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.
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.
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 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.
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 272Product 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
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.
Nasdaq leads single stock options market share; MIAX growing fast
By Chris Mendelson
In February 2021, single stock options on US options exchanges reached a total volume of 572.4 million contracts, an increase of 91.3% from February 2020. That growth comes after a significant increase in the prior year, too, with a 51.8% year-over-year increase between February 2020 and February 2019.
Before May 2020, single stock options on US options exchanges had never surpassed 300 million contracts in total volume. But every month since then has recorded more than 300 million contracts in total volume. Single stock options surpassed 400 million contracts in total volume for the first time in June, and in December volume topped 500 million contracts. The highest volume on record was January 2021, with 583.4 million contracts bought and sold on exchanges.
On an annual basis, 2020 was a record year for single stock options volume, with 4.44 billion contracts transacted across the 16 exchanges that list options. This was a 68.1% increase from the previous record year of 2019 which was 2.64 billion contracts. The latter half of 2020 was the stronger half in terms of volume, with 2.56 billion contracts recorded and an 88.2% increase from the second half of 2019.
Single stock options volume by exchange
Nasdaq exchanges held 37.2% of single stock options volume in February 2021, by far the biggest market share and virtually unchanged from its market share last year. Among individual US options exchanges, Nasdaq PHLX held the biggest share with just under 13.3%.
Cboe exchanges held the second highest market share as a group at nearly 24.8%, a decrease from 31.0% in February 2020. Its largest venue, Cboe Options Exchange, held about 10.5% of the market, placing it third among individual exchanges — down significantly from a 14.6% share last year when it ranked as the No. 1 single stock options exchange.
NYSE exchanges held the third-highest market share with about 19. 6%, up from 17.1% last year. NYSE Arca held 11.3% of the market, ranking it second among individual exchanges and up from 10.4% the prior year when it ranked fourth.
MIAX exchanges held the fourth-highest market share at 14.2%, up from its nearly 11.0% share last year and the biggest market share gain year-over-year.
BOX ranked last in market share in February 2021 at just under 4.3%, though that was up from 3.5% in February 2020. Its sole venue, Boston Options Exchange, ranked 12th out of the sixteen US options exchanges.
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.
The purpose of the survey was to gauge sentiment in four areas:
The outlook for trading activity, profitability and competition over the next 12 months.
Current political, regulatory and technology issues facing the industry.
The degree of interest in two emerging areas of growth — China and bitcoin.
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.
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.
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.
With zero commissions on trades and online trading platforms at our fingertips wherever we go, many investors are making investing and saving part of their routine. Investors have access to a variety of online sources to gather information to make investment decisions, from the news media to independent social media platforms to platforms associated with investment firms, among many others. No matter where you get your trading insights, and whether you are following a recommendation to buy stocks, bonds, options or something else, know this: where there is an opportunity, there is also risk.
Crowd Investing – Here are some tips and resources to consider.
Consider your source. Independent social media platforms and some brokerage firms offer tools that analyze or aggregate information from social media sources to help investors make investment decisions. Depending on how it is presented, social sentiment information—particularly real-time discussion platforms and buy/sell indicators driven by social sentiment—can lead to emotionally-driven or impulsive investment decisions, which can be a risky way to approach investing. Learn more about Social Sentiment Investing Tools.
Know the rules if you are day trading. Are you actively trading stocks? If so, it’s important to know what it means to be a “pattern day trader” because there are requirements associated with this kind of trading. And as the SEC’s Office of Investor Education and Advocacy noted in a recent Investor Bulletin, “[d]ay trading is serious business and not something you just dabble in for fun, particularly if you are using leveraged investment strategies or trading leveraged products.”
Understand the costs and risks of margin investing. If you are trading in a margin account, your firm can force the sale of securities in your accounts to meet a margin call, sell your securities without contacting you, and increase its margin requirements at any time without providing you with advance notice. It’s also important to know you can lose more money than you deposit in a margin account. Learn more about Investing with Borrowed Funds.
Know what to expect when trading is halted. Thousands of stocks are quoted and traded every day in U.S. securities markets, and most of this trading takes place without interruption throughout the day. But sometimes a stock may be subject to a short-term trading halt or longer-term trading suspension. To find out why and how trading halts occur, read When the Trading Stops.
Get the basics on options trading.Options trading can be risky, and the options market has its own vocabulary and unique processes. Options A to Z: The Basics to the Greeks will help you become conversant in the language of options, and Trading Options: Understanding Assignment lays out how assignment—the fulfilling of the requirements of an options contract—works.
