Observations & Insight
The Spread: A “Good” Bubble?
Boy there’s a lot of talk of bubbles these days. With bitcoin ballooning up past 50 K – and then back down again – it’s no surprise that there’s the usual talk about how it’s “a bubble” or “rat poison squared.”
What’s Ahead for the Futures and Derivatives Industry?
Katten Muchin Rosenman LLP
The article explores the impact COVID-19 has had on the futures and derivatives industry, noting that it has passed its first post-Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) stress test in the pandemic. Featuring lessons learned that will help make trading systems more resilient and more capable to handle the next crisis, the article lays out what to expect from the new administration and new leadership at the financial regulatory agencies.
Robinhood in Talks to Settle FINRA Probes Into Options-Trading Practices, Outages
Peter Rudegeair – WSJ
Robinhood Markets Inc. is in talks to pay a fine to settle investigations into its options-trading practices and outages the stock-trading app suffered in March 2020, according to a securities filing. The Securities and Exchange Commission, state regulatory authorities and the Financial Industry Regulatory Authority, Wall Street’s self-regulatory arm, are examining Robinhood’s conduct in those matters, including how Robinhood “displays cash and buying power to customers and its options trading approval processes,” the company said in the filing.
CME Group SOFR futures skyrocket as market transfers from Libor; The exchange reached a new daily volume record of 265,511 Secured Overnight Financing Rate (SOFR) contracts on 25 February.
Annabel Smith – The Trade
US derivatives exchange CME Group reached a new record daily volume for SOFR contracts on 25 February as the market continues its migration away from the Libor benchmark. The exchange recorded 265,511 SOFR futures contracts on 25 February, marking a significant increase from the previous record of 240,288 set on 19 November last year.
Investors Poured Record $86 Billion Into Equity ETFs in February
Claire Ballentine – Bloomberg
When faced with a spike in Treasury yields and a tech sector pullback that erased $1 trillion from stock prices, exchange-traded fund investors decided to pour more money into equities.
Despite the recent turmoil in the bond market, the S&P 500 Index extended a rally from its March 2020 lows to more than 70% and ETFs tracking stocks notched their best month of inflows on record, according to data compiled by Bloomberg. Traders added almost $86 billion to those funds in February.
Hedge funds sell oil as bull run stutters
John Kemp – Reuters
Hedge funds have reduced their position in petroleum futures and options for the first time in 16 weeks, the first weekly net sales since the first successful coronavirus vaccine trials were announced in early November.
Hedge funds and other money managers sold the equivalent of 9 million barrels in the six most important petroleum futures and options contracts in the week to Feb. 23.
Geode, Fidelity’s Index-Fund Manager, Closes Hedge-Fund Business After Derivatives Bets Implode
Justin Baer and Dawn Lim – WSJ
Huge losses on derivative trades at Geode Capital Management have forced the giant investment firm to close down its hedge-fund business. Geode manages all of Fidelity Investments’ stock-index funds, and that operation accounts for most of the firm’s $720 billion in assets. But it has also offered an array of riskier, hedge-fund strategies to wealthy clients and institutions. Geode’s largest private fund lost about $250 million after its bets on stock-market volatility turned sour last year, people familiar with the matter said. The fund was down by some 36% by spring. The losses, and ensuing margin calls, forced the Geode Diversified Fund to liquidate other unrelated positions and led the fund’s biggest investor, Fidelity itself, to withdraw its money, the people said.
Exchanges and Clearing
Equity Index Derivatives: Introduction of FTSE 100 Index Total Return Futures, FTSE 100 Declared Dividend Index Futures, FTSE 100 Index Futures and Options
The Management Board of Eurex Deutschland took the following decision with effect from 29 March 2021;Introduction of FTSE 100 Index Total Return Futures; Introduction of FTSE 100 Declared Dividend Index Futures; Introduction of FTSE 100 Index Futures; Introduction of FTSE 100 Index Options
LSE Sets Stocks Deal With Frankfurt Amid Brexit Fight Over Swaps
Silla Brush – Bloomberg
The London Stock Exchange Group Plc and Deutsche Boerse AG, rivals for post-Brexit derivatives business, have decided to work together on trading tied to U.K. equities. The companies announced an agreement on Monday for Deutsche Boerse’s Eurex exchange to list futures and options contracts tied to the FTSE 100 benchmark index of Britain’s biggest publicly traded companies. The LSE, which owns FTSE Russell indexes, said the contracts will start March 29. “Our collaboration with Eurex reflects LSEG’s commitment to supporting clients across the markets and communities that we serve,” Waqas Samad, chief executive officer of FTSE Russell, said in a statement.
BoE governor warns of rising tensions as EU derivatives clearing power struggle continues; Andrew Bailey says the UK must “resist very firmly” the EU’s attempts to force all euro-derivatives clearing into the bloc.
Annabel Smith – The Trade
The governor of the Bank of England, Andrew Bailey, has warned that tensions between the UK and the EU will escalate quickly if the EU forces euro-derivatives clearing out of the UK.
Trading Overview in February 2021; Japan Exchange Group released Trading Overview in February 2021.
