|Bid||187.20 x 800|
|Ask||197.49 x 900|
|Day's Range||187.62 - 193.92|
|52 Week Range||131.80 - 225.36|
|Beta (5Y Monthly)||0.08|
|PE Ratio (TTM)||33.67|
|Earnings Date||Jul 29, 2020 - Aug 03, 2020|
|Forward Dividend & Yield||3.40 (1.84%)|
|Ex-Dividend Date||Jun 09, 2020|
|1y Target Est||195.76|
CME Group announced today that Terry Duffy, Chairman and Chief Executive Officer, and John Pietrowicz, Chief Financial Officer, will present at the Piper Sandler Global Exchange & FinTech Virtual Conference on Thursday, June 4, at 11:00 a.m. (Eastern Time).
Farmer sentiment improved slightly in May after falling sharply in both March and April, according to the Purdue University/CME Group Ag Economy Barometer. The index was up 7 points from April to a reading of 103, but it remained nearly 40 percent below its all-time high of 168 set in February 2020. The Ag Economy Barometer is based on responses from 400 U.S. agricultural producers and this month's survey was conducted between May 18-22.
CME Group, the world's leading and most diverse derivatives marketplace, today reported May 2020 market statistics, showing it reached average daily volume (ADV) of 17.9 million contracts during the month. Open interest at the end of May was 114 million contracts. Market statistics are available online in greater detail at https://cmegroupinc.gcs-web.com/monthly-volume.
As U.S. businesses reopen after weeks of pandemic lockdowns, many have been posting coronavirus disclaimers or requiring employees and patrons to sign waivers before entering. From hair salons and recreation centers to stock exchanges and wedding photographers, the notices have sprung up across the country, asking guests to acknowledge they might contract a disease that has so far killed over 100,000 Americans. Companies are using signs, forms and website postings as a shield against lawsuits, but the measures do not prevent people from seeking damages due to negligence, the same way someone might sue after falling on a slippery floor or getting sick from walls covered in lead paint, experts said.
(Bloomberg) -- A popular exchange traded fund that uses complex derivatives to track oil is being investigated by U.S. regulators over whether its risks were properly disclosed to investors, scrutiny triggered by crude’s historic slump during the coronavirus crisis, said three people familiar with the matter.The Securities and Exchange Commission and the Commodity Futures Trading Commission have both opened probes into the $4.64 billion United States Oil Fund, said the people who asked not to be named because the matter is private. The fund has lost 75% of its value this year.Issues the agencies are examining, the people said, include whether shareholders were adequately informed that the ETF’s value wouldn’t necessarily move in tandem with the spot price of oil and the fund’s recent decision to purchase crude contracts that expire further out in the future. The change in contracts USO was buying deviated from its past investment strategy.The inquiries into the ETF, known by its ticker USO, are in their early stages and may not lead to allegations of wrongdoing. United States Commodity Funds, the company that manages USO, hasn’t been accused of any misconduct by the SEC or CFTC.Senior executives at United States Commodity Funds didn’t respond to multiple requests for comment. Spokesmen for the SEC and CFTC declined to comment.The investigations are significant because USO has grown to be a dominant player in the market for crude futures. As it got bigger, the ETF attracted legions of mom-and-pop investors who saw it as an easy and simple way to wager on oil. These less sophisticated shareholders are among those who’ve endured heavy losses amid the oil rout, a plunge highlighted by the commodity’s first-ever slide into negative territory on April 20.Read More: For Creators of USO ETF, Troubles in Market Began a Decade AgoUSO rose 85 cents to close at $25.88 on Friday.USO has issued six disclosures to shareholders in the last two months noting changes to the fund’s investment strategy, which it has had to quickly rejigger in response to recent events. In the SEC filings, the ETF has said it’s buying longer-dated futures -- contracts that are typically less volatile than those that expire in the succeeding month.The shifts have led to concerns that USO could become increasingly disconnected from the spot oil price that it’s long sought to track. For its part, the fund emphasized in a Tuesday filing that it’s not a proxy for trading directly in oil markets, but carries many of the same risks. USO has also issued disclosures this month stating that its daily share moves may not correlate with changes in the price of oil and that “recent and unprecedented volatility” in