Observations & Insight
Tom Sosnoff – The Path to Electronic Trading – John Lothian News
Tom Sosnoff is a serial entrepreneur whose endeavors are transforming how people trade and understand the markets. Expanding on his success as an open outcry options trader on the CBOE, Sosnoff and his business partner, Scott Sheridan, built one of the first all-electronic online futures brokerage firms, Thinkorswim (TOS).
Ten years after launching TOS, they sold it to TD Ameritrade (TDA) and moved on to their next startup, tastytrade.
*****SC: ISDA 35th AGM: In a virtual “fireside chat,” ISDA CEO Scott O’Malia asked CFTC Acting Chairman Rostin Behnam how the Dodd-Frank Act prepared regulators for the market volatility of March and April 2020 at the onset of the pandemic shutdowns. The CFTC was quick to react, Behnam said, but he added, “once-in-100-year events,” or market shocks, seem to be happening far more frequently. That “makes me think about tail risk” in the context of a crisis, he said. “We have to be prepared for tail risk,” especially given the global nature of markets. From a regulator’s standpoint, a lot of the Dodd-Frank reforms have borne fruit over the last 10 years, Behnam said, which was especially evident recently in the clearing space. Regulators “need to keep markets safe and transparent,” but not be a “market impediment” during stress periods, he said. “We’re working off Dodd-Frank, but are aware that the markets are dynamic and changing.” When O’Malia asked if the industry could expect “further relief” from initial margin rules, action that has been delayed for a year, Behnam side-stepped the question, saying the CFTC was “moving the conversation forward.” Asked about the CFTC’s role in climate change initiatives, Behnam said that while many companies now voluntarily disclose ESG goals, the U.S. has to move to a mandated disclosure system. Derivatives will play a key role in product development related to climate change, he suggested, and should help “at the back end of the transition” to 2050 and the Paris Agreement goals.
Wall Street stocks join global sell-off as inflation worries flare up
Wall Street stocks joined a global equities slide as concerns mounted that rising inflation will prompt central banks to tighten monetary policy.
The Nasdaq Composite index, whose largest constituents include big tech companies Apple, Amazon, Facebook and Tesla, dropped 2.1 per cent in early dealings before recouping some of those losses to trade 1.6 per cent lower. The broader-based S&P 500 index fell 1.6 per cent, with all of its industry sectors falling into the red.
China Coal Futures Hit Record as Exchange Tries to Cool Rally
Krystal Chia – Bloomberg
Thermal coal futures in China surged to a record high as a severe supply crunch overpowered the exchange’s effort to cool down the breakneck price rally.
Prices have rallied 34% so far this year as miners struggle to meet robust demand from the nation’s economic rebound. Safety and environmental inspections, mining accidents and an unofficial ban on Australia coal has disrupted supply and tightened the market. A recent worsening in diplomatic relations with Australia has also given the raw material another boost.
While Dow flirts with 35,000, the S&P 500 is on pace for second-highest number of records in a year
William Watts – MarketWatch
Stocks — at least as measured by the Dow Jones Industrial Average and the S&P 500 — are mowing down milestones at a torrid pace in 2021.
The Dow DJIA, -1.39% on Monday pushed above the 35,000 level for the first time, before trimming gains and getting pulled back below the milestone as tech shares slumped sharply. The Dow on Friday logged its 24th record close of 2021.
Hedge funds start to see inflows after big drawdowns in 2020
Patturaja Murugaboopathy – Reuters
Global investors have turned net buyers of hedge funds in recent months, data showed, attracted by their strong gains and the prospects of higher market volatility as countries recover unevenly from the pandemic.
Hedge funds have attracted cumulative net inflows worth $1.3 billion in the past three months, data from Refinitiv Lipper shows. These funds, whose complex strategies generally do better in volatile times, registered massive outflows of $25 billion in 2020. (Graphic: Monthly flows into hedge funds, )
Hawkish Fed Surprise Bets Are Being Mirrored in European Markets
Stephen Spratt – Bloomberg
The options market has been abuzz about bets targeting a hawkish shift from the Federal Reserve. It turns out the same sort of wagers are being placed on the European Central Bank. Large bets in Euribor options using so-called risk reversals show traders now have greater conviction that the ECB’s next move will be a rate increase, with the biggest targeting higher borrowing costs in late 2024. Their size and strategy is remarkably similar to a stand-out wager in the Eurodollar option market earlier this month that’s betting on quicker rate hikes by the Fed.
Exchanges and Clearing
Cboe Files to List Fidelity Bitcoin ETF Amid Regulatory Test
Joanna Ossinger – Bloomberg
Cboe Global Markets Inc. is seeking to list a Fidelity Bitcoin exchange-traded fund in the U.S. despite the prospect of an icy regulatory reception. Cboe proposed Monday in a filing with the U.S. Securities and Exchange Commission to list Fidelity’s Wise Origin Bitcoin Trust, saying concerns about potential manipulation of a Bitcoin exchange-traded product have been “sufficiently mitigated.”
