Effects of the COVID-19 Pandemic on Derivatives Markets : Evidence from Global Futures and Options Exchanges

We examine key developments in trade-related activity in derivatives markets during the COVID-19 pandemic. Using a unique database spanning 113 exchanges and 40 countries, we find significant large increases in volumes and open interest using event study methods. Further, drawing upon techniques from network theory, we find greater market interconnectedness among countries and geographic regions along with notable changes in market centrality. Using data available for U.S. markets, we then examine the response of exchanges to the increased market uncertainty and find large overall increases and more frequent changes to margin requirements. Consistently, we observe a historically large increase in client funds held at futures commission merchants to support traders’ margin requirements. We also find a considerable drop in trader participation driven mainly by non-commercial, speculative traders along with an increase in the percent of open interest held by commercial shorts and non-commercial longs