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CME Says Size Makes Micro-E-Mini Options Attractive

By
Traders Magazine
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In this case, bigger is not necessarily better.

The Chicago Mercantile Exchange is now offering hedge funds, buysiders and active traders a new option, no pun intended, to trade with. The exchange will officially begin offering new options on Micro E-mini S&P 500 and Micro E-mini Nasdaq-100 Futures contracts, according to Tim McCourt, CME Group Global Head of Equity Index and Alternative Investment Products, discussing the contract in a conversation with Traders Magazine’s Editor John D’Antona Jr.

Tim McCourt, CME

Why offer yet another Micro E- Mini contract?

“Active traders who are looking for smaller contract size, as well as the buyside looking for a more precise way to allocate among its managed accounts or manage inflows and outflows have requested this,” McCourt explained. “Users had a need for smaller right-size contracts and exposure levels. This makes the Micro E-Mini a more approachable contract.”

Options on the new Micro E-mini S&P 500 and Micro E-mini Nasdaq-100 futures will be 1/10th the size of their E-mini options counterparts. The listing cycle for the new options will consist of five Friday weekly options, three end-of-month options and two quarterly options contracts.

“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,” McCourt said.

Micro E-mini futures were first launched last year for the S&P 500, Nasdaq-100, Russell 2000 and Dow Jones Industrial Averages and their success led CME to also introducing micro-sized options. Through June 10, 265 million cumulative contracts traded across all four indices – S&P 500, Nasdaq-100, Russell 2000 and Dow Jones Industrial Average – including 133 million Micro E-mini S&P 500 and 95 million Micro E-mini Nasdaq-100 futures contracts. Also, 954,000 contracts trade across all four products on average each day.

Micro E-mini Equity options will be listed by and subject to the rules of CME. Their final approval for usage is slated for Fall 2020, pending regulatory review. McCourt said that CME is still working on a few internal processes to enhance the contracts.

For comparison, he explained that classic E-Mini contracts using the S&P 500 as the underlying have a  $50 multiplier, while the May 2019 Micro-E-Mini S&P 500 contract is now $5, making it more affordable to trade.

“E-Minis have actually been around since the 1990s but the underlying index value has more than tripled – making the E-mini contract value go from $50,000 back then to $150,000 today,” McCourt said. “Taking into account the passive rise in asset values it has become more costly to trade. Without the Micro E-Mini, some participants would have to wait until they had accumulated $150,000 in assets to trade a single contract.”

So, CME appears to have taught an old dog a new trick. But will traders bite?

McCourt thinks so. By not only reducing the multiplier but also the amount of expirations – going to 10 maturities (five Friday expirys, three month-ends and two quarterlies – compared to other Micro E-Minis which can have up to 26 expirys, makes the contract a winner. This, he added, helps concentrate liquidity provision and helps traders digest the offerings – the sweet spot in terms of introducing the contracts.

“These new trading tools will build on the strength and liquidity of our Micro E-mini Equity futures contracts, which launched one year ago, and have rapidly become the most successful new product at CME Group,” he said. “More precision can provide additional control over the risk/reward ratio of an investor’s trading strategies.”

Euronext Sets ESG Strategy

By
Markets Media
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Euronext has launched a new environmental, social and governance index and introduced its first ESG future after the pan-European exchange set sustainable finance as one of the pillars of its new strategy last October.

Stéphane Boujnah, group chief executive of Euronext, said in a media briefing this morning that ESG is a component of the new strategy due to growing demand from investors and the opportunity for exchanges  to make a positive impact on society by helping the efficient allocation of capital to ESG projects.

Boujnah said: “There has been a boom in money allocated to ESG and it will continue to grow. European sustainable funds attracted inflows of €30bn ($33.6bn) in the first quarter of this year, despite the Covid-19 sell-off, which was 50% more than in the first quarter of last year.”

