180.85 +0.36 (0.20%)
After hours: 7:44PM EDT
|Bid||180.85 x 1000|
|Ask||180.62 x 800|
|Day's Range||176.08 - 182.28|
|52 Week Range||131.80 - 225.36|
|Beta (5Y Monthly)||0.33|
|PE Ratio (TTM)||27.10|
|Earnings Date||Jul. 29, 2020 - Aug. 03, 2020|
|Forward Dividend & Yield||3.40 (1.93%)|
|Ex-Dividend Date||Jun. 09, 2020|
|1y Target Est||196.12|
(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 (CME) unveils options on Micro E-mini S&P 500 and Nasdaq-100 futures contracts to enable hedging of existing equity portfolio positions.
(Bloomberg) -- Bitcoin appears to be running out of steam just before one of the most anticipated milestones among cryptocurrency enthusiasts.The largest digital token tumbled over the weekend, declining about 13% to around $8,675. It rebounded to about $8,840 as of 10 a.m. in New York trading on Monday. The decline took place ahead of a closely watched technical event known as its halving, when the rewards miners receive for processing transactions will be cut in half as soon as later today.“It’s likely that we’re going to see increased volatility through May, with the pandemic, ongoing stimulus measures and the halving,” Rich Rosenblum, co-head of trading at crypto market maker GSR, said in an email. “The record open interest for futures and options at multiple exchanges adds to this. The market is in a state of information and position overload, exacerbating the potential for volatile moves.”Still, Bitcoin’s up near 25% this year and among its newest fans is famed macro investor Paul Tudor Jones, who said he’s been buying Bitcoin as a hedge against the inflation he sees coming from central bank money-printing.“It’s not the great cure for all the monetary ills, et cetera. It’s a great speculation,” Jones, the founder and chief executive officer of Tudor Investment Corp., said in an interview with CNBC on Monday. He’s got over 1% of his assets in Bitcoin, though it might end up being a top performer within his portfolio, he said.Earlier: Paul Tudor Jones Buys Bitcoin With Reminder of Gold in 1970sBitcoin, which is a little more than a decade old, has not stood the test of time, said Jones, but the digitization of the world “clearly benefits” the token. He sees an expanding user base for the cryptocurrency, a hallmark of every bull market, and anyone buying Bitcoin is betting that universe will continue to broaden.“We’re watching the birthing of the store of value -- and whether that succeeds or not, only time will tell,” said Jones in the interview. “What I do know is, every day that goes by and Bitcoin survives, the trust in it will go up.”In the near-term, many Bitcoin are looking forward to its halving, which happens about every four years and slows down the rate at which new tokens are created -- an intentional feature designed to control inflation. Bitcoin has historically bottomed 459 days prior to the halving, risen into the event and jumped after, according to research from Pantera Capital. Post-halving rallies averaged 446 days.Here’s a QuickTake on what Bitcoin’s “halving” means.“So far, Bitcoin’s third halving looks different to prior events and there doesn’t appear to have been such a sustained price run-up,” said Payal Lakhani, director of equity research and product development at CME Group, in a blog post Friday. “Given the reward change has been known since Bitcoin’s inception in 2009, and having already seen two such events, investors may have already incorporated the supply adjustment into their models and taken positions accordingly.”The impact of Covid-19 has resulted in lower volumes as some participants focused on non-crypto markets, and some mining operations being affected by these difficult market conditions, Lakhani said.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.
