Category Archives: Derivatives

Europe’s First Bitcoin Futures, Based on ETC Group’s BTCetc Physical Bitcoin, to List on Eurex in September

  • First futures contract on a Crypto ETP in Europe launching 13 September 2021
  • BTCE is the world’s most heavily traded Crypto ETP
  • Eurex is the largest derivatives exchange in Europe

ETC Group ( www.etc-group.com ), Europe’s leading specialist provider of innovative, digital asset-backed securities, announces that Eurex, Europe’s largest derivatives exchange, will list Bitcoin ETN Futures on 13 September 2021 based on its flagship product BTCetc. This will be the first time futures contracts are available for investors on a Crypto ETP in Europe.

Bitcoin ETN Futures is based on ETC Group’s BTCetc™ – ETC Group Physical Bitcoin (ticker: BTCE), which launched on Deutsche Börse XETRA in June 2020. Since then it has been listed on multiple European exchanges, and is currently the world’s most heavily traded crypto ETP, with the narrowest spreads1. The new futures contract will be traded in Euros and physically delivered in BTCE, which is 100% backed by bitcoin and can be readily redeemed by any investor for the underlying bitcoin.

Bradley Duke, CEO of ETC Group said: “The announcement that Eurex will list a futures contract based on BTCE is a game changer, it firmly establishes BTCE as the benchmark Bitcoin ETP and go-to product for Bitcoin price discovery. We see the selection of BTCE by Europe’s largest derivatives exchange as recognition of the quality of the product and its world beating liquidity. Also, because BTCE is fully-fungible with the underlying bitcoin, it means physical settlement of the futures contract is enabled through BTCE’s standard creation/redemption mechanism.”

Randolf Roth, Member of the Eurex Executive Board said “Given the growing institutional demand for secure exposure to Bitcoin, we are delighted to begin listing these Bitcoin ETN futures on our regulated trading and clearing infrastructure at Eurex. This move will allow a greater number of market participants to trade and hedge Bitcoin, with this new future being treated in the same way as any other derivatives contract in terms of central clearing, netting, and risk management.”

This set-up allows investors to track the price development of Bitcoin in a fully regulated on-exchange environment and based on a transparent price discovery of the underlying BTCE. Structured in a similar way as physical Gold ETCs, with an equivalent physical redemption mechanism in place, BTCE’s primary listing trades on Deutsche Börse’s ETN trading segment since 18th June 2020. Bitcoin ETN futures are centrally cleared like any other derivatives traded on Eurex. Eurex’s standard clearing, netting, and risk management processes thereby come into effect, mitigating counterparty risk, and reducing operational costs for market participants.

Cryptocurrencies are highly volatile, and your capital is at risk.
Disclaimer: https://bit.ly/etcdisc

ETC Group ( www.etc-group.com ) is specialized in developing innovative digital asset-backed securities such as BTCetc (BTCE) and ETHetc (ZETH) which are currently listed on Deutsche Börse, Euronext, SIX, AQUIS UK and Wiener Börse. ETC Group is backed by a number of major London-based financial institutions. Shareholders include firms such as XTX Ventures, the venture capital arm of electronic market-making firm XTX Markets. ETC Group’s securities are marketed by HANetf.

Prepared Remarks of Gary Gensler, Chair of the Securities and Exchange Commission, Before the American Bar Association Derivatives and Futures Law Committee Virtual Mid-Year Program

Thank you for the kind introduction. It’s good to be back with the American Bar Association’s Derivatives and Futures Law Committee.

As is customary, I’d like to note that I’m not speaking on behalf of my fellow Commissioners or the SEC staff.

When I first appeared before this committee more than a decade ago, Washington was still developing the regulatory response to the 2008 financial crisis.

That crisis had many chapters, but a form of security-based swaps — credit default swaps, particularly those used in the mortgage market — played a lead role throughout the story.

International banks were using credit default swaps to hedge their bank loan portfolios — or so they thought.

These derivatives were also at the core of the $180 billion bailout of AIG, whose near-failure accelerated the crisis.

Reliance on those same credit default swaps allowed many banks to lower regulatory capital requirements to dangerously low levels.

CDS also contributed to weak underwriting standards, particularly for asset securitizations. Investors and Wall Street allowed them to stand in for prudent credit analysis.

At the end of 2007, the CDS market had notional value of $61 trillion[1] — more than 10 times larger than it had been in 2004.[2]

Though it’s a smaller market these days, credit default swaps still play an important role. The notional value of credit default swaps is more than $8 trillion.[3]

Further, the security-based swaps market involves more than just the credit default swaps that were at the center of the 2008 crisis. It also comprises single-name and narrow-based equity swaps, some of which are labeled total return swaps.