CME Group Grows Suite of CVOL Indexes to Include Key Measures of Implied Volatility in Treasuries, Agriculture, Energy, Metals and Cross-Commodities
CME Group, the world’s leading and most diverse derivatives marketplace, today announced it has added several new benchmark indexes to its suite of CME Group Volatility Indexes (CVOL). Together with the previously introduced indexes, CME Group now offers 40+ CVOL Indexes across nearly every major investible asset class. Beginning today, market participants can now access implied volatility information across five new multi-product indexes on Treasuries, agriculture, energy, metals and commodities, as well as several single-product benchmark indexes based on CME Group’s highly liquid options markets.
Virtu RFQ-hub hits $29.7 billion record quarterly volume; The new record $29.7 billion in quarterly notional trading volume at Virtu surpassed the previous quarterly record in single stock options by 37%.
Annabel Smith – The Trade
The bilateral request-for-quote platform from Virtu Financial has reached a new quarterly notional trading volume, hitting $29.7 billion in the first quarter of this year. The new record achieved in the first quarter for Virtu’s RFQ-hub surpassed the previous quarterly record in single stock options by 37%.
Regulation & Enforcement
CFTC Whistleblower Program in Peril Over Potential $100 Million-Plus Payout
Alexandra Berzon – WSJ
The Commodity Futures Trading Commission’s whistleblower program is in turmoil over a potential payout exceeding $100 million to a former Deutsche Bank AG executive—one so large it would deplete the agency’s whistleblower funds and has led it to seek congressional action.
The executive had provided information that helped CFTC and Justice Department investigations that led to roughly $2.5 billion in settlements with Deutsche Bank in 2015, including $800 million with the CFTC. They alleged that the bank manipulated the London interbank offered rate, or Libor, a benchmark interest rate used to set short-term loans for global banks.
DTCC approved as data repository for upcoming US swaps reporting rules
Annabel Smith – The Trade
The Depository Trust & Clearing Corporation (DTCC) has gained regulatory approval from the US watchdog to offer security-based data reporting services in the US ahead of new swaps reporting rules. Following the approval from the Securities and Exchange Commission (SEC), DTCC is the first security-based swap data repository (SBSSDR) in the US that can accept transaction reports as part of Security-based Swap Reporting (SBSR) requirements. The Dodd-Frank Act in the US divided the regulatory oversight of derivatives between the SEC for security-based swaps and the Commodity Futures Trading Commission (CFTC) for all other swaps.
Virtu RFQ-hub hits $29.7 billion record quarterly volume
Annabel Smith – The Trade
The bilateral request-for-quote platform from Virtu Financial has reached a new quarterly notional trading volume, hitting $29.7 billion in the first quarter of this year. The new record achieved in the first quarter for Virtu’s RFQ-hub surpassed the previous quarterly record in single stock options by 37%. Virtu said that the buy-side is increasingly relying on its RFQ-hub, which aims to provide more competitive liquidity and operational efficiency with embedded analytics, to negotiate derivatives transactions. “In today’s environment, clients are looking for agile, enhanced solutions that help them keep pace with the evolving digital landscape,” David Angel, head of continental Europe at Virtu Financial, commented.
All About Options (With) Expert Sheldon Natenberg
Join the Cboe Options Institute on Wednesday, May 12, to learn from one of the industry’s most renowned option trading educators. This webinar will interest traders of all ages and experience levels, but if you are new to options trading you really won’t want to miss it.
Wednesday, May 12, 2021
12:00 p.m. ET
Fundamentals of Futures & Options (also applicable to Series 3 Exam)
For more than 30 years, IFM has consistently provided learners with a solid foundation and understanding of futures and options markets and trading including terminology, risk management, pricing, and basic trade strategies. This instructor-led virtual course includes lectures from an engaging instructor with real-world expertise and supported by class discussion, practice exercises and educational materials. The course fee includes two must-read industry books, “Futures and Options” and the “Guide to U.S. Futures Regulation.”
Dates: May 10, 2021 through May 14, 2021, 12:00 p.m. to 2:00 p.m. ET.
Location: Virtual Live. 2-hour sessions over 5 days.
Instructor: Marti Tirinnanzi
Class size registration is limited to approximately 20 participants to promote student participation and interaction.
The Covered Call Options Strategy
Date: Wednesday, May 12, 2021
Time: 3:30 p.m. CT
Duration: 1 hour
Mark Benzaquen – Principal, Investor Education – OCC
For options investors, the covered call is one of the core strategies for income generation, but there are many details to consider before opening a position. On May 12, join The Options Industry Council’s Mark Benzaquen, a former pit broker who now focuses on options education, for a detailed overview of the covered call.
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.