crude markets demonstrates the potential risks of investing in the fund.USO buys futures, not physical oil. The fund mainly invests in CME Group Inc.’s benchmark West Texas Intermediate contracts. Its WTI holdings became huge in March as oil plunged, a drop triggered by falling demand during the coronavirus pandemic and a price war between Saudi Arabia and Russia.Extreme ConcentrationEven before oil fell to minus $37.63 a barrel on April 20, investors who concluded the rout had bottomed out rushed to purchase shares of USO to bet on a rebound. That buying surge contributed to USO amassing a quarter of all outstanding front-month WTI contracts, those which are closest to expiring. Such extreme concentration prompted CME to inform USO in late April that it was placing limits on the fund’s holdings of June, July, August and September contracts.The fund said in an April 24 SEC filing that investors should expect “continued deviations” between USO’s performance and the WTI benchmark, in part due to the new restrictions. The fund added that it might not be able to meet its objective of reflecting changes in the spot oil price.Risk ManagementUSO faces issues separate from regulators’ investigations. For instance, its sole broker, RBC Capital Markets LLC, has decided against adding new futures positions that would grow the size of the fund because of risk management concerns, according to a Tuesday SEC filing. In addition, USO has been awaiting SEC approval for more than a month to sell additional shares to investors eager to keep wagering on oil. WTI has rallied more than 75% in May, while USO has risen about 30%. In a filing on Friday, USO said that Marex Spectron will serve as an additional broker.Read More: Oil ETF Ensnared in Crude’s Crash Tries to Stave Off TurmoilSEC and CFTC officials have been in contact with each other about concerns related to USO, according to one person familiar with the matter. The CFTC also issued a rare public warning last week to retail investors to highlight the “unique risks” of commodity exchange traded products.“The value of the shares in the commodity pool may not track the value of the underlying asset over time,” the CFTC said in its May 22 statement. “This difference is because unlike with stocks, a futures contract cannot be held indefinitely in hopes that a fallen price will recover.”(Updates USO closing price in paragraph 7, updates with USO signing Marex Spectron as new broker in paragraph 13.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
When investors worry about a possible recession, they will often rotate out of economically sensitive stocks into sectors that are less affected by weakness. CME Group (NASDAQ: CME) is one of the biggest options and futures exchanges in the world. The company runs the Chicago Mercantile Exchange, the Chicago Board of Trade, and the New York Mercantile Exchange.
Negative interest rates are controversial. As we discover the extensive damage done to the global economy from the pandemic of 2020, there will likely be calls from some quarters for more central banks, including the US Federal Reserve (Fed), to cut short-term rates below zero. And, there could be considerable dissent.We want to explore the empirical evidence in terms of market reactions to better appreciate the pros and cons for negative rates. For this study, we turn to the foreign exchange (FX) markets. In both the academic and practitioner literature, FX markets are a respected bellwether for the relative prospects of currency pairs, evaluating the differences in monetary policy, growth prospects, trade flows, and inflation. The question we are posing is: What have the FX markets told us about negative rates?We will delve into why the FX markets are an especially good empirical guide as to how negative rates worked, examine the reasons for the implementation of negative rates, and then study four central banks that have experimented with negative rates. To anticipate our conclusions: * FX markets have typically (not every time) responded to a move into negative rates with a strengthening of the currency or a reduced pace of depreciation. While the quick response was appreciation, in some cases it did not last as other factors came into play. * We interpret currency appreciation as the market's evaluation that the monetary policy has been tightened, not loosened as was intended. * The principal reason that negative rates are not stimulatory appears to be that they act as a tax on the banking system and actually restrict the provision of credit.FX Theory & Relative Monetary Policy FX markets determine the relative price of one currency versus another. As such, there is an abundance of literature studying exchange rates in terms of how monetary policy, economic