Though we don’t yet have reliable data on the size of equity swaps and total return swaps, from time to time they too have played an important role in our capital markets.

When Congress decided to bring reforms to the overall swaps market, they assigned authority over security-based swaps to the SEC. They assigned the bulk of the swaps market —including interest-rate, energy, agricultural, and other commodity-based swaps — to our sister agency, the Commodity Futures Trading Commission, which I had the honor of chairing at the time.

In these reforms, Congress sought to address two main issues in this previously unregulated market: reducing risk and increasing transparency.

The reforms included two main ways to reduce risk. First, dealers would have to register with the SEC. In doing so, they’d need to have key back-office controls and adequate cushions against losses, through both their capital levels and customer margin.

This year, the SEC is implementing rules related to some of those authorities mandated by Congress 11 years ago.

To that end, security-based swap dealers and major security-based swap participants will begin registering with the Commission by Nov. 1. We expect that 45 to 50 entities will register as security-based swap dealers — some of which will be from the same family of firms.

The registration requirements include new counterparty protections, requirements for capital and margin, internal risk management, supervision and chief compliance officers, trade acknowledgement and confirmation, and recordkeeping and reporting procedures. These areas are focused on reducing risk in our markets.

Further, given the global nature of the security-based swaps market, international dealers have asked the SEC for the ability to comply with rules from their home jurisdictions, while still meeting U.S. regulations.

There’s a process that the Commission established several years ago by which we consider whether to grant this substituted compliance to dealers. For the Commission to grant substituted compliance, dealers’ home jurisdictions must have comparable rules of the road to ours in the U.S. and effectively supervise and enforce those rules.

To grant substituted compliance, we must ensure that those other regimes indeed produce comparable outcomes to the SEC’s own regulations. We don’t want dealers to be incentivized to move among jurisdictions so they can take advantage of regulatory arbitrage.

For the last 18 months, the agency has engaged with a number of foreign authorities and security-based swap dealers in consideration of substituted compliance.

The Commission has finalized a substituted compliance determination order with respect to key back-office controls for German firms with a prudential regulator. We expect to receive additional applications for substituted compliance from foreign jurisdictions soon.

One of the features of the SEC’s application process is that completed applications for substituted compliance are also published for notice and comment, and we value the input of commenters into this process. The Commission has noticed applications for the UK and France.

Given the coordination with applicants and foreign authorities, evaluating these substituted compliance applications is a significant undertaking. For example, our substituted compliance regime requires, for jurisdictions where substituted compliance is granted, that there be a supervisory and enforcement memorandum of understanding or other arrangement in place to facilitate information-sharing between the SEC and the relevant foreign authorities. In light of that, SEC staff are working to finalize recommendations to the Commission for substituted compliance determination orders and for the Commission to enter into MoUs expeditiously.

The other part of Dodd-Frank’s risk-reduction regime is through central clearing.

In 2016, we adopted new rules for clearinghouses. The SEC regulates three clearinghouses that voluntarily clear security-based swaps: ICE Clear Credit, ICE Clear Europe, and LCH SA.

Next, I’d like to discuss transparency. Congress determined that the security-based swap markets would benefit from more transparency, promoting efficiency of markets and lowering risks.

Post-trade, this would mean the public could see the price and volume of transactions. Pre-trade, this would mean that buyers and sellers could meet on a trading platform with transparent prices.

In 2015 and 2016, the SEC completed rules related to post-trade transparency. On Nov. 8, these new rules will go into effect, requiring these transaction data to be reported to a swap data depository, and thus available to the SEC and, under appropriate circumstances, other regulators.

Then, beginning on Feb. 14, 2022, the swap data repositories will be required to disseminate data about individual transactions to the public, including the key economic terms, price, and notional value.

Together, this information will greatly enhance post-trade transparency on a transaction-by-transaction basis.

Further, to allow the Commission and the public to see aggregate positions, Congress under Exchange Act section 10B gave us authority to mandate disclosure for positions in security-based swaps and related securities. I’ve asked staff to think about potential rules for the Commission’s consideration under this authority.

As the March collapse of the family office Archegos Capital Management showed, this may be an important reform to consider.

At the core of that story was Archegos’ use of total return swaps based on underlying stocks and significant exposure that the prime brokers had to the family office.

The limited transparency in this market, combined with potential shortcomings in market participants’ risk management, contributed to firms’ taking overly large positions and to subsequent system-wide tremors when firms started to unwind those positions.

I believe additional public disclosure of that fund’s positions, as well as public dissemination of individual transactions in total return swaps, may have helped.