He noted that Euronext has a history in ESG as it has listed 51 ESG exchange-traded funds with total assets of €24.5bn, including 18 listings last year and it launched a green bond segment last year.

ESG indices and derivatives

Nicolas Rivard, head of advanced data services at Euronext, said in the briefing: “Demand is accelerating and sales of ESG structured products tripled last year from 2018.”

He continued that investors said they wanted a public liquid benchmark for exposure to the low-carbon transition in the Eurozone so the exchange is launching the Eurozone ESG Large 80 Index.

“The index includes the 80 best-in-class companies from their sector supporting the transition to a low-carbon economy and is powered by the Vigeo Eiris Moody’s Energy Transition framework,” he added. “Importantly the index achieves a 70% reduction in carbon footprint versus the Eurozone benchmark index.”

https://twitter.com/VigeoEiris/status/1273185237070200833

Futures contracts on the new index launched on June 1, supported by four market makers, and the first trades have been completed.

“They are priced in the same way as standard Euronext derivatives as ESG is the new normal,” said Rivard. “This is the first pillar and it will take time to build liquidity.”

Rivard said the exchange launched the first low carbon index in Europe in 2008, which is tracked by the largest European ESG ETF from BNP Paribas, with €764m in assets under management. The low carbon 100 index is now being aligned with European Union regulation on low-carbon benchmarks and the Paris agreement on climate change.

“The concrete impacts are a 7% year-on year reduction in CO2 emissions, a 1.5°C limit to global temperature rises by 2050 and an exclusion of fossil fuel companies,” he added.

Green bonds

Daryl Byrne, chief executive of Euronext Dublin and head of debt listing, said at the briefing  that the exchange’s green bonds segment was launched in November last year and the number of issuers has grown from 57 to 92.

Byrne added: “We now have 221 green bonds, compared to 148 at launch, including 20 new issues since the Covid-19 crisis.”

In addition to continued growth in green bonds, Byrne expects an increase in ESG bonds including social and sustainability bonds. For example, social bonds have been issued by public authorities to fund their response to the Covid-19 pandemic.

“There are three social bonds & 11 sustainability bonds listed on Euronext,” he added. “We expect additional blue bond issuance.”

Blue bonds raise capital for projects with marine or ocean-based benefits. Byrne continued that Euronext was a contributor to UN Global Compact blue bond reference paper in April this year.

Boujnah added: “We are proud to be the first stock exchange to endorse the UN Global Compact’s nine Ocean Principles. Protecting our oceans and supporting marine conservation will be vital to repairing our ecosystems and bolstering the blue economy.”

European Commission launches anti trust investigation into LSE/Refinitiv deal

By
Lynn Strongin Dodds
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Margrethe Vestager, executive vice-president, European Commission

The European Union’s competition watchdog has launched a four moth anti-trust investigation into the London Stock Exchange Group’s planned $27bn takeover of Refinitiv due to concerns over an overlap in European sovereign bond trading and a possible concentration of derivatives trading.

The European Commission said it was concerned about the combined company’s large market share in the trading of European government bonds because both LSE’s MTS trading venue and Refinitiv’s Tradeweb are already market leaders. It said a new trading rival would not gain enough clients to challenge the two trading venues.

The other issue was the merged entity’s market share in trading and clearing in over-the-counter interest rate derivatives used by investors and companies to hedge interest rate risks, an activity where clients rarely switch to a competitor.

In a statement, executive vice-president at the European Commission, Margrethe Vestager, said, “We have opened an in-depth investigation to assess whether the proposed transaction which will combine the activities of LSEG and Refinitiv would negatively affect competition in these markets,” said

She added, “It is key for a well-functioning financial market to ensure that market participants continue to have access to financial market infrastructure and financial data products on competitive terms.”

European regulators had been formally examining possible conflicts of interest in the deal for a month. A decision will be taken by October 27th but the deadline could be extended if authorities require the two companies make concessions, such as selling assets, to satisfy their concerns. The US competition agency, part of the Department of Justice, began asking market participants about the deal at the start of June.