growth, inflation, and trade flows impact currencies. David Hume (1741, 1758)1 was an early writer on the flow of money and its impact on exchange rates, arguing that increasing the money supply artificially would lead to inflation and a weaker currency. Hume made the point that such policies would not work to increase economic growth, since money (water, in his analogy) would flow among nations to find a level appropriate to the "art and industry" of each country.The modern treatment of the relationship of monetary policy to exchange rates is anchored in the work of Nobel Prize winner Robert Mundell (1960, 1961, 1968),2 and carried through in the studies of Jacob Frenkel and Harry G. Johnson (1976),3 as well as Art Laffer (1969);4 summarized in a study by Stephen McGee (1976)5 and explored further in a collection of essays by Blu Putnam and Sykes Wilford (1986).6 This line of research, known as the monetary approach to the balance of payments, began in the 1960s when exchange rates were fixed to the US dollar, and the dollar to gold. The emphasis was on understanding why the central banks of some countries were losing their foreign reserves while others were gaining foreign reserves. Once FX rates were delinked from the US dollar and began to float independently in the early 1970s, there was intense interest in exchange rate movements. The Chicago Mercantile Exchange launched its currency futures products in the early 1970s, the first successful financial futures product. The monetary approach research shifted gears with the markets to focus on exchange rate determination.The main theoretical concepts were that reserve flows under fixed exchange rates and exchange rate movements in a floating regime were balancing the relative attractions of different countries in terms of their economic growth prospects (i.e., faster growing countries can attract capital) and monetary policy (i.e., restrictive monetary policy with higher interest rates can attract capital). What was controversial back in the 1970s and 1980s was the role of the trade balance. The monetary approach argued that capital flows overwhelmed trade flows, and one had to focus, as David Hume did, on the relative attractiveness of the different economies taken as whole. Later research noted that when a country's dependence on exports in its economy was relatively high, then trade flows increased in importance in exchange rate determination through their heightened relationship to economic growth (i.e., more exports led to faster growth and currency appreciation, everything else being equal).The empirical evidence supporting the monetary approach seemed to work well in the 1970s and early 1980s when the money supply was easier to define and measure. The statistical relationship with the money supply broke down later in the 1980s and 1990s, as interest was paid on checking accounts, as money moved freely between investment, savings, and checking accounts, as credit cards gained market share over cash, etc. All of these developments in the structure of how payments were made eliminated the relationship between money supply and inflation, economic growth, and exchange rates. The empirical research then shifted to assessing the relative accommodation or restrictiveness of monetary policy using the shape of the yield curve. [See Erik Norland's December 2019 research on "Which Yield Curve Foretells Growth Best?7 here] When short-term interest rates were below long-term yields - a positively sloped yield curve - then monetary policy was deemed accommodative. When short-term interest rates were equal to or above long-term yields, a flat or inverted yield curve indicated a restrictive monetary policy.The main idea for exchange rates held that, other things being equal, a policy shift toward a more accommodative monetary policy would be expected to lead to currency depreciation or less appreciation if it were on a rising trend. And vice versa, a policy shift toward a more restrictive monetary policy would be expected to lead to currency appreciation or less depression if the currency were already on a downward trend.Thus, our research into negative rates sets up the following question. When central banks announced and implemented negative rate policies, what happened to the exchange rate? * A fall in the exchange rate (or slower pace of appreciation) would indicate negative rates were an accommodative policy, as was anticipated by the central banks pushing rates below zero. * A rise in the exchange rate (or slower pace of depreciation) would indicate negative rates were a restrictive policy.Four Real World Experiments The European Central Bank (ECB), the Bank of Japan (BoJ), the Swiss National Bank (SNB) and Sweden's Riksbank have experimented with