Category Archives: Futures

CFTC Charges Former Hawaii Resident in Forex and Futures Ponzi Scheme

The Commodity Futures Trading Commission today filed a civil enforcement action in the U.S. District Court for the District of Hawaii against Gregory Demetrius Bryant, Jr., formerly of Hawaii, for fraudulent solicitation, misappropriation, operation of an unlawful commodity pool, and failure to register with the CFTC.

According to the complaint, Bryant fraudulently solicited approximately $426,000 from at least 35 participants for pooled futures and foreign currency (forex) trading—misappropriating at least $356,000 to pay personal expenses, including international travel, shopping, and rent, as well as at least $66,000 to make Ponzi payments to conceal and further his fraudulent scheme.

Case Background

The complaint alleges that since approximately September 2016 through at least June 2020, Bryant—while using the alias “Gregory Surrey England,” purported president of the nonexistent company “Surrey Libor Capital, LLC”—falsely guaranteed monthly futures and forex trading returns of $6,000 to $8,000 in some instances and 60 percent to 80 percent in other instances. It is further alleged that Bryant made numerous false statements to prospective and current pool participants about his trading experience, his trading success, and being registered with the National Futures Association. According to the complaint, Bryant also failed to tell pool participants that he was a convicted criminal with a history of financial problems, including three bankruptcies.

Rather than trade futures and forex as he represented in his solicitations, Bryant, as alleged, misappropriated the vast majority of pool funds for personal expenses and to make purported “returns” to pool participants. Bryant further concealed his fraud and misappropriation of pool participants’ funds by falsely telling them their accounts were “in great shape,” to expect returns or disbursements soon, and/or that his business was being impacted by the coronavirus pandemic.

In its continuing litigation, the CFTC seeks restitution, disgorgement of ill-gotten gains, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.

The CFTC acknowledges and thanks the National Futures Association, the Federal Bureau of Investigation, and the U.S. Attorney’s Office for the District of Hawaii for their assistance.

The Division of Enforcement staff members responsible for this case are Elsie Robinson, Rachel Hayes, Jenny Chapin, Jeff Le Riche, Christopher Reed, Charles Marvine, and former staff member Jo Mettenburg.

CFTC’s Commodity Pool and Forex Fraud Advisories

The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Commodity Pool Fraud Advisory and the Forex Fraud Advisory, which alert customers these types of fraud and list simple ways to spot them.

The CFTC also strongly urges the public to verify a company’s or individual’s registration with the CFTC before committing funds. If unregistered, a customer should be wary of providing funds to that company or individual. A company’s or individual’s registration status can be found using NFA BASIC.

Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), file a tip or complaint online, or contact the Whistleblower Office. Whistleblowers are eligible to receive between 10 and 30 percent of the monetary sanctions collected paid from the Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the CEA. 

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.

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.

Federal Court Orders Virginia Resident to Pay More Than $5 Million for Futures and Options Fraud

The Commodity Futures Trading Commission announced today that Judge John A. Gibney, Jr., of the U.S. District Court for the Eastern District of Virginia entered a Consent Order for Permanent Injunction, Restitution and Ancillary Equitable Relief against defendant Leonard J. Cipolla finding, among other things, that Cipolla fraudulently solicited individuals to place funds in a commodity pool to trade futures and options while misappropriating more than $5 million of the money he was given to trade. The order requires that Cipolla pay restitution of $5,102,283.51 and imposes permanent trading and registration bans.

The order resolves a CFTC action against Cipolla filed in the Eastern District of Virginia on September 19, 2019. [See CFTC Press Release No. 8020-19] Litigation against Cipolla’s company, Tate Street Trading, Inc., continues. 

Case Background

According to the order, and as Cipolla admitted, from June 2009 through April 2019, Cipolla fraudulently solicited and received approximately $7,096,303 from pool participants in connection with futures and options pooled trading. The order also found that Cipolla misappropriated more than $2.5 million for business expenses or personal use and made more than $3 million in Ponzi-like payments to pool participants.  