The LSE plans to buy the data provider in an all-share deal that would involve Blackstone, the private equity group, taking a 37% economic interest in the stock exchange group. A completed deal would transform the LSE into one of the world’s largest managers of financial markets, running exchanges, trading venues, clearing houses and supplying vast quantities of vital trading data.

©BestExecution 2020

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Trading From Home Amid Covid-19

By
Creating Digital
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LGIMA, FactSet, and Credit Suisse representatives discuss the ‘new normal’ of institutional trading desks operating on a decentralized and remote basis. 

Industry viewpoint : UBS Bondport : Nicolas Masso & Graham Cox

By
Ian Rycott
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HOW UBS BOND PORT GIVES TRADERS GREATER CONTROL DURING MARKET STRESS.

Nicolas Masso (l) and Graham Cox (r), Global Co-Heads of UBS Bond Port

Traders were empowered by electronic execution in the sell-off thanks to market innovation. The DESK speaks to Graham Cox and Nicolas Masso, Global Co-Heads of UBS Bond Port.

How did traders use UBS Bond Port in April 2020, one of the most challenging months on record?

Masso: In April we had a leading position in the distribution of USD corporate bonds by both ticket count and volume on Bloomberg*. Over 50% of UBS Bond Port’s liquidity comes directly from pure real money accounts resting their inventory on the order book in 2020.

What has driven that?

Masso: We have become counter cyclical. When the market has dislocations, people look for safe havens to find liquidity, giving them the opportunity to make prices and create their own market. While our volumes have seen significant increases year-over-year, the most interesting change has been in the behavioural patterns of some of our market participants. Historically, there were a handful of active buy side participants willing to rest passive liquidity, stepping into the UBS Bond Port distribution, and executing their orders that way. Today, the vast majority of our top global buy-side clients have become price makers and provide resting orders on the platform.

Cox: The lack of price dissemination on screens in the last couple of months has been a major issue for the buy side. Our screens, however, are fully firm, which has been incredibly valuable with the market under pressure. UBS Bond Port quotes around 35,000 unique CUSIPS across 19 currencies and aggregates over 100,000 resting client orders a day for a total value of US$15 billion of executable liquidity. As Nico mentioned, we have seen the behaviour of the traditional buy side evolve considerably. They are looking at their execution functions more progressively and more holistically to optimise that aspect of their business. Outperformance during aggressive downturns in the market is where we have been strong historically.

What does that mean for dealers?

Masso: The buy side have become the dealers to some extent. Big alternative liquidity providers, the ETF players and the quants, ramped up their trading books over the last few years. The major players then became broker dealers. In addition, big inventory holders experienced an urgency to de-risk their books in Q1, inverting the traditional roles in the market.

How did the problem around price formation help you?

Cox: Clients appreciate that dealers have to work orders, but don’t like the lack of transparency. Sometimes, we may see high revenue opportunities on the desk but we ultimately always transact at a fixed, pre-set mark-up and this is exactly the reason why people come back to UBS Bond Port. We are a network, exclusively focussed on electronic trading to provide scale and global distribution.

Where does UBS Bond Port sit in the universe of tools and platforms?

Masso: We are a network. We are platform agnostic. We do not force clients to use our screens to trade. Our data shows strong growth in platform usage over the last year or so, reinforcing the power of UBS Bond Port. For example, in April 2020 we had over 5,700 unique individuals trading on the platform, up from about 2,300 in January 2019. Further, these individuals are coming from 65 countries. We have achieved this global network because we are integrated with many major order management systems and electronic communication networks (ECNs). We connect the dots.

To that point, how has regional activity been?