(Bloomberg) -- Syed Shah usually buys and sells stocks and currencies through his Interactive Brokers account, but he couldn’t resist trying his hand at some oil trading on April 20, the day prices plunged below zero for the first time ever. The day trader, working from his house in a Toronto suburb, figured he couldn’t lose as he spent $2,400 snapping up crude at $3.30 a barrel, and then 50 cents. Then came what looked like the deal of a lifetime: buying 212 futures contracts on West Texas Intermediate for an astonishing penny each.What he didn’t know was oil’s first trip into negative pricing had broken Interactive Brokers Group Inc. Its software couldn’t cope with that pesky minus sign, even though it was always technically possible -- though this was an outlandish idea before the pandemic -- for the crude market to go upside down. Crude was actually around negative $3.70 a barrel when Shah’s screen had it at 1 cent. Interactive Brokers never displayed a subzero price to him as oil kept diving to end the day at minus $37.63 a barrel.At midnight, Shah got the devastating news: he owed Interactive Brokers $9 million. He’d started the day with $77,000 in his account.“I was in shock,” the 30-year-old said in a phone interview. “I felt like everything was going to be taken from me, all my assets.”To be clear, investors who were long those oil contracts had a brutal day, regardless of what brokerage they had their account in. What set Interactive Brokers apart, though, is that its customers were flying blind, unable to see that prices had turned negative, or in other cases locked into their investments and blocked from trading. Compounding the problem, and a big reason why Shah lost an unbelievable amount in a few hours, is that the negative numbers also blew up the model Interactive Brokers used to calculate the amount of margin -- aka collateral -- that customers needed to secure their accounts.Thomas Peterffy, the chairman and founder of Interactive Brokers, says the journey into negative territory exposed bugs in the company’s software. “It’s a $113 million mistake on our part,” the 75-year-old billionaire said in an interview Wednesday. Since then, his firm revised its maximum loss estimate to $109.3 million. It’s been a moving target from the start; on April 21, Interactive Brokers figured it was down $88 million from the incident.Customers will be made whole, Peterffy said. “We will rebate from our own funds to our customers who were locked in with a long position during the time the price was negative any losses they suffered below zero.”That could help Shah. The day trader in Mississauga, Canada, bought his first five contracts for $3.30 each at 1:19 p.m. that historic Monday. Over the next 40 minutes or so he bought 21 more, the last for 50 cents. He tried to put an order in for a negative price, but the Interactive Brokers system rejected it, so he became more convinced that it wasn’t possible for oil to go below zero. At 2:11 p.m., he placed that dream-turned-nightmare trade at a penny.It was only later that night that he saw on the news that oil had plunged to the never-before-seen price of negative $37.63 per barrel. What did that mean for the hundreds of contracts he’d bought? He frantically tried to contact support at the firm, but no one could help him. Then that late-night statement arrived with a loss so big it was expressed with an exponent.The problem wasn’t confined to North America. Thousands of miles away, Interactive Brokers customer Manfred Koller ran into trouble similar to what Shah faced. Koller, who lives near Frankfurt and trades from his home computer on behalf of two friends, also didn’t realize oil prices could go negative.He’d bought contracts for his friends on Interactive Brokers that day at $11 and between $4 and $5. Just after 2 p.m. New York time, his trading screen froze. “The price feed went black, there were no bids or offers anymore,” he said in an interview. Yet as far as he knew at this point, according to his Interactive Brokers account, he didn’t have anything to worry about as trading closed for the day.Following the carnage, Interactive Brokers sent him notice that he owed $110,000. His friends were completely wiped out. “This is definitely not what you want to do, lose all your money in 20 minutes,” Koller said.Besides locking up because of negative prices, a second issue concerned the amount of money Interactive Brokers required its customers to have on hand in order to trade. Known as margin, it’s a vital risk measure to ensure traders don’t lose more than they can afford. For the 212 oil contracts Shah bought for 1 cent each, the broker only required his account to have $30 of margin per contract. It was as if Interactive Brokers thought the potential loss of buying at one cent was one cent, rather than the almost unlimited downside that negative prices imply, he said.“It seems like they didn’t know it could happen,” Shah said.But it was known industrywide that CME Group Inc.’s benchmark oil contracts could go negative. Five days before the mayhem, the owner of the New York Mercantile Exchange, where the trading took place, sent a notice to all its clearing-member firms advising them that they could test their systems using negative prices. “Effective immediately, firms wishing to test such negative futures and/or strike prices in their systems may utilize CME’s ‘New Release’ testing environments” for crude oil, the exchange said.Interactive Brokers got that notice, Peterffy said. But he says the firm needed more time to upgrade its trading platform.“Five days, including the weekend, with the coronavirus going on and a complex system where we have to make many changes, was not a sufficient amount of time,” he said. “The idea we could have bugs is not, in my mind, a surprise.” He also acknowledged the error in the margin model Interactive Brokers used that day.According to Peterffy, its customers were long 563 oil contracts on Nymex, as well as 2,448 related contracts listed at another company, Intercontinental Exchange Inc. Interactive Brokers foresees refunding $18,815 for the Nymex ones and $37,630 for ICE’s, according to a spokesman.To give a sense of how far off the Interactive Brokers margin model was that day, similar trades to what Shah placed would have required $6,930 per trade in margin if he placed them at Intercontinental Exchange. That’s 231 times the $30 Interactive Brokers charged.