Despite having accepted approximately $7,096,303 from pool participants, the order found that Cipolla transferred only approximately $1,462,834 into Tate Street’s trading accounts. While Cipolla typically promised pool participants substantial returns, his actual trading between June 2009 and April 2019 was profitable in only two years and resulted in cumulative net losses of approximately $1,462,305. The order also found that Cipolla provided statements to pool participants that did not accurately reflect their trading results.

Parallel Criminal Action

In a separate, parallel criminal action, the U.S. Attorney for the Eastern District of Virginia previously announced that Cipolla pleaded guilty to mail fraud and acting as an unregistered commodity pool operator in connection with the scheme. On July 1, 2020, Cipolla was sentenced to 121 months in federal prison and ordered to pay restitution to victims. [See United States v. Leonard J. Cipolla, Case No. 3:19-cr-00126, ECF No. 40 (E.D. Va. Jul. 1, 2020)]

The CFTC cautions that orders requiring repayment of funds to victims may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

The CFTC appreciates the cooperation and assistance of the U.S. Attorney’s Office for the Eastern District of Virginia in this matter.

The Division of Enforcement staff members responsible for this case are James A. Garcia, Michael Loconte, James Deacon, Erica Bodin and Rick Glaser.

Federal Court Orders Oregon Owner of Precious Metals Firm to Pay $1.3 Million to Victims of Fraudulent Precious Metals Scheme

The Commodity Futures Trading Commission today announced that the U.S. District Court for the Western District of Washington entered a consent order against Aaron Michael Scott of Portland, Oregon for fraud and misappropriation in connection with a precious metals scheme run by Scott and his now defunct company, BMC Worldwide, Inc. (d/b/a Blue Moon Coins).  The order requires Scott to pay $1,381,461.86 in restitution to defrauded customers. Additionally, the order prohibits Scott from further violations of the Commodity Exchange Act and CFTC Regulations and permanently bans him from registering with the CFTC and trading in any commodity interests.

Case Background

The order resolves a CFTC action against Scott for engaging in fraud and misappropriation in connection with a gold-and-silver scheme from at least October 2013 through April 2014. The case was filed on October 3, 2018. [See CFTC Press Release No. 7822-18]

The order finds that Scott and BMC fraudulently represented that BMC was a highly successful precious metals firm. As detailed in the order, Scott and BMC persuaded customers to purchase gold and silver from BMC by claiming that, among other things, they maintained an inventory of precious metals in stock and would fulfill a customer’s order from that inventory or would purchase precious metals from a supplier upon receipt of payment.

The order also states that Scott and BMC did not maintain an inventory of precious metals sufficient to fulfill customer orders and, in many cases, made no effort to secure the precious metals needed to fulfill customer orders. Instead, they misappropriated the vast majority of customer funds and used them to pay BMC’s operating expenses, invest in other businesses, pay unrelated debts, and refund disgruntled customers or fulfill other customer orders in the nature of a Ponzi scheme.

Parallel Criminal Action

In a separate, parallel criminal action, Scott pleaded guilty to wire fraud on November 1, 2018. [United States v. Scott, No. CR18-5500-RBL (W.D. WA.)]  The court sentenced Scott to four years in prison and three years of supervised release on April 5, 2019. The CFTC appreciates the assistance of the U.S. Attorney’s Office for the Western District of Washington.

The CFTC cautions that orders requiring repayment of funds to victims may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure wrongdoers are held accountable.

The Division of Enforcement staff members responsible for this case are Stephen Turley, Jenny Chapin, Brett Shanks, Jeff Le Riche, Christopher Reed, and Charles Marvine, as well as former staff members James Humphrey, Peter Riggs, and Jo Mettenburg. 

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CFTC’s Precious Metals Customer Fraud Advisory

The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Precious Metals Fraud Advisory, which alerts customers to precious metals fraud and lists simple ways to spot precious metals scams.