This wasn’t the first time that one fund’s use of total return swaps had far-reaching implications for the capital markets, as the 1998 collapse of Long-Term Capital Management showed.[4]

In addition, the Commission has yet to finish the rules for the registration and regulation of security-based swap execution facilities (SEFs).

Back in 2011, the SEC proposed rules for security-based SEFs. I’ve asked staff to recommend how we can best harmonize security-based SEFs rules with those that have been in place under the CFTC for nine years and have been effective. To accomplish this, I would envision that we would put out another notice-and-comment rulemaking.

I believe aligning the SEC’s regime with the CFTC’s could garner many of the same benefits — bringing together buyers and sellers with transparent, pre-trade pricing and lowering risk in the marketplace.

This approach also could limit additional costs on security-based SEFs and their market participants because many of them already are subject to the CFTC’s rules.

Together, the rules going live this fall will increase transparency and reduce risk in the derivatives market. I believe they’re long overdue.

Various market events over the decades — from Long-Term Capital Management in 1998 to AIG in 2008 to Archegos in 2021 — remind us that we need to consider using all of our authority if we are to meet our obligations under the Dodd-Frank Act.

Thus, I’ve asked staff to consider ways we can continue to increase transparency and reduce risk through our unused authorities, particularly with regard to security-based SEFs and position reporting. I’ve also asked staff to make recommendations on proposed rules for the Commission’s consideration on the anti-fraud and anti-manipulation mandate from Dodd-Frank, as now included in Section 9(j) of the Exchange Act.

Before I conclude, I’d briefly like to discuss the intersection of security-based swaps and financial technology, including with respect to crypto assets. There are initiatives by a number of platforms to offer crypto tokens or other products that are priced off of the value of securities and operate like derivatives.

Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime.

If these products are security-based swaps, the other rules I’ve mentioned earlier, such as the trade reporting rules, will apply to them. Then, any offer or sale to retail participants must be registered under the Securities Act of 1933 and effected on a national securities exchange.

We’ve brought some cases involving retail offerings of security-based swaps; unfortunately, there may be more.

We will continue to use all of the tools in our enforcement toolkit to ensure that investors are protected in cases like these.

Thank you again for having me today, and I look forward to answering your questions.


[1] See Bank for International Settlements, “The credit default swap market: what a difference a decade makes” (June 2018), available at https://www.bis.org/publ/qtrpdf/r_qt1806b.htm.

[2] See CFA Institute, “Credit Default Swaps and the Credit Crisis (Digest Summary),” available at https://www.cfainstitute.org/en/research/cfa-digest/2010/05/credit-default-swaps-and-the-credit-crisis-digest-summary.

[3] See BIS Statistics Explorer, “Credit default swaps, by type of position,” available at https://stats.bis.org/statx/srs/table/d10.1?f=pdf. Cited number refers to notional amounts outstanding for the second half of 2020.

[4] See “Treasury Under Secretary Gary Gensler Testimony Before the House Committee on Banking and Financial Services” (May 6, 1999), available at https://www.treasury.gov/press-center/press-releases/Pages/rr3137.aspx.

TP ICAP to Launch Crypto Trading Platform with Fidelity and Standard Chartered

TP ICAP, a leading provider of market infrastructure, is to launch an innovative wholesale trading platform for cryptoassets, working in collaboration with Fidelity Digital AssetsSM, Zodia Custody and Flow Traders.

The new platform, which is subject to registration with the UK Financial Conduct Authority, will feature a wholesale electronic marketplace for spot cryptoasset trading, including Bitcoin and Ethereum, as well as providing connectivity and post-trade infrastructure into a network of digital assets custodians. 

TP ICAP is working with Fidelity Digital Assets and Zodia Custody, both leading crypto assets custodians, to ensure clients have a segregated and interoperable model for execution and settlement, a key requirement for clients entering this new asset class. The firms have collaborated to develop a new trading model where clients will be able to access liquidity at TP ICAP whilst their assets remain under custody at their digital asset custodian of choice, providing a level of security that institutional investors expect.  Fidelity Digital Assets and Zodia Custody will provide custodian services to the new platform.

TP ICAP launched its Digital Assets business in 2019, enabling clients to trade cryptoasset derivatives products; this new trading platform for the spot market significantly expands the firm’s footprint in this fast-growing area.

Simon Forster, Co-Head of Digital Assets at TP ICAP, said: “Client demand to trade spot cryptoassets is significant and growing, with interest coming from our traditional customer base across the different asset classes we operate in.  But to date many of our clients have been prevented from accessing cryptoasset markets due to current limitations in market infrastructure, with most execution venues requiring pre-funding and also acting as custodian. This poses challenges from a conflict of interest perspective and results in fragmented liquidity. Our partnership, and resultant new platform, is a natural evolution in market structure that will make digital assets, such as Bitcoin, more accessible for the wholesale market.”

