Why Contracts for Difference (CFDs) Are Back Under Scrutiny

Jul 29, 2021

Observations & Insight

Options Continue to Lead Derivatives Volume Uptrend, but Q2 Lags, FIA Data Show
Suzanne Cosgrove – John Lothian News

Global futures and options volumes continued to trend higher in the first half of 2021 compared to both 2020 and 2019, with growth largely driven by options trading, according to Futures Industry Association data released late Tuesday.

Exchange-traded futures and options volume was up 32.1% compared with the total logged in the first six months of 2020, with 28.9 billion contracts traded in the first half of 2021. Just over half of the volume in the latest period was in options, with 14.5 billion contracts, which represented a 50.2% gain over the number of options traded from January through June of 2020.

Trading volume in futures and options was down 5% in the second quarter compared with the first quarter, but is still on an upward trajectory begun in 2019, said Will Acworth, senior vice president of FIA publications, data and research.

Total open interest data — regarded as a gauge of institutional trading patterns — hit 1.1 billion contracts at the end of the second quarter, unchanged from first-quarter 2021.

Read more HERE.

Lead Stories

Why Contracts for Difference (CFDs) Are Back Under Scrutiny
Donal Griffin – Bloomberg
Contracts for difference, or CFDs, have hastened the demise of an Irish bank, triggered alleged Ponzi schemes in Chile, featured in a $100 million U.S. insider-trading racket and seen echoes of their use in the implosion of Archegos Capital Management. They’ve also spooked regulators because of the risks they pose to retail investors, sparking tighter rules in the U.K. and European Union. But new regulations didn’t stop amateur traders flocking to CFDs in 2020 as a result of volatility during the pandemic, and again in 2021 as part of a surge in retail interest in global markets.

China Short Sellers Are Getting Crushed in a Big Tech-Stock ETF
Sam Potter – Bloomberg
The furious rebound of Chinese technology stocks will be painful news for investors who rushed to a $4.6 billion exchange-traded fund to bet against the beleaguered sector.
As Beijing intensified its crackdown on private firms, plenty of traders made wagers on continuing turmoil, especially via the KraneShares CSI China Internet Fund (ticker KWEB).

US ETF inflows surge past $500bn this year to eclipse 2020 record
Michael Mackenzie – Financial Times
Investors have ploughed half a trillion dollars into US exchange traded funds in less than eight months, eclipsing last year’s record haul in the latest sign of how booming markets have sparked a rush into the low-cost vehicles.
Net inflows into US listed ETFs are running at $505bn so far this year, topping the total for 2020 by $1bn, according to CFRA, a data and research service. Total US ETF assets under management have hit $6.6tn.

Credit Suisse’s Archegos post mortem slams management; profit slumps
Brenna Hughes Neghaiwi – Reuters
A “lackadaisical” attitude towards risk and “a lack of accountability” were to blame for Credit Suisse’s (CSGN.S) $5.5 billion loss on investment fund Archegos, according to a review published on Thursday, as the bank reported a near-80% fall in second-quarter profit.

Retail Traders Swarm Robinhood’s Stock Despite Lackluster Debut
Katherine Greifeld – Bloomberg
Robinhood ranks as top trade on Fidelity’s retail platform
Shares slid more than 12% after opening before rebounding
Zero-fee trading platform Robinhood Markets Inc.’s $2 billion initial public offering was eagerly welcomed by retail traders even as shares tumbled.
Robinhood ranked as the top trade on Fidelity’s platform Thursday, with over 23,000 shares on buy orders as of 1:20 p.m. in New York. Runner-up Facebook Inc. clocked in with more than 12,000 buys, according to data compiled by the brokerage.