Also, before investing or trading with a firm, check the firm’s registration status and disciplinary history, if registered, with the National Futures Association. A company’s registration status can be found at: www.nfa.futures.org/basicnet.

Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), file a tip or complaint online, or contact the CFTC Whistleblower Office at whistleblower.gov. Whistleblowers are eligible to receive between 10 and 30 percent of the monetary sanctions collected paid from the CFTC Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the Act.

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

FIA survey shows strong outlook for cleared derivatives markets

China, bitcoin and operations are key focus while pandemic and political risks top concerns

16 March 2021

By Will Acworth

FIA conducted a survey at the beginning of 2021 to assess the outlook for the global cleared derivatives industry. The survey gathered feedback from people working at banks, brokers, exchanges, technology vendors and other firms that support the trading and clearing of derivatives such as futures and options.

Download the full survey results.

The purpose of the survey was to gauge sentiment in four areas:

  1. The outlook for trading activity, profitability and competition over the next 12 months.
  2. Current political, regulatory and technology issues facing the industry.
  3. The degree of interest in two emerging areas of growth — China and bitcoin.
  4. The need for modernization and innovation in the trading and clearing workflow. 

FIA conducted the survey during January and February. Responses were collected on an anonymous basis. A total of 274 responses were received, with 57% from the Americas, 31% from Europe and the Middle East, and 12% from the APAC region.

The responses came primarily from firms that are directly involved in supporting the infrastructure of the global cleared derivatives markets, with 22% from exchanges and clearinghouses, 34% from banks and brokers that serve as intermediaries for customers accessing these markets, 22% from technology vendors and service providers, and 14% from asset managers, commodity suppliers and proprietary trading firms.

The intermediary category includes three types of firms: banks that provide trading and clearing services for their customers, non-bank firms that provide trading and clearing services, and brokers that provide execution services only.

Main findings:

  • Optimism on volume: The survey found that two-thirds of respondents expect trading volume, one of the main drivers for growth in this industry, to continue rising in 2021. Derivatives based on commodities and equities, both of which set records for the number of contracts traded in 2020, are seen as the areas with the highest potential for growth.
  • Pandemic concerns: The survey also found deep concern about the pandemic’s impact, with half of respondents ranking it as the top concern facing the industry this year. Political risk came in second on the list of concerns, followed by technology disruption. Capital requirements, one of the biggest concerns for many firms after the financial crisis, ranked fourth.
  • Brexit challenges: The survey found that Brexit is viewed primarily as a regulatory challenge. Relatively few people expressed concern about its potential to disrupt derivatives markets, which may reflect the fact that many firms have already relocated staffing and reoriented their systems. Instead, the respondents flagged the potential for regulatory conflicts and compliance issues as a more critical problem for the industry, given that many firms will need to comply with both UK and EU rules in order to continue serving their customers.
  • China opportunities: The survey also assessed the industry’s level of engagement with the Chinese futures markets, which are among the largest and fastest growing in the world. Access to these markets is limited, but 24% of the respondents reported that their firms are already actively participating, and another 9% said that their firms are likely to enter by the end of this year.
  • Digital assets: The survey found a similar level of engagement with digital assets. Among respondents, 31% said their firms are already participating in markets for bitcoin and other digital assets, and another 10% said their firms are likely to enter by the end of this year. The responses showed a marked split by type of firm, however. Exchanges, independent brokers and technology vendors were the most engaged with this new asset class, while banks and asset managers tended to be “watching with interest” from the sidelines.
  • Technology trends: Looking inward at the industry’s use of technology, respondents pointed to several areas in the trading and clearing process where innovation and modernization are needed. Post-trade processing was at the top of the list, followed by regulatory compliance and then risk management and collateral management tied for third.

Outlook for trading volume

The survey asked for feedback on expectations for trading volumes in derivatives markets over the next 12 months. Results showed 66% of the respondents said they expect trading volumes to increase, 23% said they would stay the same, and 11% said they would decrease.