TP ICAP has also partnered with Flow Traders, a leading global financial technology-enabled liquidity provider in financial products, historically specialised in Exchange Traded Products (ETPs), now expanding into other asset classes. Flow Traders has been providing liquidity to cryptoasset markets since 2016 and will be one of the initial liquidity providers on this new platform.

Michael Lie, Head of Digital Asset Trading at Flow Traders said “We are delighted to be partnering with TP ICAP as a liquidity provider on this new platform. As the #1 market maker in cryptocurrency ETPs, as well as being a leading spot OTC liquidity provider, we have seen first-hand the increase in institutional interest in cryptoassets. We have long been in favour of initiatives such as this that will make the crypto space more accessible for investors.”

The platform has already started to onboard clients and will launch to the market in the second half of the year, by which time TP ICAP expects to announce additional liquidity providers. TP ICAP is also working closely with a number of additional strategic custody partners and expects to expand its network of digital asset custodians as it establishes a new industry model for clearing and settlement.

The TP ICAP Digital Assets business is led by Duncan Trenholme and Simon Forster and operates from the firm’s offices in London, New York, and will soon expand into Asia. The trading platform, which will be launched in London, will be made available globally to customers across the TP ICAP Group as well as to new clients of the firm seeking market access to this new asset class.

Andrew Polydor, Global Head of Markets at TP ICAP, said: “This platform will provide our global client base with the trading infrastructure, connectivity, surveillance, and market standards they require as a minimum across traditional markets whilst also recognising the nuances of this new asset class. It leverages mature trading technology developed by our partners GMEX Technologies, to provide spot liquidity in digital assets as well as access to multiple custodians via a bespoke post-trade solution. These are key requirements for our institutional clients who want to be able to trade, invest and safely access this growing area of the market.”

Chris Tyrer, head of Fidelity Digital Assets in Europe, said: “Collaborating with industry leaders like TP ICAP to bring to market innovative solutions that strengthen the digital assets ecosystem is critical to enabling even more institutional participation. With this new infrastructure, we’re addressing one of the frictions in the investor experience that’s unique to this nascent asset class. Now, investors can more confidently execute trades knowing their assets remain still and secure in our custody.”

Maxime de Guillebon, Chief Executive Office of Zodia Custody said: “Zodia and TP ICAP share the same vision of the future of crypto asset investing. By combining liquidity with institutional-grade custody we will create an ecosystem that complements the expectations of institutional investors in terms of segregation of duties and asset safety. This infrastructure will enable operational efficiency and speed of transaction without compromising on security or reliability.”

Zodia Custody is a venture incubated by SC Ventures, the innovation arm of Standard Chartered.  Zodia combines the Banks’ expertise as trusted custodians with the agility of a fintech company to drive industry leadership and transformation.  Zodia is a cryptocurrency custodian serving institutional clients across the globe. Zodia is in the process of registering with the FCA under UK Money Laundering Regulations and expects to launch commercially in the second half of 2021.

CME Group to Launch Micro WTI Futures on July 12

CME Group, the world’s leading and most diverse derivatives marketplace, today announced it will expand its suite of micro-sized futures contracts with the introduction of Micro WTI futures.  The contracts are expected to launch on July 12, pending regulatory review.

Micro WTI futures will be one-tenth the size of the company’s global benchmark WTI Crude Oil futures contract and cash-settled. They will enable market participants – from institutions to sophisticated, active, individual traders – to fine-tune exposure to crude oil markets and enhance their trading strategies in an efficient, cost-effective way.

“As U.S. crude continues to gain global significance, we are seeing increasing demand for tools that help a broader range of clients access these markets,” said Peter Keavey, Global Head of Energy Products at CME Group. “WTI futures have always been a top product for active traders around the world, and the smaller size of Micro WTI futures will offer more flexibility and greater precision to market users – all while enabling them to benefit from the transparency and liquidity of the world’s most robust crude oil contract.”

“Interactive Brokers’ advantage has always been our low cost, advanced technology, and breadth of products offered,” said Steve Sanders, Executive Vice President, Marketing and Product Development at Interactive Brokers. “We are excited to add Micro WTI futures to our product roster, which will allow more of our sophisticated individual investor and active trader clients to participate in the global oil markets.”

“We continue to see demand from retail active traders for micro sized futures products like this that provide access to attractive markets with greater flexibility and efficiency,” said J.B. Mackenzie, Managing Director at TD Ameritrade Futures and Forex, LLC.  “The launch of Micro WTI futures brings the crude oil markets to our clients in a more cost-effective way and is one more tool to help our clients diversify their exposure and hone their trading strategies.”