Masso: UBS Bond Port can bridge the liquidity gap between distinct areas of the globe, with time zones that might not have overlap. We allow you to trade overnight flow on a truly global distribution scale. We have seen passive liquidity provided by Asia Pacific (APAC) asset managers increase 52% per cent year-on-year. Allowing an APAC asset manager to directly access liquidity being traded by a mid-tier asset manager in the mid-west of the United States for example, only happens through UBS Bond Port.

Cox: It’s all about mutually beneficial relationships. Globally, buy-side participants are now the largest client segment by volume executed, followed by global wealth managers.

What are you are doing within UBS Bond Port to drive that growth?

Cox: We allow clients to place an order with a transparent, fully disclosed mark-up spread into the UBS Bond Port order book. A very efficient smart order router scans global liquidity against that order and routes it for execution to the markets or venues that will fulfil the liquidity need of the client.

Masso: The strategy of UBS Bond Port has not fundamentally changed since we launched the business ten years ago. We remain very focused on bringing together all types of market participants to interact seamlessly in a global order book across multiple assets.

Back in 2011 it was our firm belief that the electronification of markets would accelerate over the next decade. This has come true, yet as we look ahead to the next ten years we find we are just scraping the surface in terms of the power of the UBS Bond Port network and what we can achieve for our clients.

*Source: Bloomberg MISX Dealer Rankings Report for USD Credit

www.ubs.com

 

©BestExecution 2020

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LSE CEO Nikhil Rathi to take over the helm at the FCA

By
Lynn Strongin Dodds
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Nikhil Rathi, CEO, FCA
Nikhil Rathi, CEO, FCA

Nikhil Rathi, CEO, Financial Conduct Authority (FCA)

Nikhil Rathi, chief executive of the London Stock Exchange, has been appointed as chief executive of the Financial Conduct Authority (FCA).

Prior to the LSE, Rathi worked at the HM Treasury between 2009 and 2014 where he led its work on the UK’s EU and international financial services interests.  Before that, he was a private secretary to the prime minister between 2005 and 2008, serving two years under Tony Blair and one under Gordon Brown.

Rathi’s five-year appointment at the UK regulator has been approved by Chancellor of the Exchequer Rishi Sunak. In a statement, he said, “We have conducted a thorough, worldwide search for this crucial appointment and, through his wide-ranging experiences across financial services, I am confident that Nikhil will bring the ambitious vision and leadership this organisation demands.”

Rathi will succeed Christopher Woolard who has acted as interim chief executive at the FCA since Andrew Bailey stepped down from the post to join the Bank of England in March 2020.

The FCA said he will be paid an annual salary of £455,000, a 12% pension, and will not receive a bonus.

Chair of the FCA Charles Randell said: ‘I warmly welcome Nikhil to the FCA. I look forward to working with him as he leads the FCA to deliver the next phase of its mission. Nikhil has been closely involved in guiding the FCA’s development through his roles on our Practitioner Panel and Markets Practitioner Panel, and brings both private sector management skills and experience of domestic and international regulatory policymaking.

Rathi said he wanted to create a diverse FCA in the coming years, with climate change and vulnerable clients the other pressing priorities.‘ I look forward to building on the strong legacy of Andrew Bailey and the exceptional leadership of Christopher Woolard and the FCA executive team during the crisis.”

He added, ‘In the years ahead, we will create together an even more diverse organisation, supporting the recovery with a special focus on vulnerable consumers, embracing new technology, playing our part in tackling climate change, enforcing high standards and ensuring the UK is a thought leader in international regulatory discussions.’

©BestExecution 2020

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Merisoft and Taskize join forces for CSDR solution

By
Lynn Strongin Dodds
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Kerril Burke, CEO, Meritsoft

Meritsoft, a Cognizant company, and Taskize, owned by Euroclear, are joining forces to launch an end-to-end integrated Central Securities Depositories Regulation (CSDR) management solution. Firms will not only be able to monitor their trade settlement fails but also have an audit trail and fail-resolution workflow.

Through the combination of Meritsoft’s FINBOS CSDR Manager and the Taskize Connect solutions, the real time platform will be available to banks, brokers and buy-side firms to help firms better identify and prevent settlement fails.