negative interest rates from the mid-2010s (Figure 1), charging depositors as much as 0.75%. The decisions by these central banks to experiment with sub-zero interest rates was born of a common source of dissatisfaction. All four central banks were dissatisfied with the pace of economic recovery and with inflation rates that were persistently below target. Each one hoped that charging commercial banks to deposit funds with the central bank would result in greater extension of credit by the banking system, accelerate their respective economic recoveries, and raise inflation rates toward target levels.There are two means by which proponents of negative rates hoped that sub-zero interest on deposits would achieve the objective of stronger real growth and higher inflation: * By charging depositors to park money in banks, the owners of those funds would instead spend or invest those monies, boosting aggregate demand, GDP growth and, eventually inflation. * Negative deposit rates would deter foreigners from holding their currency and that a weaker currency would boost exports, insulate domestic producers from competition and increase prices of imported goods. By the same token, it might also encourage domestic investors to invest abroad, selling their own currency and buying foreign currency in the process.Figure 1: Since Late 2014, Four Central Banks Experimented with Negative Rates. This second point is important because it is easier to achieve faster economic growth and higher inflation with a weak currency than with a strong one. That said, the hope that negative interest rates would bring about a weaker currency is rarely stated out loud. Other governments might frown on a beggar-thy-neighbor policy of intentionally weakening one's currency into order to deal with domestic economic problems or to gain competitive advantage.Even if the central banks that pursued negative rates had stated explicitly that they hoped to weaken the currencies by setting deposit rates below zero, their trading partners need not have worried. One might imagine that negative interest rates would hurt the value of a currency. Afterall, who would want to hold deposits in a currency where they must pay borrowers for the privilege of lending money? Yet, despite blurring the distinction between assets and liabilities, more often than not, currencies have strengthened rather than weakened in response to negative interest rates.In the days and weeks immediately after the introduction of negative rates by each of the four central banks, all of the currencies appreciated - some more than others. (See Figures 2, 4, 6, and 8.) Longer-term, the picture is much more complicated, as one might expect since many more factors come into play besides negative interest rates.Of the four central banks that set rates negative, two of them, Japan and Switzerland, quickly wound up with stronger currencies (Figures 5 and 9). Meanwhile, while the euro appreciated in the weeks after the initial move into negative rates with a -0.10% level, it quickly reversed and depreciated in no small part due to uncertainties surrounding bank stress tests and then the announcement and implementation of the ECB's aggressive move into asset purchases. The euro did have a period of appreciation in 2017 extending into early 2018, which, interestingly, occurred a few months after the ECB had put the deposit rate at ever more deeply negative levels, at -0.40%. (Figure 3).Figure 2: ECB First Introduces Negative Rates; Figure 3: Euro and ECB Deposit Rates Figure 4: Swiss National Bank First Introduces Negative Rates; Figure 5: Trade-Weighted Swiss franc and SNB Deposit Rates Figure 6: Swedish Riksbank First Introduces Negative Rates; Figure 7: Trade-Weighted Swedish krona and Riksbank Deposit Rates Figure 8: Bank of Japan First Introduces Negative Rates; Figure 9: Trade-Weighted Japanese yen and BoJ Deposit Rates The Swedish krona, like the euro, had a short-lived appreciation immediately after the Riksbank went negative. Soon though, the Swedish krona (SEK) started to weaken significantly under the negative interest rate regime. We note though, that SEK was falling much more quickly before the Riksbank went to negative rates. After they went to negative rates, SEK continued to fall but at a more jagged pace (Figure 7). On December 16, 2019, the Riksbank became the first and, so far, only central bank to raise rates back to zero. Ending the negative interest rate policy did not send SEK soaring. Rather in the five months following the end of negative rates in Sweden, SEK fell 2% versus the Euro (EUR), 5% versus the US dollar (USD) and 6% versus the Swiss franc (CHF).Sweden's case is special. First off, roughly half of Sweden's trade is done with the Eurozone, Switzerland and