“As a growing audience of self-directed investors and traders continues to gravitate to the futures markets, we are excited to introduce the new Micro WTI Crude Oil contracts to the NinjaTrader user community,” said Martin Franchi, CEO of NinjaTrader Group, LLC.  “The smaller contract size available through this product innovation will significantly increase accessibility for more traders to this dynamic market and the opportunities available through futures.”

“TradeStation Securities, Inc. is proud to continue our strong relationship with CME through the launch of Micro Crude Oil Futures. As a platform for retail and institutional investors, we’re excited to offer our clients access to U.S. crude at a lower barrier of entry,” said John Bartleman, President of TradeStation Group, Inc., TradeStation’s parent company. “As day-one supporters of this new product, we’re continuing to prioritize our clients access to the latest Futures products and technology.”

Micro WTI futures will be cash-settled based on the daily settlement price of NYMEX WTI futures. The contracts will be listed on and subject to the rules of NYMEX. For more information or for product specifications please see: https://cmegroup.com/micro-wti

As the world’s leading and most diverse derivatives marketplace, CME Group (www.cmegroup.com) enables clients to trade futures, options, cash and OTC markets, optimize portfolios, and analyze data – empowering market participants worldwide to efficiently manage risk and capture opportunities. CME Group exchanges offer the widest range of global benchmark products across all major asset classes based on interest ratesequity indexesforeign exchangeenergyagricultural products and metals.  The company offers futures and options on futures trading through the CME Globex® platform, fixed income trading via BrokerTec and foreign exchange trading on the EBS platform. In addition, it operates one of the world’s leading central counterparty clearing providers, CME Clearing. With a range of pre-and post-trade products and services underpinning the entire lifecycle of a trade, CME Group also offers optimization and reconciliation services through TriOptima, and trade processing services through Traiana.

Cboe Options Exchange to Extend Global Trading Hours for VIX and SPX Options to Nearly 24 Hours-a-Day

  • Expansion of current GTH session planned for fourth quarter 2021, subject to regulatory review
  • Will provide global investors the ability to trade Cboe’s flagship U.S. index options during local trading day and around the clock
  • Builds on growing customer demand, combined ADV for SPX and VIX options during current GTH session increased 76 percent in 2020 over the prior year

Cboe Global Markets, Inc. (Cboe: CBOE), a market operator and global trading solutions provider, announced plans to extend the global trading hours session (GTH) for its S&P 500 Index options (SPX) and Cboe Volatility Index (VIX) options to nearly 24 hours each business day on Cboe Options Exchange in the fourth quarter of 2021, subject to regulatory review.

Cboe’s move to offer a nearly 24 hours-a-day, five days-a-week (24×5) trading model aims to provide global market participants with expanded access to trade Cboe’s exclusively listed U.S. index options products based on the S&P 500 Index (SPX), the global benchmark of large-cap U.S. equities, and the Cboe Volatility Index (VIX), recognized as the world’s premier gauge of U.S. equity market volatility. The lengthened global trading hours are designed to help meet growing investor demand for the ability to manage risk more efficiently, react to global macroeconomic events as they are happening and adjust SPX and VIX options positions around the clock. 

“The S&P 500 and VIX Indices are widely tracked globally, with Cboe’s SPX and VIX options used by investors both domestically and internationally looking to trade, hedge or gain exposure to the broad U.S. market and global equity volatility,” said Arianne Criqui, Senior Vice President, Head of Derivatives and Global Client Services at Cboe Global Markets. “As financial markets around the world become more interconnected, it is crucial that market participants have the ability to trade products that meet their investing objectives when and how they need, no matter the time of day. Cboe continues to focus on broadening its geographic reach and extending access to its unique product set to investors around the globe to meet this demand.”

Cboe’s expansion of its GTH session is expected to complement its planned entry into the Asia Pacific markets, where it sees opportunity to further broaden its distribution network and offer a wide range of its core product offerings, including its proprietary products and global market data service, to customers in the region. On March 24, Cboe announced its plans to acquire Chi-X Asia Pacific Holdings, Ltd., operator of Chi-X Australia and Chi-X Japan. 

SPX and VIX options are currently available in a GTH session that runs from 3:00 a.m. ET to 9:15 a.m. ET. In 2020, the combined average daily volume (ADV) for SPX and VIX options during the current GTH session increased 76 percent over 2019. VIX futures are currently available in nearly 24×5 trading. In 2020, over 15 percent of total VIX futures volume occurred in GTH, up from 13 percent in 2019. 