Crypto Volatility Index 2.0 Rolled Out With USDC Support
Users can now open USDC positions and stake CVI USDC through the index.
CVI is designed to mimic the VIX, or fear, index for crypto.(www.EdvardMunch.org, modified by CoinDesk)
Jamie Crawley – Coindesk
Fintech platform COTI revamped the Crypto Volatility Index (CVI) to offer a set of new features including USDC (+0.06%) support for staking.
The gauge is designed to indicate the level of implied volatility in the crypto market through a decentralized index from crypto options prices. It is similar to the VIX volatility index, often called the fear index, on the S&P 500.


Moscow Exchange seeks more liquidity with new overseas stocks, longer hours
Elena Fabrichnaya – Reuters
Russia’s largest bourse Moscow Exchange (MOEX) plans a big expansion in the foreign shares it offers and an extension of trading hours, its market head said on Thursday, under a growth plan focused on luring business particularly from Asia.
MOEX has already started trading foreign currency, gold and derivatives three hours earlier from March 1 to attract Asian investors and is now preparing to adopt this practice on the stock market.

Intercontinental Exchange Reports Strong Second Quarter 2021
Intercontinental Exchange (NYSE: ICE), a leading global provider of data, technology and market infrastructure, today reported financial results for the second quarter of 2021. For the quarter ended June 30, 2021, consolidated net income attributable to ICE was $1.3 billion on $1.7 billion of consolidated revenues, less transaction-based expenses. Second quarter GAAP diluted earnings per share (EPS) were $2.22. Adjusted net income attributable to ICE was $657 million in the second quarter and adjusted diluted EPS were $1.16. Please refer to the reconciliation of non-GAAP financial measures included in this press release for more information on our adjusted operating expenses, adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted EPS and free cash flow.

Euronext publishes Q2 2021 results
Q2 2021 strong performance resulting from organic growth driven by record listing and post-trade activity, and from the Borsa Italiana Group acquisition
Amsterdam, Brussels, Dublin, Lisbon, Milan, Oslo and Paris – 29 July 2021 – Euronext, the leading pan-European market infrastructure, today publishes its results for the second quarter of 2021, driven by robust organic growth thanks to a strong performance in listing and post-trade businesses and the first consolidation with Borsa Italiana Group results since its acquisition on 29 April 2021.

CME Group Statement on ARRC Formal Recommendation of CME Term SOFR Reference Rates
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today issued the following statement in response to the Alternative Reference Rates Committee’s (ARRC) formal recommendation of CME Term SOFR Reference Rates for use based on their previously outlined best practices:


Opinion: This eye-catching divergence in the stock market is a warning against complacency
Lawrence G. McMillan – MarketWatch
The S&P 500 index is performing at a far different rate than the “average” stock. This has been going on for a while and is not necessarily a bull market “killer,” but it is certainly not the healthiest of environments.
The S&P SPX, +0.54%, the NASDAQ-100 NDX, +0.31% and the Dow Jones Industrial Average DJIA, +0.54% are all at or near all-time highs. But the Russell 2000 RUT RUT, +0.90% is lagging behind, reflective of the poor internal strength of the overall market. The internal measurements show fairly heavy put buying, poor breadth on many days, and even more new 52-week lows than new highs.


Robinhood Is Warning You About Certain Risks Before You Invest in Its IPO
Peter Santilli – WSJ
Robinhood Markets Inc. is urging its users to invest in its eagerly awaited initial public offering, setting aside as much as 35% of the shares being sold for individuals to buy. And like other companies going public, the trading-app company laid out in its prospectus certain risk factors associated with its business that it thinks investors should be aware of before buying in.
Some of those factors are tied to something IPO investors look for—explosive growth. Growth can bode well for potential future profits but, as the company points out in its regulatory filing, it remains to be seen how successfully it can sustain and manage that growth.

Robinhood’s IPO to Test Loyalty of Retail Trading Legion It Helped Create
Caitlin McCabe – WSJ
Robinhood Markets Inc. has spent the better part of a decade trying to entice nonprofessional investors to fall in love with markets.
This week, the company will face its first public test of whether those same traders love Robinhood back.

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