In addition, the solution enables firms to automate a significant amount of anticipated CSDR workloads, including CSD reporting and cash compensation management.

The CSDR, which aims to improve the settlement process, has been postponed until February 2021 from this September. Two of the most contentious issues are the mandatory buy-in regime which will be initiated in the event of a transaction failing and the settlement discipline regime which introduces fines for settlement fails when securities are not delivered.

The European Central Bank’s 2019 Target2-Securities report card showed that T2S processed a daily average of 606,938 transactions worth €1.1 bn. T2S uses two settlement efficiency ratios with the MSEI: Market Settlement Efficiency Indicator seen as the better way to monitor market behaviour. Last year, the ratio was 93% for both volume and value of trades which translated into 7% of trades that could be penalised.

John O’Hara, CEO, Taskize

The alternative settlement efficiency measure or PSEI includes several system generated transactions. Its figure was 97% although the mid-point number which was two percentage points lower, is viewed as the real measure. This means that 5% of trades failed, a slightly higher number than most industry estimates.

“With the February 2021 CSDR deadline front of mind for financial houses, market participants need to be able to mitigate the potential risks and costs of upcoming penalties and buy-ins under CSDR,” says Meritsoft CEO Kerril Burke. “They must do this through efficient issue resolution while providing business managers and traders with the information required to factor CSDR implications into their decisions. We are pleased to be collaborating and innovating with Taskize to offer market participants this enhanced platform.”

John O’Hara, CEO at Taskize, adds: ““This will enable seamless flows of activity both within and between financial services firms and facilitate adherence to CSDR’s requirements. As the world of regulatory compliance continues to expand, we look forward to identifying opportunities to create value for clients with collaborators such as Meritsoft to service the wider financial services industry.”

©BestExecution 2020

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MeTheMoneyShow – Episode 10

By
Ian Rycott
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Dan Barnes and Lynn Strongin Dodds discuss reports from the week past, ranging from how asset managers need to re-think their operating models to ways in which the long-awaited European Capital Markets Union might positively impact buyside competitiveness in Europe.

©Best Execution 2020

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Global Trading podcast – BNP Paribas Securities Services – Evolving Business Models for Institutional Custodians

By
Ian Rycott
-

A new podcast series, first published by our sister publication, Global Trading.

David Braga, CEO, BNP Paribas Securities Services Australia & New Zealand, and Luc Renard, Head of Financial Intermediaries & Digital Transformation, Asia-Pacific for BNP Paribas Securities Services, discuss the evolution and the future of securities services with Markets Media Editor Terry Flanagan.

Ep. 3: Evolving Business Models for Institutional Custodians

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European Women in Finance: When opportunity knocks

By
Lynn Strongin Dodds
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Emma Kalliomaki, managing director of ANNA and the DSB.

Emma Kalliomaki, Managing Director of ANNA and the DSB talks to Lynn Strongin Dodds about the importance of communication and consultation.

Long before Covid-19 swept across Europe and working remotely was enforced, Emma Kalliomaki decided to take a new job, move to Sweden with her family and work more from home for a better lifestyle balance. The one thing that didn’t change was her drive to take on new challenges.

Kalliomaki, who is Managing Director of the Association of National Numbering Agencies (ANNA) and the Derivatives Service Bureau, joined both groups in 2016 from the London Stock Exchange (LSE) where she spent 12 years. She started at the exchange in credit control, rising through the ranks to head of reference data, including SEDOL* Masterfile (SMF) and corporate actions, as well as the UK NNA (National Numbering Agency) and the LEI (Legal Entity Identifier) Local Operating Unit functions.

At the LSE, Kalliomaki rebuilt the SEDOL Masterfile system and led several initiatives including establishing the LSE as a local operating unit in the global LEI system as well as in the UK numbering agency for International Securities Identification Numbers (ISINs) and Classification of Financial Instruments (CFI) codes.