The planned expanded GTH session would commence at 8:15 p.m. ET and run until 9:15 a.m. ET the following morning. Regular trading hours (RTH) then run from the U.S. market open at 9:30 a.m. ET until the market close at 4:15 p.m. ET. The RTH session will also be followed by a new curb session – an extra half hour session for electronic trading beginning at 4:30 p.m. ET– which will be added Monday through Friday in the third quarter of 2021. For each Monday business day, trading in GTH would begin Sunday evening.

The extended GTH session will not impact operations of regular trading hours on the Cboe Options Exchange trading floor in Chicago. For additional information on the extended global trading hours for SPX and VIX options, please click here.

ASIC bans the sale of binary options to retail clients

ASIC has made a product intervention order banning the issue and distribution of binary options to retail clients.

The ban will take effect from Monday 3 May 2021 after ASIC found that binary options have resulted in and are likely to result in significant detriment to retail clients.

ASIC reviews in 2017 and 2019 found that approximately 80% of retail clients lost money trading binary options. ASIC found that binary options are likely to result in cumulative losses to retail clients over time because of their product characteristics:

  • the ‘all or nothing’ payoff structure, where one of the two possible outcomes for a binary option contract is that the retail client will lose their entire investment amount;
  • short contract duration (the average contract duration of binary options traded with one provider was less than six minutes); and
  • negative expected returns (that is, the present value of the expected payoff for a binary option contract is lower than the initial investment).

Commissioner Armour said, ‘Binary options’ product characteristics make them incompatible with investment or risk management use by retail clients. ASIC’s product intervention order will protect retail investors from these harmful products at a time of heightened vulnerability.’

ASIC estimates that retail clients’ net losses from trading binary options were around $490 million in 2018. The size of the market in Australia has since reduced significantly after ASIC issued a warning in April 2019 against providing unlicensed or unauthorised services to clients located in several foreign jurisdictions. Australian retail clients are estimated to have made net losses of more than $6.7 million in 2019.

ASIC’s binary options ban brings Australian requirements into line with prohibitions in force in comparable markets and follows the commencement on 29 March 2021 of ASIC’s product intervention order imposing conditions on contracts for difference offered to retail clients.

The order will remain in force for 18 months, after which it may be extended or made permanent. Civil and criminal penalties apply to contraventions of the product intervention order.

Background

A binary option is a cash-settled, over-the-counter (OTC) derivative entered into by two counterparties—the binary option issuer and the client. The ‘all-or-nothing’ payout under a binary option contract is determined by the occurrence or non-occurrence of a specified event in a defined timeframe. This can include an event related to movements in the price of a financial product or a market index (for example, the price of gold increasing in 30 seconds) or an economic event (such as a central bank interest-rate decision).

Regulatory Guide 272 Product intervention power provides an overview of ASIC’s product intervention power, when and how ASIC may exercise the power and how a product intervention order is made.

On 22 August 2019, ASIC released CP 322, seeking feedback on proposals to use its product intervention power to address significant detriment to retail clients resulting from binary options and CFDs (refer 19-220MR). CP 322 attracted more than 400 responses from consumers, consumer groups, CFD issuers, industry bodies and other stakeholders.

On 23 October 2020, ASIC made a product intervention order imposing conditions on the issue and distribution of contracts for difference (CFDs) to retail clients (refer 20-254MR). From 29 March 2021, ASIC’s order strengthens consumer protections by reducing CFD leverage available to retail clients and by targeting CFD product features and sales practices that amplify retail clients’ CFD losses.

In addition to the product intervention orders, ASIC’s actions to address concerns about binary options and CFDs include:

  • enforcement action to address misconduct
  • public warning notices and other statements
  • surveillance projects and thematic reviews
  • stronger regulations
  • extensive retail client education campaigns and guidance for binary option issuers.

More information about ASIC’s supervision and enforcement work is available on our website. ASIC’s Moneysmart website has further information about binary options.

ASIC’s CFD product intervention order takes effect

ASIC’s product intervention order imposing conditions on the issue and distribution of contracts for difference (CFDs) to retail clients takes effect from today.

The order strengthens protections for retail clients trading CFDs after ASIC found that CFDs have resulted in, and are likely to result in, significant detriment to retail clients.

ASIC’s order reduces CFD leverage available to retail clients and targets CFD product features and sales practices that amplify retail clients’ CFD losses, such as providing inducements to become a client or to trade. It also brings Australian practice into line with protections in force in comparable markets elsewhere.

The maximum CFD leverage available to retail clients will range from 30:1 to a 2:1, depending on the underlying asset class. Before now, a retail investor’s CFD exposure could be as much as 500 times their original outlay.

ASIC Commissioner Cathie Armour said ‘We will closely monitor compliance with the product intervention order and won’t hestitate to take appropriate action to enforce the order.’