Denmark, with Denmark setting its currency versus the euro. Sweden's trade surplus, which once totaled 7% of GDP, has slowly but surely shrunk to around 2% of GDP even as Eurozone moved into a trade surplus. This factor alone probably explains why SEK weakened so much on a trade-weighted basis despite negative interest rates. What we observed, however, was that SEK was falling rapidly before negative rates came into effect but then fell less consistently as they eventually went to -50bps, only to resume a more rapid decline as the Riksbank raised rates to -25bps and then eventually put rates back at zero. As such, Sweden may be the counter-example that proves the point: all else being equal, negative interest rates tend to strengthen rather than weaken currencies. [See Erik Norland, "Sweden's Experiment with Negative Rates", CME Group, May 2020, https://www.cmegroup.com/education/featured-reports/swedens-experiment-with-negative-rates.html]8Why would Negative Rates be a Tightening of Monetary Policy? The answer may lie in how negative interest rates impact credit expansion, capital formation, money markets, and the banking system. For example, in 2019 in the Eurozone, banks paid € 7.6 billion to park money with the ECB. Moreover, since negative rates came into effect, the amount of money on deposit with the ECB has actually risen rather than fallen.As many analysts, including ourselves9 (see article here) argued, when negative rates were first instituted, negative deposit rates act as a tax on the banking system. Banks were unlikely to be able to pass on the full costs of negative rates to their clients and depositors, so bank profits would be diminished, which would lead to greater caution in the expansion of credit.There was also the signaling effect from the central bank. A move into negative rate territory was indicative that the central bank had a pessimistic view for the outlook for economic growth. This pessimistic signaling effect may have led investors and banks to prefer to pay a modest fee (i.e., the tax on deposits) to store their money rather than take the risk of spending or investing their money in an economy with little growth prospects.Interestingly, despite the evidence that negative rates do not work as anticipated, as the world enters a deep recession stemming from the pandemic, we expect the idea to continue to be vigorously debated. There is a contentious division in the ECB's council on this issue. In the US, many Fed governors and regional bank Presidents have indicated they do not think negative rates are appropriate for the US. "I continue to think, and my colleagues on the Federal Open Market Committee continue to think, that negative interest rates are probably not an appropriate or useful policy for us here in the United States," said Fed Chari Jerome Powell on May 2020.10For example, when asked about negative interest rates, Charles Evans, President of the Federal Reserve Bank of Chicago, was dismissive: "I don't anticipate it being a tool that we would be using in the U.S." James Bullard, President of the St. Louis Federal Reserve Bank, noted using negative rates would be "problematic. ... It is not at all clear that they've been successful there [in Europe and Japan] ... we can use other tools to handle the situation." Atlanta Federal Reserve Bank President Raphael Bostic commented that negative rates are "among the weaker tools in the toolkit."11 We also note that the former President of the Minneapolis Fed has come out in favor of negative rates. And, the Fed, as is the case with most central banks, wants to keep all its options open in these trying times, even if they do not think they would effort want to use negative rates.This debate is on-going in the futures and options markets as well. On the CME, there have been trades in US federal funds futures at a price just above 100, indicating negative rates. And, there are strike prices on Eurodollar deposit rate call options above 100 (indicating negative rates), with open interest, indicating that some market participants have risk exposures that make them willing to buy call options that would only payoff in a negative rate environment.To learn more about futures and options, go to Benzinga's futures and options education resource.Endnotes 1. David Hume, "Of the Balance of Trade" in Part II, Essay 5, in Essays: Moral, Political, and Literary (1758). Published in association with Scottish bookseller Alexander Kincaid. "Of the Balance of trade" was first published in 1741 and later corrected and then included in this volume of essays. 