“I realized after the fact the margin for those contracts is very high and these trades should never have been processed,” he said. He didn’t sleep for three nights after getting the $9 million margin call, he said.Peterffy accepted blame, but said there was little market liquidity after prices went negative, which could’ve prevented customers from exiting their trades anyway. He also laid responsibility on the exchanges and said the company had been in touch with the industry’s regulator, the U.S. Commodity Futures Trading Commission.“We have called the CFTC and complained bitterly,” Peterffy said. “It appears the exchanges are going scot-free.”Representatives of CME and Intercontinental Exchange declined to comment. A CFTC spokesman didn’t immediately return a request for comment.The fallout for retail investors like Shah and Koller raises questions over whether they should’ve been allowed to take a position in oil contracts right before they expired, putting them in position to have to take possession of barrels of crude oil. Brokers have been grappling with how to shield clients, especially those with small accounts who are clearly incapable of taking physical delivery, since that day. Some, including INTL FCStone, have already blocked certain clients from touching the front-month oil futures contract.Peterffy said there’s a problem with how exchanges design their contracts because the trading dries up as they near expiration. The May oil futures contract -- the one that went negative -- expired the day after the historic plunge, so most of the market had moved to trading the June contract, which expires May 19 and currently trades above $24 a barrel.“That’s how it’s possible for these contracts to go absolutely crazy and close at a price that has no economic justification,” Peterffy said. “The issue is whose responsibility is this?”(Updates to add 24th paragraph on questions raised about small oil traders. A previous version of this story was corrected because Interactive Brokers gave the wrong estimated refund for the Nymex contracts.)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.
(Bloomberg) -- CME Group Inc. said it can’t guarantee the safety of workers using its options-trading floor when Chicago pits reopen.Social distancing isn’t possible in open outcry trading environments and, as a result, the exchange will require anyone willing to resume trading on the floor to sign a waiver accepting the risks of catching the coronavirus, Chief Executive Officer Terry Duffy said at a shareholder meeting Wednesday.Exchanges across the U.S. are preparing to slowly reopen their trading floors. While there’s still no set restart date for the Chicago pits, the earliest the floor could reopen is three weeks after the stay-at-home order is lifted in the state of Illinois, pending compliance with local, state and federal guidelines.“I cannot stress enough that we will not be able to guarantee the safety of traders, clerks or other trading personnel that choose to access the trading floor,” Duffy told shareholders, according to a copy of his remarks on the exchange’s website. “As anyone who has traded in an open outcry pit can attest, there is no way to effectuate social distancing requirements. Solutions that may be practical for other trading environments are unworkable for our trading floors.”CME closed the floor in March as the virus spread and states across the U.S. put stay-at-home orders in place. Other exchanges that also shut their floors are now preparing to reopen, with the New York Stock Exchange’s Arca Options floor pit in San Francisco saying it would partially reopen Monday this week. CBOE Global Markets said it would be ready to reopen its Chicago trading floor June 1, if it’s safe.In a “good day,” about 1,100 people including clerks, exchange members and CME employees access the floor, and on average 500 to 600, Duffy said, according to a recording of the meeting posted on the bourse’s website.CME said it will encourage anyone willing to access the floor to consult with their own doctor on whether they should return to the pits and what precautions to take.“It’s impossible for us to take everyone temperature, it’s impossible for us to make sure everyone keeps their masks on and be responsible for that, it would never work,” Duffy said. “And it’s impossible for us to police social distancing.”Illinois Governor J.B. Pritzker outlined a five-phase plan on Tuesday that provides a framework for reopening businesses and other entities. Currently, Illinois is in phase 2 of the plan, which includes flattening the rate of infections.Depending on data, public health officials will help determine when parts of the state can shift to phase 3, which has a stabilizing or declining rate of infections and would allow gatherings of as many as 10 people. The next phase caps gatherings at 50 people.In his daily press conference in Chicago Wednesday, Pritzker said he could not comment on CME’s options trading pits potentially re-opening because he’s not aware of the circumstances.P.J. Quaid, a corn options broker who works in the Chicago pit, said he is happy the CME finally said something about reopening the floor.“I always thought they were premature to close the floor,” he said. “I also feel that waiting three weeks until after the governor gives the O.K. is extremely excessive. States and cities that were hit harder by this are reopening sooner and working to get back on track.”Some traders have complained about the lack of liquidity without the options pit. Many brokers also rely on their work on the floor for their main income.Reopening will be done in a phased manner, according to the CME, with the eurodollar options pit starting first. The CME comments posted on the website confirm an earlier Bloomberg report.(Adds CEO comments on masks and temperatures)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.