Check your emotions at the door. In volatile markets it can be tempting to make rash decisions. One enduring truth about stock markets is that they go up, and they go down—and the steeper the rise or the fall, the more tempting it can be to derail a long-term strategy with a snap decision. Read more about Market Volatility.
Stop and take three. Mindfulness is all the rage these days. Before you make an investment decision, be mindful of three things. First, ask yourself whether an investment aligns with your financial goals. Small dollar investments based on hype around a security might turn into big gains, but they can just as easily turn into big losses. Second, make sure your investment decision involves a level of risk you are comfortable with, and not the level of risk other people might be comfortable with. The problem with herd investing is that investing is personal: some people have the means to take risky bets, but many of us do not. Third, if you seek short-term returns, don’t sacrifice money you cannot afford to lose.
Watch your wallet. Social media recommendations to buy the securities of a particular company may urge going all in through taking early withdrawals from retirement accounts or borrowing against one’s home. Be aware that leveraging long-term assets for short-term gains can have significant consequences—from fees and taxes to risk of loss and more.
Focus on diversification. Speaking of going all in, remember that diversification—spreading out your investments both across and within different asset classes—can help you manage your risk.
Contact FINRA to report misconduct. If you are aware of unfair practices or specific instances of abusive or prohibited conduct, FINRA wants to know about it immediately. File an investor complaint through the FINRA Investor Complaint Center or file a tip using our online regulatory tip form.
When significant market events occur, it can be challenging to sort out what is actually happening, especially with a 24-hour news cycle and constant chatter from social media channels. To protect investors and ensure the market’s integrity, FINRA works every day to ensure that everyone can participate in the market with confidence. If there is market manipulation or other misconduct by market participants, FINRA will investigate and hold wrongdoers accountable. Where we lack jurisdiction over those who engaged in misconduct, we coordinate and share any information we uncover with law enforcement and other regulatory agencies to help them do their jobs.
Options activity builds on record year at ICE Clear Credit in 2020
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of mortgage technology, data and listings services, today announced that Citi has traded and cleared the first client-executed Credit Default Swap (CDS) Index Option trades in the U.S. through ICE Clear Credit.
“We’re excited to work with ICE Clear Credit as they introduce and build an innovative solution for clearing of CDS Index Options,” said Mariam Rafi, Americas Head of OTC Clearing and FXPB at Citi. “With portfolio margining opportunities across Single Name, Index and Option instruments, this is an important step that will help drive capital efficiencies and improve risk management for all market participants.”
ICE Clear Credit launched clearing services for CDS Index Options in late 2020. It currently offers clearing of Index Options on the CDX North American Investment Grade and High Yield Index underlyings. Options on iTraxx Index instruments are expected to be added in 2021.
“ICE Clear Credit’s new clearing services, designed in close collaboration with the trading community, deliver market evolution and effective execution and risk management tools,” said Samuel Page Head of North American Macro Credit and IG CDS Trading at Citi. “We expect this will help lead to increased adoption of CDS Index Options by end-users and overall elevated trading activity and market depth.”
“During the last year, we saw tremendous momentum across our CDS complex as customers accessed our services to execute macro strategies and manage risk during times of unprecedented market volatility,” said Stan Ivanov, President of ICE Clear Credit. “Our CDS Index Options clearing services, based on a robust and capital efficient portfolio risk management approach, will help bring additional standardization, transparency and depth to the CDS market.”
ICE Clear Credit’s Index Options solution provides a number of innovations including portfolio margining and a common exercise-and-assignment platform where all market participants, dealers and buy-side firms, can perform time-critical decision making in a centralized, risk-managed and technologically advanced fashion.
ICE Clear Credit recorded its best year in 2020, in terms of both dealer and client volumes. It cleared over $30 trillion in combined client/dealer notional amount, with 78% originating from client-related transactions. ICE Clear Credit also set a new record in March for both the highest ever monthly combined client/dealer Index volume at $6.8 trillion notional amount, and the highest ever monthly client Index volume at $2.9 trillion notional amount, in both cases more than doubling the previous monthly volume.
Launched in 2009, ICE Clear Credit and ICE Clear Europe CDS clearing solutions offer clearing for more than 500 Single Name and Index CDS instruments based on corporate and sovereign debt and have reduced counterparty risk exposure by clearing over $283 trillion in two-sided notional amount, with combined open interest of approximately $2.0 trillion.