‘We are also paying careful attention to changes in CFD providers’ reported holdings of retail client money and any mis-classification of retail clients as wholesale clients, which would risk denying them important rights and protections. Protecting retail investors from harm, particularly at a time of heightened vulnerability, is a priority for ASIC,’ Commissioner Armour said.

The maximum penalty for a contravention of a product intervention order is five years’ imprisonment for individuals and substantial pecuniary penalties of up to $555 million for corporations.

If a court finds that a person has contravened a product intervention order, a retail client may recover the amount of loss or damage suffered because of the contravention.

The product intervention order will remain in force for 18 months, after which it may be extended or made permanent.

Background

A CFD is a leveraged derivative contract that allows a client to speculate in the change in value of an underlying asset, such as foreign exchange rates, stock market indices, single equities, commodities or cryptoassets.

Regulatory Guide 272 Product intervention power provides an overview of ASIC’s product intervention power, when and how ASIC may exercise the power, and how a product intervention order is made.

On 22 August 2019, ASIC released Consultation Paper 322 Product intervention: OTC binary options and CFDs (CP 322) seeking feedback on proposals to use its product intervention power to address significant detriment to retail clients resulting from over-the-counter (OTC) binary options and CFDs (refer 19-220MR). CP 322 attracted over 400 responses from consumers, consumer groups, product issuers, industry bodies and other stakeholders.

On 23 October 2020, ASIC made a product intervention order imposing conditions on the issue and distribution of contracts for difference (CFDs) to retail clients (refer 20-254MR).

In addition to the product intervention order, ASIC’s actions to address concerns about CFDs include:

  • enforcement action to address misconduct (for example, refer 21-051MR20-246MR, and 20-161MR)
  • public warning notices and other statements
  • surveillance projects and thematic reviews
  • stronger regulations
  • extensive retail client education campaigns and guidance for binary option issuers.

More information about ASIC’s supervision and enforcement work is available on our website. ASIC’s MoneySmart website has further information about forex trading and CFDs.

ASIC’s proposal in CP 322 to ban the issue and distribution of binary options to retail clients is still under consideration and a decision has not yet been made.

CME Group to Launch Micro Bitcoin Futures on May 3

CME Group, the world’s leading and most diverse derivatives marketplace, today announced it will expand its suite of crypto derivatives with the introduction of a new Micro Bitcoin futures contract on May 3, pending regulatory review.

Micro Bitcoin futures will be one-tenth the size of one bitcoin. The smaller-sized contract  will provide market participants – from institutions to sophisticated, active, individual traders – with one more tool to hedge their spot bitcoin price risk or execute bitcoin trading strategies in an efficient, cost-effective way, all while retaining the features and benefits of CME Group’s standard Bitcoin futures.

“Since the launch of our Bitcoin futures contract in 2017, we have seen steady, ongoing growth of liquidity and market participation in our crypto derivatives, especially among institutional traders,” said Tim McCourt, CME Group Global Head of Equity Index and Alternative Investment Products. “The introduction of Micro Bitcoin futures responds directly to demand for smaller-sized contracts from a broad array of clients and will offer even more choice and precision in how participants can trade regulated Bitcoin futures in a transparent and efficient manner at CME Group.”

Micro Bitcoin futures will join CME Group’s growing suite of cryptocurrency derivatives, including Bitcoin futures and options and recently launched Ether futures. In 2021-to-date, 13,800 CME Bitcoin futures contracts (equivalent to about 69,000 bitcoin) have traded on average each day. In addition, CME Ether futures have seen 767 contracts traded (equivalent to 38,400 ether) on average each day since launched on February 8.

The new contract will be cash-settled, based on the CME CF Bitcoin Reference Rate, which serves as a once-a-day reference rate of the U.S. dollar price of bitcoin. Micro Bitcoin futures will be listed on and subject to the rules of CME.  

For more information on this product, please see: www.cmegroup.com/microbitcoin.

As the world’s leading and most diverse derivatives marketplace, CME Group (www.cmegroup.com) enables clients to trade futures, options, cash and OTC markets, optimize portfolios, and analyze data – empowering market participants worldwide to efficiently manage risk and capture opportunities. CME Group exchanges offer the widest range of global benchmark products across all major asset classes based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals.  The company offers futures and options on futures trading through the CME Globex® platform, fixed income trading via BrokerTec and foreign exchange trading on the EBS platform. In addition, it operates one of the world’s leading central counterparty clearing providers, CME Clearing. With a range of pre- and post-trade products and services underpinning the entire lifecycle of a trade, CME Group also offers optimization and reconciliation services through TriOptima, and trade processing services through Traiana.

Murban Crude Oil Futures – ADM

The Murban Crude Oil Future is a physically delivered contract, basis FOB Fujairah (ADNOC) loading terminal, UAE.