Breaking down responses by type of firm, bank-owned clearing firms were not as optimistic as other segments of the industry. Only 44% of respondents working at bank-owned clearing firms thought volumes would increase, compared to 76% of respondents working at independent clearing firms and 71% of respondents working at exchanges and clearinghouses.

Regionally, respondents in the Asia Pacific region and the Americas were more confident of growing volumes over the next 12 months, with 72% and 70% expecting an increase, respectively. In contrast, only 56% of the respondents in the EMEA region expected trading volume to increase.

When asked which region has the greatest potential for growth, 45% of all respondents said Asia Pacific and 36% said the US. This finding is in-line with recent trends in trading activity. In 2020, the total number of contracts traded on exchanges in the Asia Pacific region jumped 39% from the previous year, with exchanges in China and India accounting for most of that increase. Meanwhile, trading on North American exchanges rose 25% from the previous year, with a surge in retail trading of equity futures and options offsetting a decline in the trading of interest rate contracts.

Not surprisingly, respondents in Asia Pacific were the most optimistic about that region, with 82% seeing APAC as having the highest potential for growth over the next 12 months. On the other hand, respondents in the Americas were more split, with 49% favoring the US and 36% favoring APAC. The EMEA region’s participants were the most evenly balanced in their views, with 45% favoring APAC, 23% EMEA and 22% the US.

When asked which asset classes have the greatest potential for growth, 33% of all respondents said derivatives based on commodities and 27% said equities. These two categories both set records in 2020 for the annual number of contracts traded. In addition, these two categories are likely to gain as economic activity returns to normal over the course of 2021.

Breaking the asset class responses down by type of firm, respondents working at exchanges and clearinghouses saw equal potential for growth in commodities and equities. Clearing firms, on the other hand, were split. Bank-owned clearing firms were more optimistic about equities, while independent clearing firms were more optimistic about commodities. This may reflect differences in their client bases; asset managers that use equity futures and options as investment tools typically use bank-owned clearing firms, while companies involved in the production and processing of commodities often rely on independent clearing firms.

The survey also asked for views on other growth trends. The survey found that industry professionals generally are optimistic about the outlook for profitability at their firms, with 61% expecting it to rise over the next 12 months and only 12% expecting it to decrease. On the other hand, most people expect the level of competition to intensify. When asked about the competition that their firms face in the derivatives markets, 53% said they expect competition to increase over the next 12 months, 34% said they expect it to stay the same, and only 13% said they expect it to decrease.

Industry Issues

The FIA survey asked respondents to name the top three most important issues currently facing the global markets.

The most cited issue was the pandemic’s impact on business. Although the derivatives markets were able to continue operating during the pandemic without significant disruption, the health of these markets is closely tied to the level of economic activity. Many institutional investors pulled back from trading derivatives during 2020, particularly interest rate derivatives, and commercial hedging was curtailed in several important commodity markets.

Second on the list was political risk, a sign that many industry professionals are worried about the potential impact of new legislation and regulation. This is especially true in the US, which at the time of the survey was undergoing a transition to a new administration. It also may reflect ongoing concerns about economic disputes between the US and China, which have led to new restrictions on certain types of cross-border trading.

Third on the list was technological disruption. Although this issue is not new, several recent developments have brought it to the fore, notably the emergence of new forms of retail trading, rapid advances in the use of the cloud, and greater use of artificial intelligence in many parts of the trading lifecycle.

Drilling down to responses by type of firm, respondents working at bank-owned clearing firms listed capital requirements as their top concern, ahead of the pandemic, political risk and technological disruption. This reflects the impact of the Basel III capital requirements on the cost of providing clearing services to clients. These requirements apply only to banks, but they also have an indirect effect on clients by reducing the capacity of bank-owned clearing firms to take on more risk. That helps explain why market-making firms, many of which rely on banks to clear their trades, cited capital requirements as the second-most important issue facing the industry after political risk.