Intercontinental Exchange (NYSE: ICE) is a Fortune 500 company and provider of marketplace infrastructure, data services and technology solutions to a broad range of customers including financial institutions, corporations and government entities. We operate regulated marketplaces, including the New York Stock Exchange, for the listing, trading and clearing of a broad array of derivatives contracts and financial securities across major asset classes. Our comprehensive data services offering supports the trading, investment, risk management and connectivity needs of customers around the world and across asset classes. As a leading technology provider for the U.S. residential mortgage industry, ICE Mortgage Technology provides the technology and infrastructure to transform and digitize U.S. residential mortgages, from application and loan origination through to final settlement.
Trademarks of ICE and/or its affiliates include Intercontinental Exchange, ICE, ICE block design, NYSE and New York Stock Exchange. Information regarding additional trademarks and intellectual property rights of Intercontinental Exchange, Inc. and/or its affiliates is located here. Key Information Documents for certain products covered by the EU Packaged Retail and Insurance-based Investment Products Regulation can be accessed on the relevant exchange website under the heading “Key Information Documents (KIDS).”
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 — Statements in this press release regarding ICE’s business that are not historical facts are “forward-looking statements” that involve risks and uncertainties. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see ICE’s Securities and Exchange Commission (SEC) filings, including, but not limited to, the risk factors in ICE’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 4, 2021.
FIA released yearly statistics that show the total number of futures and options traded on exchanges worldwide reached a record level of 46.77 billion contracts in 2020, up 35.6% from 2019. Total futures trading rose 32.7% to 25.55 billion. Total options trading rose 39.3% to 21.22 billion. Open interest, which measures the number of outstanding contracts at a point in time, also reached a record high, reaching 987.3 million contracts at year-end, up 9.7% from December 2019.
This is the third year in a row that the global exchange-traded derivatives markets set a record in terms of total trading activity. As in past years, rapid growth on exchanges in Brazil, China and India accounted for much of the increase. An additional factor in 2020 was an explosion in retail trading of equity options, particularly in the US. Equity options traded on US securities exchanges jumped 52.4% to 7.47 billion contracts in 2020.
Not all sectors enjoyed an increase in trading activity. The interest rate category in particular suffered from a steep decline in both volume and open interest. Trading of interest rate futures and options fell to 4.15 billion contracts, down 13% from the record level set in the previous year, and open interest stood at 176.6 million contracts at year-end, down 19.6% from December 2019.
FIA’s statistics on volume and open interest are collected from 80 exchanges operated by 52 companies in 33 countries. The statistics are based on the number of contracts traded and/or cleared on these exchanges and are adjusted to avoid double counting.
Exchanges in the Asia-Pacific region had the largest increase in trading in 2020. Total volume in that region reached 20.15 billion contracts, up 5.64 billion or 38.9% from the previous year.
North America, the second largest region in terms of trading volume, recorded 12.85 billion contracts traded in 2020, up 2.58 billion or 25.2% from the previous year.
Latin America, the fastest growing region in percentage terms, increased its volume by 2.33 billion or 56.9% to a total of 6.43 billion in 2020. Europe, which now ranks fourth, recorded 5.6 billion contracts traded in 2020, an increase of 567 million or 11.3% from the previous year.
Europe and North America continue to account for the majority of open interest. Total outstanding positions at year-end in the North American region was 515.9 million contracts, up 13.9% from the previous year, and equivalent to more than half of all outstanding contracts worldwide. Open interest in Europe stood at 209.3 million contracts at year-end, down 4.9% from December 2019, but equivalent to 21.2% of global open interest. Asia-Pacific open interest stood at 86.2 million contracts at year-end, up 8.2% from the previous year, but equivalent to only 8.7% of global open interest.
Equity-related derivatives accounted for the majority of the increase in trading activity in 2020. Futures and options on equity indices, the largest category of the listed derivatives markets in terms of volume, reached 18.61 billion contracts traded in 2020, an increase of 6.15 billion or 49.3% from 2019. Futures and options on individual equities reached 9.9 billion in 2020, an increase of 3.8 billion or 62.3% from the previous year.
In the commodity sector, energy and agricultural contracts had the highest growth rates. The trading of energy futures and options rose 24% to 3.15 billion contracts, while trading of agricultural futures and options rose 45.4% to 2.57 billion contracts. In both categories, the majority of the growth came in contracts listed on exchanges in China.
The National Stock Exchange of India once again came out on top in terms of total volume. The exchange reported total trading volume of 8.85 billion contracts in 2020, up 48.1% from the previous year. Brazil’s B3 continued its rapid growth, with total trading volume rising 62.5% to 6.31 billion. CME Group came in third, with total volume of 4.82 billion, almost unchanged from the previous year. Intercontinental Exchange came in fourth, with volume rising 23.6% to 2.79 billion contracts. Close behind was Nasdaq, with volume rising 49% to 2.66 billion contracts.