2. Robert Mundell is arguably the father of modern theories of exchange rate dynamics and balance of payments, for which he won the Nobel Prize in 1999. Among others, see: "The Monetary Dynamics of International Adjustment under Fixed and Flexible Exchange Rates", Quarterly Journal of Economics, May 1960, pp 227-257; "The international disequilibrium system." Kyklos 14.2 (1961): 153-172; and International Economics, New York, 1968. 3. acob Frenkel and Harry G. Johnson, The Monetary Approach to the Balance of Payments, University of Toronto Press, 1976. 4. Arthur B. Laffer, "The U.S. Balance of Payments - A Financial Center View", Journal of Law and Contemporary, 1969, Volume 34, pp. 33-46. 5. Stephen P. Magee, "The Empirical Evidence on the Monetary Approach to the Balance of Payments and Exchange Rates." The American Economic Review, 66.2 (May 1976): 163-170. 6. Bluford H. Putnam, and D. Sykes Wilford. The Monetary Approach to International Adjustment. Praeger Publishers, 1986. 7. Erik Norland, "Which Yield Curve Foretells Growth Best?", CME Group, December 2019, URL: https://www.cmegroup.com/education/featured-reports/which-yield-curve-foretells-growth-the-best.html 8. Erik Norland, "Sweden's Experiment with Negative Rates", CME Group, May 2020, URL: https://www.cmegroup.com/education/featured-reports/swedens-experiment-with-negative-rates.html 9. See the video in Market Watch from November 12, 2019, "Economist Perspective: Negative Rates--An Option in the Fed's Playbook?", https://sponsor.marketwatch.com/cme-group/economist-perspective-negative-rates-an-option-in-the-feds-playbook/. Also, read the research, "Negative Rates Not Needed, Not Helpful" from CME Group at URL https://www.cmegroup.com/education/files/negative-rates-not-needed-not-helpful.pdf 10. Fed Chair Jerome Powell interview on CBS "60 Minutes" TV show aired on May 18, 2020, with correspondent Scott Pelley. https://www.cbsnews.com/news/jerome-powell-negative-interest-rates-federal-reserve/. 11. All of the quotes from the Presidents of Federal Reserve Banks were cited in a Reuters new story by Ann Safer on May 11, 2020: https://www.reuters.com/article/us-usa-fed-negative-rates-idUSKBN22N2SNSee more from Benzinga * Why ESG Is Outperforming The S&P 500 * A Closer Look At Equity Index Futures * Tectonic Shift in the US Domestic Crude Oil Grades Market(C) 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
CME Group (CME) unveils options on Micro E-mini S&P 500 and Nasdaq-100 futures contracts to enable hedging of existing equity portfolio positions.
BrokerTec, a leading provider of electronic trading platforms and technology services in fixed income markets, and TriOptima, a leading infrastructure service that lowers costs and mitigates risk in OTC derivatives markets, today announced that they have collaborated to deliver the industry's first end-to-end repo workflow solution for industry participants. This provides full automation across the lifecycle of a repo trade.
(Bloomberg) -- Pete Kosanovich can’t wait to put his trading jacket back on and return to the noisy Chicago pit where he’s worked for 17 years. The burly former football player is known on the floor by the letters “MGLA” printed on his badge, a nickname referencing the 1960s cartoon “Magilla Gorilla.”Yet this is a nightmare environment when it comes to an illness as contagious as the coronavirus: Sweaty traders crammed closely together, gesturing wildly, and screaming above the ruckus. But brokers at CME Group Inc.’s pit trading eurodollar options -- the biggest of the handful of products that have avoided conversion to fully electronic trading -- feel certain they’ll be back. They say they deliver better results for clients than any algorithm when it comes to complex derivatives trades.Kosanovich, a 48-year-old CME member, keeps an ear out on the neighboring Treasury options pit for clues about market action, likening it to how professional golfers know a tournament is heating up when they hear the crowd erupt on a different hole.“When it gets busy, there is still a buzz, you can feel things happening,” said Kosanovich, who played fullback at Purdue University. “When you hear stuff happen in other pits, it’s a lot like being at Augusta and hearing the ‘Tiger roar.’ If you hear something happen in Treasury options, you can get ready for something to happen in eurodollar options.”As he and his colleagues anxiously await word from CME Group about when the pit will reopen, their competitors in the electronic world are attempting to seize on a rare opportunity to win investors over to their programs and force these traders to hang up their jackets for good.The abrupt closing of the floor on March 13 -- mirrored by operators of other floor trading operations including NYSE parent Intercontinental Exchange Inc. and Cboe Global Markets Inc. -- forced anyone who wanted to trade eurodollar options to do it electronically. The New York Stock Exchange partially re-opened its floor this week, though only about 25% of the workers are scheduled to return. Meanwhile, Cboe Global Markets Inc. said it will reopen the Cboe Options Exchange trading floor in Chicago on June 8.Advocates for electronic trading say the eurodollar options floor is an anachronism that’s endured mainly through the sheer will of those involved -- who benefit financially -- and the broader market is better off without it.