Her work and management experience at the LSE have held her in good stead in her current role where she spends around 60% of her time at the DSB and 40% at ANNA, which is a global member association seeking to foster standardisation within the financial industry.

DSB and ANNA
The DSB which was founded by ANNA has been designated by the Financial Stability Board as the sole service provider for the future Unique Product Identifier (UPI) system and is working in collaboration with the industry as a fully automated global generator of ISINs, CFIs, and Financial Instrument short names (FISNs) for over the counter (OTC) derivatives.

“One of the reasons why I took the job at ANNA was because it was a new role, their first MD appointment, and the DSB was being established as a new initiative,” says Kalliomaki. “When I joined it was a bare bone of an organisation and I liked the idea of being part of getting it up and running. Also, my experience at the LSE was in traditional asset classes and this gave me a chance to broaden my experience to OTC. Ultimately, it ties back to data and standardisation, which are core aspects of my expertise.”

She adds, “Within the DSB, my main role is governance and oversight. Each year we launch an annual consultation for industry feedback to see how we should evolve our services. This year we are also starting the pre-implementation of the UPI solution.”

At ANNA, her role is to advocate for the 120 membership in terms of standardisation, adoption of ISINs as well as to work with the board to liaise with regulators and other stakeholders. Although the ANNA Secretariat is based in Frankfurt, the Board has a global composition and Kalliomaki says they were happy for her to work from home in Sweden where her husband is from.

While this has also allowed her to spend more time with her son, she had a busy travel schedule until Covid-19 and the lockdown grounded her. This not only included quarterly DSB meetings in London, but also attending meetings at an ANNA host member country whether it be in the Middle East, South America, Europe or South Africa. Trade and industry events where she is often a speaker also filled her diary.

Kalliomaki may not currently be racking up the airmiles, but she is busy staying in constant touch with her team and the different stakeholders. “Communication is everything and it is even more important now,” says Kalliomaki. “However, the knock-on impact of no-one travelling is the output of the work is higher because we are now all at our desks every day.”

She adds, “I am a strong believer in open dialogue and am very much a ‘say what you mean’ kind of person. When promoted to manager, one of the biggest challenges was moving from being part of the team to leading it. You have to adapt to how people look at you and how to deliver your message to get the best out of people. One thing I learnt at the LSE was how to foster growth and development. I wanted the team to succeed which meant looking at the skills they needed and listening to their plans”

The best laid plans
Growing up in Sydney, Australia financial services was definitely not on the career horizon. Instead, Kalliomaki had set her sights on travelling and the travel industry. Although she initially went to the US as an au pair, family circumstances brought her back to Australia and through a “circuitous route, I moved to London and decided to get a real job which was at the LSE,” she says.

Although Kalliomaki has advanced in her career, she does believe that women can often either get pigeonholed as emotional or aggressive if they are too direct or assertive. “This led me to think more about my communication style and how to adapt it although, in essence, I am always me and remain true to myself,” she adds.

In general, while she believes progress on the D&I front is being made, “we still need positive action initiatives and one day, when it comes to jobs and certain sectors, I would like to see a balance of representation without the need for additional efforts. I have had two notable experiences of discrimination; one was when a manager was surprised that I wanted to be compensated for additional responsibilities I was asked to take on at the time.”

Her overall advice for people is to adopt an active approach whatever their chosen career path: “Opportunities are about the choices you make and I do believe if you are prepared to work hard, there will be opportunities, but you have to make them happen.”

*SEDOL stands for Stock Exchange Daily Official List, a list of security identifiers used in the United Kingdom and Ireland for clearing purposes.

©BestExecution 2020

IF YOU’D LIKE TO NOMINATE EMMA (OR ANYONE ELSE) FOR ONE OF THE EUROPEAN WOMEN IN FINANCE AWARDS PLEASE CLICK HERE

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