The OCC continued to rank as the world’s largest clearinghouse for derivatives. The OCC, which provides clearing for more than a dozen trading venues in the US, cleared 7.52 billion futures and options in 2020, 52.3% higher than the previous year, and open interest stood at 394.9 million contracts at year-end, up 31.8% from December 2019, and more than twice as large as any other derivatives clearinghouse.
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of mortgage technology, data and listings services, today announced it has launched clearing for Credit Default Swap (CDS) Index Options, bringing greater capital efficiencies, price discovery and risk management to the CDS market. Beginning today, ICE Clear Credit now offers clearing of Index Options on the CDX North American Investment Grade and High Yield indices. Index Options on the iTraxx Europe indices are expected to be added in 2021.
ICE Clear Credit’s Index Options solution provides a number of innovations including a common exercise-and-assignment platform where all market participants, dealers and buy-side, can perform time-critical decision making in a centralized, risk-managed and technologically advanced fashion. To establish a robust and transparent price discovery process, ICE Clear Credit uses an extension of its current end-of-day approach to Single Name and Index clearing to determine executable mark-to-market levels for CDS Index Options and provide convenient access to these daily prices.
“The launch of CDS Index Options leverages ICE’s market infrastructure and robust risk management methodology and builds on the tremendous momentum we’ve seen across our CDS complex,” said Stan Ivanov, President of ICE Clear Credit. “By incorporating Index Options into our existing capital efficient risk management approach to CDS clearing, we’re bringing new tools to our customers to access the CDS market, and to execute cost-effective and versatile strategies to manage risk.”
“In close consultation with market participants, ICE Clear Credit is introducing CDX options clearing which will enhance standardization and transparency in the market,” said Amy Hong, Head of Market Structure Strategy for the Global Markets Division at Goldman Sachs. “The offering is intended to drive efficiencies, improve risk management and further promote the product.”
To help determine margin levels across portfolios, customers can use ICE’s state-of-the-art CDS risk management system, PACE, which leverages a Monte Carlo simulation framework and provides significant improvements over common modelling practices. Index, Single Name and Index Option instruments are analyzed and managed through the same general CDS portfolio framework computing consistent, efficient and reliable risk measures.
“Clearing CDS index options is an exciting development for the CDS market. Cross-margining across indices and options, and ICE Clear Credit’s exercise-and-assignment platform should bring about capital efficiencies and enhance operational risk management on expiry dates,” said Ali Balali, Managing Director in the Global Credit group at BofA Securities.
Through the third quarter of 2020, ICE Clear Credit cleared nearly $25 trillion two-sided notional amount of CDS instruments, representing and 11% growth over the same period in 2019. ICE Clear Credit is on track to achieve record index volumes in 2020 for both its dealer and client cleared business, having exceeded in the third quarter of 2020 the total index notional amount cleared during all of 2019. Additionally, the Single Name notional amount cleared at ICE Clear Credit has significantly grown each year since 2015, driven by sovereign Single Names and Single Names referencing corporate entities domiciled outside of North America.
Launched in 2009, ICE Clear Credit and ICE Clear Europe CDS clearing solutions offer clearing for more than 500 Single Name and Index CDS instruments based on corporate and sovereign debt and have reduced counterparty risk exposure by clearing over $283 trillion in two-sided notional amount, with combined open interest of approximately $2.0 trillion.
On 13 May 2020, Moscow Exchange’s Derivatives Market will launch weekly options on futures of Gazprom and Sberbank ordinary shares.
The new instruments will expand MOEX’s equity derivatives offering, enable portfolio managers to build new strategies using instruments with a different duration and provide market participants with new trading opportunities.
Every week the Derivatives Market will add two option series on Sberbank and Gazprom futures expiring in two weeks. The weekly options will expire in the evening clearing session every Wednesday.
At present, the Derivatives Market hosts trading only in quarterly and monthly option series, as well as weekly options on RTS futures and USD/RUB FX futures.
In 2019, trading volumes of the quarterly and monthly options on Gazprom ordinary share and Sberbank ordinary share futures exceeded RUB 21 billion and RUB 17 billion, respectively.
The MOEX Derivatives Market offers 72 futures contracts and 38 options on futures. The underlying assets include equity indices, Russian and foreign issuers’ shares, currency pairs, precious and industrial metals, oil, gas and other commodities, as well as interest rates.