‘Move Forward’“This is the opportunity to not look back but move forward as an industry,” said Christian Hauff, CEO of Quantitative Brokers, which sells trading algorithms for global futures and interest-rate markets. Last month his firm rolled out its first options algorithm, initially for puts and calls on Treasury futures, with a plan to expand to eurodollars this year.Not so fast, say the workers in the pits.Open-outcry trading of eurodollar options -- in which market-makers in the pit provide prices for brokers -- survives because of the nature of the product, according to those involved.Eurodollar futures were created in 1981 as a way to trade the expected interest rates paid on U.S. dollar deposits held in overseas banks. They were the first cash-settled futures, as opposed to contracts that involve delivery of an underlying asset such as oil or corn.Even as Libor, the underlying interest rate, has been marked for retirement by global regulators, they remained the world’s most-traded interest-rate derivative as of last year, according to the Futures Industry Association, with average daily volume of about 2.7 million contracts in 2019. Options on eurodollar futures ranked fifth among interest rates derivatives.The trades sent to the pit have names like butterflies and straddles and typically involve multiple contracts linked to the quarterly eurodollar futures that mature as far out as 10 years. They often involve selling one or more options contract to finance the purchase of others.Because of the sheer number of possible combinations when every underlying futures contract, expiration month and strike price is taken into account, human market-makers shouting and flashing hand signals can work faster and at lower cost than robots, according to the humans.Multi-Leg TradesKosanovich once brokered a trade that involved 16 legs, but he has seen as many as 24 legs quoted in one package price.“It seems like it should be easy to trade these complicated multi-legged strategies, but it’s just not,” he says. Brokers’ “fiduciary responsibility as members is to get the best price for the end user,” he says.Prior to March 13, the action in the eurodollar options pit justified its survival, according to CME’s own standard that at least 30% of average daily volume must be handled on a trading floor in order for the company to continue supporting an open-outcry pit. About half of the volume was handled in the pit before the shutdown.Reopening the floor, however, will be tricky. The potential for social distancing is so impossible, it’s almost laughable.That puts the CME Group in a tough spot. Executives at the exchange operator reiterated Wednesday that the reopening decision will be made in consultation with government and health officials. Market makers and floor brokers who want to return would do so at their own risk and have to sign a waiver, they were told this month.When CME Group reported quarterly results in April, Chief Executive Officer Terry Duffy was asked by UBS analyst Alex Kramm whether the transition to fully electronic transactions had revealed floor trading to be unnecessary, allowing the company to save money by not restarting it. Duffy said the company intended to adhere to the 2000 guidelines requiring at least 30% of volume be handled on the floor to keep it going. He estimated the annual cost of operating the floors at $20 million, calling it “not extraordinary.” CME group earned $2.2 billion in 2019.Friends of the floor fear -- and its computerized rivals hope -- that by the time it reopens, customers will have finally adapted to the new world, as they have in other markets that no longer rely on open outcry to make prices. And every day that the pit remains closed threatens to erode the market share it commands when it reopens. Even Kosanovich and many of his comrades have been handling client trades electronically themselves lately.100% Electronic“Nobody was prepared to go to 100% electronic, but the market did it with no problem whatsoever,” said Thomas Fitch, founder and CEO of RVAssets, which has supplied trading algorithms for eurodollar and Treasury options on the CME since 2014.He disputes the assertions from floor traders that they provide tighter spreads. The two months in which eurodollar options trading has been wholly electronic allow for a near-complete analysis of more than 90% of trade data, Fitch said, and it reveals an average bid-ask spread of 0.26 cent. The average for floor trading is impossible to measure, but was probably 0.30-0.40 cent, he estimates. And traders at the exchange form “an opaque layer of brokerage” that’s able to gather information about flow that a screen doesn’t convey, he said.