The contract will provide users with an effective hedging instrument for Arab Gulf crude oil and other grades trading into the Asia Pacific Region. The underlying physical market is for Murban crude oil available without the local Abu Dhabi resale restriction.

Trading Screen Product Name

Murban Crude Futures

Trading Screen Hub Name

Abu Dhabi

Product

Murban Crude Oil, as defined in the Exchange and Clearing House rules.

Contract Symbol

ADM

Contract Size

1,000 barrels

Unit of Trading

Any multiple of 1,000 barrels

Currency

US Dollars and cents

Trading Price Quotation

One cent ($0.01) per barrel

Settlement Price Quotation

One cent ($0.01) per barrel

Minimum Price Fluctuation

One cent ($0.01) per barrel

Last Trading Day

Trading in the prompt delivery month shall cease at 16:30 Singapore Prevailing Time on the last Trading Day of the second month preceding the delivery month.

If the day on which trading is due to cease is the Trading Day preceding New Year’s Day, then trading shall cease on the next preceding Trading Day.

Daily Settlement

The Daily Settlement Price will be published at 19:30 London Prevailing Time every Trading Day with the exception of the Last Trading Day where no such prices for the expiring contract month will be published.

The Daily Settlement Price is the volume weighted average price of trades between 19:28 and 19:30 London Prevailing Time, or as determined by the Exchange, as detailed within the Trading Procedures of the IFAD Rulebook.

Exchange Delivery Settlement Price

The final settlement price, as determined by the Exchange on the Last Trading Day of the expiring contract month, will be the Marker Price published at 16:30 Singapore Prevailing Time and shall be the basis for delivery.

Markers

The Exchange will publish daily Marker Prices at 16:30 Singapore Prevailing Time and 16:30 London Prevailing Time (or as otherwise determined and communicated by the Exchange from time to time).

Each Marker will be a volume weighted average price of trades in the one minute preceding the marker time and will be published for the front three contract months.

There will be no Marker Price published at 16:30 London Prevailing Time on the Last Trading Day for the expiring contract month.

Delivery Date

Delivery shall commence no earlier than the first Terminal Loading Day of the delivery month and no later than the third Terminal Loading Day prior to the end of the said delivery month. Futures delivery shall be completed within the delivery month.

Delivery Methods

Delivery shall be made by the Seller to the Buyer on a F.O.B. basis at the Fujairah (ADNOC) loading terminal and shall be made in accordance with all applicable State and local laws and regulations. Delivery is to be made into Buyer’s Vessel during the delivery month.

A loading volume tolerance of plus or minus 0.2% of the contract volume is permitted.

There is no specified minimum quantity of Murban Crude Oil to be delivered for the purposes of this Contract. However, parties should be made aware that in relation to each Vessel the Terminal Operator imposes a minimum loading requirement (which may be amended from time to time) of two hundred thousand (200,000) Barrels for deliveries at the Terminal.

For the purposes of complying with the minimum limit imposed by the Terminal Operator, Members may co-load Barrels resulting from over the counter (OTC) transactions with Exchange traded transactions relating to the Contract.

Contract Series

Up to 48 consecutive months

Business Days

ICE business days

MIC Code

IFAD

Clearing Venues

ICEU

MiFID II position limit regime

The EU has recently adopted amendments to the position limit regime for commodity derivatives in Directive 2014/65/EU (MiFID II), which in Norway has been implemented in Chapter 15 of the Securities Trading Act. The European Securities and Markets Authority (ESMA) has issued a statement on the consequences these changes should have for the supervisory follow-up of the commodity derivatives markets in the EU until they have been implemented in national law.

The amendments to the position limit regime are part of the EU’s ‘Capital Markets Recovery Package’ (CMRP), which aims to reduce the negative impact of the Covid-19 pandemic on the European financial market. An important reason for the amendments is that the current rules have proven to inhibit the development of new and less liquid commodity derivatives markets. In addition, there have been few liquidity providers in the commodity derivatives market. The EU countries shall implement the changes in their respective national law with effect from 28 February 2022.

Pending the upcoming regulatory changes, ESMA has expressed an expectation that national competent authorities will not prioritise their supervisory actions towards:

  • natural or legal persons holding positions in commodity derivatives, other than agricultural commodity derivatives (including seafood derivatives), with a net open interest below 300,000 lots
  • positions that are objectively measurable as resulting from transactions entered into to fulfil obligations to provide liquidity on a trading venue as referred to in point (c) of the fourth subparagraph of Article 2(4) of MiFID II

Finanstilsynet has taken note of ESMA’s statement and will not prioritise such supervisory actions.

Read ESMA’s statement: