Wall Street Faces Tougher Margin Rule as Zero-Day Options Boom

Jun 18, 2024

Observations & Insight

NOTE: JLN Options will not be published tomorrow (Wednesday) in observance of the Juneteenth holiday. We will be back on Thursday. ~JB


Regulatory Uncertainty Clouds Options Market Innovation

David Dooman, head of options at Dash Financial, a subsidiary of ION Group, expressed concerns about the impact of regulatory uncertainty on the options markets during an interview at the Options Conference in Asheville, NC. Dooman highlighted several key issues stifling innovation and offered recommendations to address the industry’s challenges.

Watch the video »


The role of the FCM: Futures Discovery EP 10

Today, we’re immersing ourselves in a detailed exploration of the pivotal Role of Futures Commission Merchants, commonly known as FCMs. These financial intermediaries play a crucial role in facilitating futures and options trading, serving as a linchpin in the complex web of derivative markets. Understanding the intricate responsibilities and functions of FCMs is essential for navigating the dynamic landscape of modern financial systems.

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Lead Stories

Wall Street Faces Tougher Margin Rule as Zero-Day Options Boom; OCC proposes intraday margin requirement for clearing firms; Too restrictive measures can hurt trading volume, says Kinahan
Lu Wang and Katherine Doherty – Bloomberg
The world’s largest derivatives-clearing house is seeking to introduce fresh margin requirements on Wall Street firms as the frenzy in zero-day options shows no sign of letting up.
Options Clearing Corp. is looking to harden rules on intraday margins at brokers and dealers in the event their risk exposures breach certain thresholds, according to a spokesperson. OCC is also proposing a monthly add-on to their collateral contributions to ensure the smooth functioning of markets, among other obligations, the person said.

Hedge fund’s trades with lenders point to return of crisis-era structures
Shankar Ramakrishnan – Reuters
Earlier this year a hedge fund structured two trades worth $642 million, the kinds of which have not been seen since the 2008 crisis. It sold insurance to two U.S. lenders against losses on a loan portfolio, and then sold much of that risk to investors.
The trades, a form of re-securitization, were done by Bayview Asset Management after it sold credit default swaps (CDS) to Huntington (HBAN.O), opens new tab and Sofi (SOFI.O), opens new tab late last year, according to Moody’s reports about the trades seen by Reuters and a person familiar with the transactions.

Trafigura pays $55mn US fine in case alleging market abuse; Commodities trading house was accused of manipulating a fuel oil benchmark and possessing ‘improperly obtained’ inside information
Myles McCormick – Financial Times
Trafigura has agreed to pay a $55mn fine in a settlement with US regulators over charges of fraud and manipulation in the latest blow to the trading house. The Commodity Futures Trading Commission charged the company with offences alleged to have taken place between 2014 and 2020 including trading petrol while in possession of non-public information, manipulating a fuel oil benchmark and impeding whistleblower communications.

***** Here is The Wall Street Journal’s version of this story.~JJL


Cboe Global Markets to launch US Treasury market volatility index; Named VIXTLT Index, the new offering will enable market participants to track future expected volatility in the US Treasury market.
Wesley Bray – The Trade
Cboe Global Markets has announced plans to launch the Cboe 20+ Year Treasury Bond ETF Volatility Basis Point Index (VIXTLT Index) in the third quarter of this year. The new index will be calculated using listed options on the iShares 20+ Year Treasury Bond ETF (TLT) and will enable market participants to track future expected volatility in the US Treasury market. VIXTLT Index will be available in both percentage price volatility and basis point volatility terms. The new offering expands Cboe’s volatility index suite and adds to Cboe’s current offering of more than 450 derivatives-based indices, covering various strategy benchmarks and asset classes.

CME Group FX Futures and FX Link Reach All-Time Volume Records
CME Group
CME Group, the world’s leading derivatives marketplace, today announced its foreign exchange (FX) futures reached an all-time single-day volume record of 3.26 million contracts (equivalent to $314B notional) on June 12. The previous record of 3.15 million contracts ($296B notional) was set on March 8, 2023. In addition, FX Link, CME Group’s anonymous, all-to-all spot-futures spread trading tool reached a single-day volume record of 113,662 contracts ($10.5B notional ) on June 12, which represents a 37% increase over the previous record of 82,900 contracts ($7.2B notional), set on June 16, 2022. Year-to-date, FX Link volumes are up over 52% versus the same period in 2023.

SIX Launches New Global Equity Indices
The global financial information provider SIX has launched today a family of global equity indices designed specifically for the retail, private banking, and asset management sector. This marks the company’s latest move in its push to further strengthen its position as a global index and data provider. The new indices come in response to the growing appetite from financial institutions to gain a clearer view of the stocks and markets in which their clients’ money is invested, as well as their performance. Beyond empowering financial institutions to provide customers with a simple, digital portal through which to view their equities investments, the new offering will significantly reduce the administrative burden for many existing clients of SIX. Rather than subscribing to several sources, SIX can provide access to equivalent indices with reduced administrative overhead.

Position Limits – Government Of Canada Bond Listed Products (All Months)
Montreal Exchange
The applicable position limits for the Government of Canada Bond futures and options on the Government of Canada Bond futures have been updated and are reflected in the position limit file. The position limit file is retrievable here. The position limits will apply as follows.

Regulation & Enforcement

India regulator plans tweaks to address derivative trading risks
Jayshree P Upadhyay and Ira Dugal – Reuters
India’s markets regulator is considering a series of tweaks to its derivative trading rules, according to two sources, as it seeks to address risks arising from explosive growth in options trading.
The new rules could include higher margins for options contracts and more detailed disclosures, and are being considered after a series of meetings with exchanges, brokers and fund houses over the past four months, the sources, with direct knowledge of the matter, said.

IDX 2024 Opening Remarks: The Industry Shines Through Adversity
As we gather here at IDX, we are going through an incredibly uncertain time. 2024 will see half the world heading to the polls in what is set to be a historic election year.
Two weeks ago, the EU elections saw the conservatives and centre-right groups gain ground, leading French President Macron to call for a snap election later this summer. Here in the UK, the Labour party is expected to sweep into power when elections are held on 4 July. And we have that boring election in the US where Americans will elect an unpopular President in November, no matter who is elected.

FIA and Acuiti release report on challenges and opportunities for the European listed derivatives markets
FIA today released a report on the challenges and opportunities facing the European listed derivatives markets. The report is based on responses to a survey conducted recently by Acuiti, a market intelligence firm, that gauged industry sentiment regarding the key trends, opportunities and challenges facing the industry in Europe.
Acuiti surveyed more than 100 individuals at a variety of firms active in Europe, including clearing brokers, asset managers, hedge funds, principal trading firms, exchanges and software vendors. The survey asked for opinions on current trends as well as the outlook for the next five years.

SEC bars advisor who used senior clients’ cash for secret options trading; The ex-Merrill Lynch, Fifth Third advisor concealed his activities by telling clients to put $683k in a shell company, according to a complaint.
Leo Almazora – InvestmentNews
The SEC has barred a former Fifth Third advisor who violated his clients’ trust by secretly funneling hundreds of thousands of dollars of their money into failed options trades.


Trading Technologies to launch new offerings for futures; TCA and multi-asset trade surveillance; New offerings will provide a TCA tool made specifically for futures trading as well as an expanded set of asset classes – beyond listed derivatives – for trade surveillance.
Wesley Bray – The Trade
Trading Technologies (TT) has introduced two new offerings to enhance its data and analytics and compliance lines of business, TT Futures TCA and TT Trade Surveillance. TT Futures TCA is a transaction cost analysis (TCA) tool made specifically for futures trading, leveraging futures market and trade data with a range of metrics and measures. According to the firm, the new TCA for futures capability will enable users to choose from a range of customisable reports to analyse and improve their trading strategies while measuring the efficacy of their trading counterparties.

Bloomberg selected by Banorte to support regulatory compliance for monitoring derivatives hedging; The adoption of Bloomberg’s MARS Hedge Accounting offering, alongside MARS Front Office and MARS Counterparty Risk, will provide the firm with a complete set of risk management capabilities.
Wesley Bray – The Trade
Mexican financial firm Grupo Financiero Banorte has adopted Bloomberg’s MARS Hedge Accounting solution to determine the effectiveness of hedges that are recommended to clients under various market conditions. In addition, Banorte uses MARS Front Office and MARS Counterparty Risk solutions, alongside MARS Hedge Accounting, which offer the firm a complete set of risk management capabilities.


Juneteenth stock-market pause precedes potential end-of-week trading flurry. What investors need to know.
Isabel Wang – MarketWatch
U.S. stocks are on a seemingly unstoppable record-setting rally, but investor excitement appears to be taking a backseat in what could be a quiet, holiday-shortened week bifurcated by the Juneteenth observance on Wednesday.

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