Cash Equity Market – In February 2021, the daily average trading value for the TSE 1st Section (domestic common stocks) was JPY 3.3397 trillion; The daily average trading value for the ETF market was JPY 276.2 billion
Derivatives Market – In February 2021, total derivatives trading volume was 25,879,442 contracts.; In February 2021, total derivatives trading value was JPY 234 trillion; Trading volume for the night session was 9,245,709 contracts. The ratio of the night session was 36.3%.
Eurex to expand its pioneering Total Return Futures in cooperation with FTSE
Eurex will extend its pioneering Total Return Futures (TRF) segment with a contract on the FTSE 100 Index. By cooperating with FTSE Russell, the derivatives arm of Deutsche Börse Group is further expanding its collaboration with leading index providers in its strategically important index segment. Scheduled for 29 March, the launch once again reflects the goal of supporting the global shift towards regulated on-exchange trading with central clearing, as well as passive investments. With this step, the exchange responds to the demand from many clients for a TRF contract covering the UK equity market. Furthermore, it demonstrates that TRFs are a pioneering example within the futurization theme.
Notice of Summary Action
MEMBER FIRM: Ginga Global Markets Pte Ltd.
NYMEX RULE VIOLATION: 526.F. BLOCK TRADES
Unless otherwise agreed to by the principal counterparties to the block trade, the seller, or, in the case of a brokered transaction, the broker handling the block trade, must ensure that each block trade is reported to the Exchange within the time period and in the manner specified by the Exchange. The report must include the contract, contract month, price, quantity of the transaction, the respective clearing members, the time of execution, and, for options, strike price, put or call and expiration month. The Exchange shall promptly publish such information separately from the reports of transactions in the regular market.
PENALTY: On February 10, 2021, pursuant to Rule 512, a fine in the amount of $2,000 was assessed against Ginga Global Markets Pte Ltd for its violation of NYMEX Rule 526.
Regulation & Enforcement
FIA Speaks Episode 15: Larry Thompson
In this episode, FIA President and CEO Walt Lukken talks to derivatives legend Larry Thompson about his long career at DTCC, Robinhood app issues and his advice for people just starting out in the industry. Larry recently retired from being General Counsel of the Depository Trust and Clearing Corporation, where he spent nearly 40 years but he’s not sitting still by any means. Larry remains actively involved in several corporate and fintech boards as well as charitable efforts.
Amendments to the CBOT, COMEX, and NYMEX Position Limit, Position Accountability, and Reportable Level Tables in Connection with the CFTC Final Rule on Position Limits for Derivatives
Notice Date 01 March 2021
Effective Date 15 March 2021
This revised Market Surveillance Notice is being issued to advise the marketplace of changes related to the filings submitted to the CFTC. Please note MSN01-28-21R supersedes MSN01-28-21 from January 28, 2021. Pending all relevant CFTC regulatory review periods, effective on trade date March 15, 2021 for the April 2021 contract month and beyond, the Commodity Exchange Inc (“COMEX”), the New York Mercantile Exchange (“NYMEX”) and the Chicago Board of Trade (“CBOT”) will make changes to position limits as noted below and in Appendix A and Appendix C of CBOT Submission 21-068S, Appendix A & B and Appendix C of NYMEX/COMEX Submission 21-108, and Appendix A of NYMEX Submission 21-109. Please note NYMEX/COMEX Submission 21-067 and NYMEX Submission 21-066 were withdrawn on February 18, 2021.
Cboe Global Markets to Present at the Raymond James Institutional Investor Virtual Conference on Tuesday, March 2
Cboe Global Markets, Inc., a market operator and global trading solutions provider, announced today that Ed Tilly, Chairman, President and Chief Executive Officer, Chris Isaacson, Executive Vice President and Chief Operating Officer, and Brian Schell, Executive Vice President, Chief Financial Officer and Treasurer, will present at the Raymond James Institutional Investor Virtual Conference on Tuesday, March 2 at 8:20 a.m. ET. The webcast and replay of the virtual presentation will be accessible at www.cboe.com in the Investor Relations section, under Events and Presentations. The archived webcast is expected to be available within an hour of the presentation.
Registration is open! – FIA Boca 2021
A New Virtual Experience
The Options Industry Conference is Going Virtual in 2021. Join OCC and the options exchanges for the 39th annual Options Industry Conference, April 28-29, 2021. While the conference will be held virtually for the first time in history, the focus will continue to be the key topics facing the options industry today, from the regulatory shifts in the U.S. and Europe to the technological developments that are driving monumental change in markets around the globe.
(Podcast) AO 100th Episode Spectacular : VIX Bubbles and…Michael Bolton?
The Advisors Option – Options Insider Radio Network
Host: Mark Longo, the Options Insider Media Group
Co-host: Matt Amberson, Option Research & Technology Services
The buzz; thoughts on current market environment; is the vix in a bubble; earnings season; volatility update; January options volume numbers from OCC; SEC during new admin expected to focus on advisors & brokers; Michael bolton’s new song “Break Up With Your Brokerage”