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Wednesday, 8 December 2021

Bond funds, DeFi, and options traders are all coming under greater scrutiny

The Bank for International Settlements is calling for tougher regulations for bond funds in order to mitigate risks to financial market stability, the Financial Times reports, citing the financial watchdog’s latest quarterly report. Abrupt exits and sell-offs during times of crisis — like the mass sell-off of assets by bond funds in March 2020 — threaten to destabilize markets and necessitate emergency measures by central banks like covid stimulus introduced last year, the BIS said. Longer notice periods for banknote withdrawals, bond transfers known as in-kind redemption in place of liquid transfers, and swing pricing to reduce the value of immediate withdrawals are some of the regulations proposed by the watchdog to help bond funds brave market stress.

DeFi is also raising flags for the BIS: The rapid and unregulated growth of all-digital blockchain-based decentralized finance — known as DeFi — is also sounding alarms for the BIS, which raised concerns that markets could destabilize should DeFi transactions seep into mainstream activity, especially due to its lack of institutional “shock absorbers” like banks.

Also on watchdogs’ radar: Options traders buying and selling via brokerage apps. A record-breaking 39 mn options contracts a day have changed hands on average this year, with retail traders making up a quarter of the activity, the Wall Street Journal reports, citing data from Options Clearing Corp. This was facilitated largely by the wave of stock trading apps making it easier than ever for amateur traders to tap into the market. Dated options market regulations haven’t been revised since 1980.

Something slightly similar is happening here at home, with the Financial Regulatory Authority’s recent decision to preemptively crack down on meme stocks — also a fixture of brokerage apps — and the solicitation of traders on social media groups.

Up

EGX30

11,538

+0.2% (YTD: +6.4%)

None

USD (CBE)

Buy 15.66

Sell 15.76

None

USD at CIB

Buy 15.66

Sell 15.76

None

Interest rates CBE

8.25% deposit

9.25% lending

Up

Tadawul

11,108

+0.8% (YTD: +27.8%)

Down

ADX

8,983

-0.2% (YTD: +78.1%)

Up

DFM

3,193

+1.0% (YTD: +28.1%)

Up

S&P 500

4,687

+2.1% (YTD: +24.8%)

Up

FTSE 100

7,339

+1.5% (YTD: +13.2%)

Down

Brent crude

USD 71.82

-0.3%

Up

Natural gas (Nymex)

USD 3.73

+0.6%

None

Gold

USD 1,785.50

None

BTC

USD 50,458.09

THE CLOSING BELL-

The EGX30 rose 0.2% at yesterday’s close on turnover of EGP 1.77 bn (20.1% above the 90-day average). Foreign investors were net sellers. The index is up 6.4% YTD.

In the green: GB Auto (+6.9%), AMOC (+2.6%) and Qalaa Holdings (+1.5%).

In the red: Speed Medical (-15.8%), Rameda (-6.3%) and Heliopolis Housing (-5.6%).

Asian markets this morning are matching Wall Street’s rebound yesterday. Major indexes in Tokyo, Seoul, Shanghai and Hong Kong are all in the green this morning. Futures suggest Paris, Frankfurt and the EuroStoxx 50 will all open in the green, with just the FTSE 100 opening flat later this morning. Wall Street and Bay Street are also set to start the trading day in positive territory this afternoon when markets open.

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