The survey also revealed several insights on the impact of Brexit. Only 16% of the respondents cited market disruptions related to Brexit as one of the top three issues facing the industry. This may reflect the fact that at the time the survey was conducted, many firms had already relocated staffing and reoriented their trading and clearing systems in anticipation of the UK’s departure from the European Union.

Instead, the respondents flagged the potential for regulatory conflicts and compliance issues as a more critical problem for the industry, given that many firms will need to comply with both UK and EU rules in order to continue serving their customers. When asked to identify their top concern about the impact of Brexit on the derivatives industry, 51% said regulatory conflicts and compliance costs, 23% said market fragmentation, and 19% said higher costs to run their businesses.

The survey revealed significant concerns about two other issues facing the industry — cyber risk and market data. Roughly one third of all respondents ranked cyber risk as one of the top three issues facing the industry, a sign that people in the derivatives industry are worried about the risk that cyber criminals will penetrate networks, access confidential files, and disrupt markets. Another 24% included the cost of market data in their list of the top three issues facing the industry. Market data is essential to trading and clearing operations, and the exchanges that produce these data derive a large and growing part of their revenues from the sale of these data. That is leading to friction between market participants and the exchanges over the cost of these data.

Emerging opportunities – derivatives industry

The survey included several questions to gauge industry sentiment around emerging business opportunities in two areas: the rapidly growing futures markets in China, and the emerging markets for digital assets such as bitcoin.

The survey asked how firms are responding to the gradual liberalization of access to the futures markets in mainland China. Among respondents, 24% said their firms are already active in these markets. Another 9% said their firms plan to enter in the next 12 months. 46% said their firms are “watching with interest” but have not yet decided to enter, and 21% said China’s futures markets are not relevant to their firms.

Breaking this down by type of firm revealed important differences. Two thirds of the respondents working at commodity firms said their firms are already active in China’s futures markets, more than any other segment of the industry. Asset managers, on the other hand, are mainly watching with interest but have not yet committed to entering these markets. Among intermediaries, 44% of the people working at clearing firms, both bank and non-bank, said their firms are already active in these markets, and another 7% said they expect to enter in the next 12 months.  

Turning to digital assets, the survey revealed a very similar level of interest among respondents. 31% said their firms are already active in digital asset markets, and 10% plan to enter these markets in the next 12 months. The level of engagement was highest with independent clearing firms and technology vendors, with 44% and 43% of respondents, respectively, saying their firms are already active. Bank-owned clearing firms, on the other hand, are much less engaged, with only 29% saying that their firms are active currently and none saying that their firms plan to enter these markets in the next 12 months.

The survey also asked respondents for their views on the regulation of digital assets. Uncertainty around this issue has been one of the main obstacles to greater involvement by firms in the derivatives industry. 40% said policymakers should clarify regulatory jurisdiction and oversight of these products and write new rules accordingly. 37% said regulators should treat these assets like other financial instruments and enforce compliance of existing rules and regulations. 17% called for the industry to set its own standards and regulate itself. Only 6% called for a laissez faire “do no harm” approach and allowing this sector to develop without regulation.

Part 4:  Modernization and Innovation

One of the key lessons that the derivatives industry learned from the pandemic is that the burst in trading volume that took place during March put a heavy burden on operational capacity, leading to delays in the settlement of trades. The experience highlighted the need for more investment in the technologies used to process trades after execution.

To gather more information about this trend, the survey asked respondents to identify the areas in the trading and clearing process that are most in need of innovation and modernization.

Post-trade processing was at the top of the list, reflecting the awareness in the industry that legacy technology has become a significant obstacle to the efficient processing of trades. Although the vast majority of trades are processing on a straight-through basis, a small number require manual intervention to correct errors and allocate positions properly.

Regulatory compliance came in second. In recent years, reporting requirements have increased in complexity, making it more important than ever to gather data efficiently. In addition, the explosion of trading volume has intensified the need for advanced tools to sift through millions of transaction records.