“These factors can be used by the market maker to his advantage, and he is willing to pay around 50 cents a lot for this to the floor,” he said.The closing of the pits has driven adoption of electronic innovations in development for years and investors “can trade any strategy today as easily as they could prior to closure of floor,” Sean Tully, CME’s global head of financial products, said on the company’s earnings call.Stakeholders in open-outcry dispute that statement. Since the floor closed, illiquidity is particularly acute in weekly options on Treasuries and eurodollars and in long-dated eurodollar structures, said Matthew Carinato, chief operating officer of Trean Group LLC. Carinato said it was likely that some of the options business that used to go to the floor had migrated away from CME’s listed products to the decentralized swaps market.Complicating matters is the upheaval in U.S. interest rates brought about by the Federal Reserve and other central banks to combat the economic fallout from coronavirus containment measures.Libor is influenced by the Fed’s main policy rate, which was slashed to a range of 0%-0.25% in March. Forecasters expect it to remain there, possibly for years. That’s unfavorable to traders of a product used to wager on changes. Open interest in both Treasury and eurodollar futures has tumbled since February.“Under normal conditions, I would expect that most end-users would want the pit back,” Chicago-based futures and options broker Albert Marquez said. “It’s far more efficient and markets are tighter. That being said, it’s not exactly the best time for eurodollar options with rates where they are.”Regardless, Kosanovich -- aka Magilla -- is itching to return to the last bastion of human price discovery, where age-old rules still apply.“Your word is your bond,” he says. “That is still true in our pit.”(Adds CME officials comments Wednesday in 19th paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
CME Group Inc (NASDAQ: CME), the largest financial derivatives exchange, formally announced the launch of options on its Micro E-mini S&P 500 and Micro E-mini Nasdaq 100 futures products."Today, our E-mini S&P 500 and E-mini Nasdaq-100 futures and options are among the most actively traded equity index products in the world," said Tim McCourt, CME Group Global Head of Equity Index and Alternative Investment Products. "Offering Micro-sized options on futures on these two indices will provide our clients with even greater versatility to execute equity trading strategies, scale index exposure up or down or more precisely hedge existing equity portfolio positions."The development comes after CME's Micro E-mini futures established a deep liquidity profile since launching a year ago. The options will be 1/10th the size of their E-mini counterparts and will come in weekly, monthly, and quarterly expirations. To learn about capital-efficient exposure in financial markets with CME's Micro E-mini products, please visit cmegroup.com.See more from Benzinga * How Artificial Intelligence Helped iFlip Save Investor Returns During The 2020 Market Crash(C) 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
CME Group, the world's leading and most diverse derivatives marketplace, announced it will launch options on its Micro E-mini S&P; 500 and Micro E-mini Nasdaq-100 futures contracts. The new options will be available for trading in the fall of 2020, pending regulatory review.
CME Group announced today that John Pietrowicz, Chief Financial Officer, and Sean Tully, Senior Managing Director and Global Head of Financial and OTC Products, will present at the Deutsche Bank 10th Annual Global Financial Services Conference, which will be held virtually on Wednesday, May 27, at 1:00 p.m. (Eastern Time).
In this article you are going to find out whether hedge funds think CME Group Inc (NASDAQ:CME) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks […]
Bitcoin halving, as it's called, took place for the third time on May 12. In the past, this event has coincided with a strong run-up in the bitcoin price and has lead to pre- and post-halving volatility, with price implications extending into 2020 and beyond. The 2020 halving event has several additional factors than previous such events, including the availability of CME Bitcoin futures and options, which investors and miners can use to hedge or express views on the bitcoin price.