(Bloomberg) -- This time is different for U.S. Treasury three-year note futures, according to CME Group Inc.The futures exchange giant that lists a suite of six Treasury note and bond contracts that are among the world’s most-traded financial products said this week it’s attempting to revive a seventh -- a three-year note contract that was launched in 2009 and, while not formally de-listed, stopped trading in 2010.CME is making three changes to the terms of the contract to enhance its appeal, said Agha Mirza, global head of interest-rate products. But also, Mirza said, the U.S. government bond market has changed over the past decade in ways that favor the survival of the new version. Issuance has surged, and Treasury on Wednesday announced record auction sizes in the coming months to pay for economic-stimulus efforts amid the pandemic.“The world changes, and especially from 2011 onwards” as balance-sheet optimization became a watchword for banks, “we found ourselves at a juncture where there were not just one or two, but multiple reasons why some of our clients are interested in us reintroducing the product in a way that’s relevant to today’s market,” Mirza said.The Treasury market’s growth has helped drive increased usage of futures for risk management and hedging, Mirza said. At $17.2 trillion, the market is already more than twice as large as it was a decade ago.Market EvolutionThe futures market has grown even faster because of the balance-sheet efficiencies it offers, Mirza said. Volume in Treasury futures has tripled since 2009, and open-interest has increased fourfold, he said. That’s driven an increase in demand for additional contracts investors can use to hedge risk at various points along the curve.When the legacy three-year contract debuted in 2009, there were four Treasury contracts, for the two-, five- and 10-year notes and the 30-year bond. Now there are two more -- the Ultra 10-year and the Ultra Bond, which reference longer-maturity baskets of deliverable securities than the “classic” versions.Balance-sheet considerations that became more important after the financial crisis initially benefited the longer-term contracts most, Mirza said. In the past two years, however, the two- and five-year contracts have become CME’s fastest-growing Treasury products, he said.The changes CME is making to the three-year contract, which will take effect July 13 pending regulatory review, are as follows:Expanding its deliverable basket to include old seven-year notes -- which the Treasury resumed issuing in 2009 after a 15-year hiatus. As a result, there will be 12 securities in the basket worth a combined $432 billion, up from eight worth a combined $319 billion. The larger size can support more growth in open interest, Mirza said.Halving the minimum price increment for the contract to one-eighth of one-32nd of a price point, to match a change that was made to the two-year contract in January 2019. While the move drew grumbles from speculators who say it’s made the market less liquid, CME says it cut trading costs and increased usage of the contract relative to the other Treasury products.The third change affects the contract’s trade matching algorithm on Globex, CME’s electronic platform.Mirza said the revamped three-year contract is “a similar story” to what happened when CME tried more than once to introduce a contract similar to the Ultra 10-year before finally gaining traction with that product, whose open interest briefly topped 1 million this year.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 (CME) delivered earnings and revenue surprises of 4.48% and 1.37%, respectively, for the quarter ended March 2020. Do the numbers hold clues to what lies ahead for the stock?
CME (CME) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.
CME Group's (CME) average daily volume for March and first-quarter 2020 increases on the back of better contribution by all six product lines.