Two areas tied for third — risk management and collateral management. Risk management refers to the systems that firms use to monitor risks in trading. Although some firms have developed systems to manage risks on a near-real-time basis, this area continues to be a challenge for the industry. Collateral management refers to the movement of cash and securities to meet margin requirements. Some firms have begun transforming key elements of this process through the use of cloud computing and distributed ledger technology, but this trend is still in its infancy.

FIA announces 2021 Futures Hall of Fame inductees

FIA today announced the induction of eight new members into the FIA Futures Hall of Fame. This year’s class joins 157 other honorees in the Hall of Fame, which was established in 2005 on FIA’s 50th anniversary. The new members will be honored at an awards ceremony during FIA’s annual flagship Boca International Futures Industry Conference.

Walt Lukken, president and CEO of FIA said: “We established the FIA Futures Hall of Fame to recognize the people who have made exceptional contributions to the growth and development of the futures, options and listed derivatives industry. This year’s inductees represent business leaders, advocates, policymakers, and visionaries who have provided the leadership and support necessary to keep growing our industry. FIA is honored to present them with this recognition.”

The following individuals were inducted into the Hall of Fame:

Brooksley  Born 

Bryan Durkin 

Gay Huey Evans 

Jeffrey  Geldermann   

Douglas Harris   

Jerome Kemp   

Charles Li   

Jim Newsome 

The Hall of Fame celebrates and recognizes the significant contributions individuals have made to the listed and cleared derivatives industry. Inductees are chosen by a panel of industry veterans and Hall of Fame members who consider nominees long-time experience and contributions to the industry over the course of their careers.

Learn more about the Futures Hall of Fame.

Copper Price Hits 9-year Highs

Copper price hits 9-year highs amid strong demand for manufactured goods and China’s strong economic rebound after the coronavirus health crisis. The first-month futures contracts in COMEX is trading at $3.9635 having early today as high as $3.9750, a price that we haven’t seen since February 2012. Copper hit $4.65 per pound, the all-time high, back in February 2011.

In London Metal Exchange the three-month copper futures trading today at 8632 per tonne.

Copper price ended in 2020 with over 22% gains, while now Copper is on track for it’s 11th straight monthly gains, while is 8.8% higher since the start of the year. The gains since the March 2020 lows are now up to 98%. Many analysts believe that the rally is just the start of a super-cycle in metals as the demand for the base metals from renewable energy projects is growing.

The main factors that drive the recent rally are the weak U.S. dollar the rising inflation expectations in the USA and below-average stock levels. Excess demand from China and South Korea also boosts the copper price.

Goldman Raised the Copper Price Target

Goldman Sachs has raised the copper target price in the next 12-months to $10.500 per metric ton as the big deficit on copper scarcity expects to rise amid increased demand. Goldman also set the 3-month price target at $9.200 per metric ton and the 9-month target at $9.800.

Goldman expects that copper price will average at $8,625 in 2021, and an average of $9,175 in 2022.

Copper Technical Analysis

The Copper price is 1.60% higher at 3.9630 having hit the daily high which is also an all-time high at 3.9750. The trend is clearly bullish for the industrial metal and higher levels are on the cards. A warning signal for bulls is that the copper price has reached an overbought level as the RSI 14 hovers today above the 78 mark, while on the weekly chart the RSI is at 76.87 just below the all-time high that the RSI reached back in December 2020.

First miner resistance for the copper stands at 3.9895 the high from February 6, 2012. More selling pressure would emerge at 4.0245 the top from September 11, 2011. The most critical point is the top from August 29, 2011, at 4.2055 which if breached might push the price up to all-time highs.

On the other hand, support for copper price would be met at 3.8855 the daily low. A close below might test 3.7940 the low from yesterday trading session. A close below 3.7210 might cancel the recent rally and might push the price towards 3.6240 the 50-day moving average.