Traders pay up for protection against sharp falls in US stocks; Morgan Stanley Shakes Up Top Ranks of FX Unit at Center of Probe

Jan 31, 2020

Lead Stories

Traders pay up for protection against sharp falls in US stocks
Jennifer Ablan and Robin Wigglesworth – Financial Times
Traders have been scrambling to protect themselves from a collapse in US stocks, spooked by the coronavirus outbreak, the looming presidential race and the sheer strength of last year’s rally.
The US equity market climbed 29 per cent in 2019 and started this year strongly, but the spreading nervousness has sent the S&P 500 index down by about 2.5 per cent since the middle of the month.

Morgan Stanley Shakes Up Top Ranks of FX Unit at Center of Probe
Donal Griffin and Stefania Spezzati – Bloomberg
Morgan Stanley overhauled leadership at a troubled currency-trading unit that lost tens of millions of dollars on emerging-market deals last year and is the target of an internal probe.
Alex Silverman and Roland Jeurissen are being promoted to co-heads of the FX options unit at Morgan Stanley, according to people familiar with the matter. The business had been previously overseen by Thiago Melzer, a senior Morgan Stanley trader who has been linked to an internal review of trading practices at the division, Bloomberg has reported.

Deribit to Launch Daily BTC Options as Regulated Competition Heats Up
Paddy Baker – Coindesk
Deribit is launching daily options as the exchange faces increasing competition in the crypto options market. Deribit announced this week it would begin offering daily bitcoin index options Feb. 3. Scheduled every day at 08:00 UTC, users will be able to begin trading options at a strike price of $125. Contracts expire two days after being listed. The exchange will try to offer contracts that move within a 5 percent range around at-the-money (ATM) levels, Deribit’s post said. The news gives traders a much wider range of expiry dates, and the platform will now have contracts that expire every day.

5 Black Swans That Could Ruffle Financial Markets
Randall W. Forsyth – Barron’s
The coronavirus has sparked fear among global investors, who worry that this could be the dreaded black swan that trips up the financial markets.
It has also fanned concern among some Americans who suspect that the bug could be spread by the communal activity that will reach a high on Super Bowl Sunday.

Exchanges and Clearing

Cboe Announces Launch Date for Cboe Market Close
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, today announced it plans to launch Cboe Market Close (CMC) on the company’s BZX Exchange on Friday, March 6, 2020. Immediately on the effective date, or any trading day thereafter, market participants may begin to route Market-on-Close (MOC) orders to CMC, where they are pre-matched with other MOC orders at 3:35 p.m. ET. The trades are then executed when the official closing price is published, saving participants from paying closing auction fees charged by the primary listing market on orders that are not price forming. The timing of the CMC match allows brokers to route any unmatched MOC orders to the primary exchanges’ closing auctions. CMC is available to all participants with no tiering.

Regulation & Enforcement

OCC execs liable under new policy
FOW (subscription required)
Options Clearing Corporation (OCC) executives are “first in line” in the event of operational failure, Scot Warren, COO of the clearing house, told Global Investor. The Chicago-based clearing house received approval from the US Securities and Exchange Commission (SEC) for its new capital management policy on January 27, which states that OCC will contribute the funds held under its Executive Deferred Compensation Plan (EDCP) in the event of operational loss. “We very much thought it was important to align the economic interests particularly with the operational loss events, where we (executives) have day-to-day responsibilities,” Warren explained.

OCC updates default auction rules to encourage buy-side bids Costas Mourselas
The Options Clearing Corporation (OCC) is set to change its rule book in order to make it easier for buy-side firms to participate in default auctions. The equity derivatives clearing giant is working with the US Securities and Exchange Commission (SEC) on changes that would significantly simplify a lengthy document that clearing firms have to sign to allow their clients to make bids during default auctions.

Traders Win as U.S. Issues Softer Plan to Curb Oil Speculation
Benjamin Bain – Bloomberg
U.S. regulators proposed placing new limits on hedge funds’ ability to speculate on oil and metals derivatives Thursday, a less-stringent version of rules that stalled during the Obama administration.
The regulations would add more federal oversight to trading in 16 new contracts: five highly-traded metals futures, four in energy and seven based on agricultural products. However, Commodity Futures Trading Commission officials estimate the plan would impact more than 400 contracts which reference those futures and nine agricultural derivatives for which the agency already restricts speculation.

Options Regulatory Alert #2020 – 3 Relocation of the Nasdaq PHLX Rule Book
Nasdaq Trader
The Nasdaq PHLX recently filed a rule change to relocate its rules into a new Rulebook Structure that is pending publication by the SEC. For ease of reference in locating the rules of this market, below is a guide.

Options Trader Alert #2020 – 2 Nasdaq GEMX and Nasdaq ISE Updated Pricing Effective February 3, 2020
Nasdaq Trader
Effective Monday, February 3, 2020, pending filing with the SEC, Nasdaq GEMX (“GEMX”) and Nasdaq ISE (“ISE”) will amend pricing as described below:

CFTC position limits proposal focuses on 25 core commodities, defers to exchanges
The U.S. Commodity Futures Trading Commission advanced a proposed rulemaking on position limits in a 3-2 vote on Jan. 30. The proposal, which will be open for public comment for 90 days, addresses an issue that the CFTC has been grappling with since the Dodd-Frank Act updated the statutory provisions related to speculative limits in 2010. As proposed, the rulemaking would expand the range of commodity derivatives subject to federal position limits. However, the rulemaking also seeks to avoid interfering with the ability of end-users that use derivatives to hedge their market risks.


Seven Market Gurus Answer the Seven Big Post-Brexit Questions
And just like that, the era in which traders grappled with late-night British parliamentary proceedings, epic volatility in the pound and capital flows on every twist and turn of the Brexit saga comes to a close.
At midnight Brussels time on Friday, a new reality kicks in for U.K. assets as years of acute political uncertainty end.

Coronavirus: Everything Investors Need to Know About the Disease’s Impact
Concern about the highly contagious Chinese coronavirus is taking a toll on global markets and companies. The pathogen, which has spread from the city of Wuhan to more than a dozen countries, including the U.S., is a global health emergency, according to the World Health Organization. It has claimed more than 200 lives and infected more than 9,700 people.
Here’s what you need to know about the coronavirus and its impact on markets.

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