald Trump and rival Joe Biden face off in their first debate ahead of a November election that betting services currently view as almost a coin flip. A strong performance in Tuesday’s debate by Biden, who currently has a modest lead in betting odds and polls, might boost stocks related to global trade and renewable energy, while a perceived debate victory by Trump could benefit fossil fuel and defense companies. The first of three scheduled debates comes at a fraught moment on Wall Street.
Exchanges and Clearing
CME Group Inc. Announces Third-Quarter 2020 Earnings Release, Conference Call
PR Newswire (press release)
CME Group Inc. will announce earnings for the third quarter of 2020 before the markets open on Wednesday, October 28, 2020. Written highlights for the quarter will be posted on the company’s website at 6:00 a.m. Central Time, the same time it provides its earnings press release. The company will hold an investor conference call that day at 7:30 a.m. Central Time, at which time company executives will take analysts’ questions. A live audio Webcast of the conference call will be available on the Investor Relations section of the company’s website, www.cmegroup.com. Following the conference call, an archived recording will be available at the same site.
MIAX PEARL Equities Begins Trading In NMS Test Symbols, Live Symbols Will Commence Trading On September 29, 2020
Miami International Holdings, Inc. (MIH), the parent holding company of the MIAX, MIAX PEARL and MIAX Emerald exchanges, today announced that it has begun trading in all NMS test symbols on MIAX PEARL Equities, MIH’s first equities exchange. MIAX PEARL Equities will begin live trading Tuesday, September 29, 2020 with its first symbol NTGR (NETGEAR Inc.) and will rollout additional symbols beginning October 2, 2020. With its launch, the MIAX Pearl Equities Exchange joins current options exchanges MIAX Options, MIAX PEARL and MIAX Emerald as part of the MIAX Exchange Group.
Miami International Holdings Completes Investment in Diamond Standard; Parties to Develop Diamond-Based Derivatives Products
Miami International Holdings, Inc. (MIH), the parent holding company of the MIAX, MIAX PEARL and MIAX Emerald exchanges (the MIAX Exchange Group), and Diamond Standard Co. (Diamond Standard), creator of the first fungible diamond commodity, today announced that MIH has completed an equity investment in Diamond Standard. As part of this investment, MIH and Diamond Standard have partnered to collaborate in multiple areas, including the development and listing of diamondbased futures and options based on Diamond Standard products. All futures and options products remain subject to regulatory approval.
Effective September 28, 2020 through October 2, 2020, MIAX Options and MIAX Emerald 2X Opening and Intraday Valid and Priority Quote Spread Relief in All Symbols
Issue Symbol: All Symbols
Reason: In maintenance of a fair and orderly market.
Time: Opening and Intraday
Subject Summary: Please be advised, effective September 28, 2020 through October 2, 2020, the MIAX Regulation Department has granted 2 times opening and intraday quote parameter relief for all symbols on MIAX Options and MIAX Emerald.
MIAX Exchange Group – Options Markets – Delisting of CNX Midstream Partners LP (CNXM)
CNX Midstream Partners LP (CNXM) will be de-listed from the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange effective on Tuesday, September 29, 2020. All GTC orders resting on the MIAX order books in CNXM will be canceled at the close of business on Monday, September 28, 2020. Additional details about the CNX Midstream Partners LP (CNXM) merger are provided in the attached OCC Memo.
ICE Clear Europe receives Recognition as a Third Country Central Counterparty under EMIR
ICE Press Release
Intercontinental Exchange, Inc. (NYSE: ICE), a leading operator of global exchanges and clearing houses and provider of mortgage technology, data and listings services, announces that ICE Clear Europe, ICE’s London-based clearing house, has been recognized by the European Securities and Markets Authority (ESMA), the European Union (EU) securities markets regulator, as a third country central counterparty in accordance with the European Markets Infrastructure Regulation (EMIR). This recognition will take effect once the transition arrangement between the United Kingdom and EU ends.
Regulation & Enforcement
Britain and EU finalise temporary derivatives clearing accord
Huw Jones – Reuters
The Bank of England and the European Union’s securities watchdog said on Monday they have agreed on the information-sharing arrangements needed for the bloc’s banks to continue using clearing houses in London from January to June 2022.
The STA’s 2020 Market Structure Virtual Conference kicks off a busy fall conference season next week on October 7 and 8. Speakers include Rep. Bill Huizenga of Michigan, Dan Gallagher, chief legal officer at Robinhood, Ed Tilly, chairman and CEO of Cboe Global Markets, and others. More details are here. ~SC
Law & Compliance Division Conference
7 October 2020 – 9 October 2020 • 9:00 AM – 6:00 PM ET
Our virtual Law & Compliance Division conference (L&C-V) will provide a forum to learn and discuss the legal and regulatory issues impacting the derivatives industry. L&C-V meets the needs of multiple levels of practitioners in the industry, from the new law firm associate to the chief compliance officer. Register today & join us, virtually, 7-9 October to explore recent legal and regulatory precedents affecting the futures, options and centrally cleared derivatives markets.