This is a stunning revelation for a multitude of reasons. First, Kaplan’s financial disclosure form shows that he already had exposure to the S&P 500 through more than $1 million in an S&P 500 Exchange Traded Fund (ETF), which trades during regular stock market hours.
Using S&P 500 futures gave Kaplan access to making directional bets on where the market would go after the stock market closed, which is typically when the Fed makes market-moving announcements.
The most popular and liquid S&P 500 futures contract is the E-mini S&P 500. A person can get as much as 95 percent leverage on this contract – far more than the 50 percent leverage that is available for stock trades.
The S&P 500 E-mini trades continuously from 6 p.m. Sunday night through 5 p.m. on Friday evening (EDT). The stock market is open only from 9:30 a.m. to 4 p.m. (EDT) weekdays.
A speculator who comes by market moving information after the stock market has closed, can trade on that information using the E-mini S&P 500 futures contract around the clock. If the market speculator thinks the market is going to rise, they go “long” the contract. If they think the market is going to decline, they can “short” the contract. (A short position is a bearish bet that the financial instrument or security will decline in value.)
The financial disclosure form provided by Kaplan is for the calendar year 2020. That was an unprecedented year in terms of market volatility and the ability to make huge gains (or losses) in the stock market from short-term trading. As a result of the lockdowns from the pandemic, GDP fell by 31.7 percent in the second quarter – the largest decline on record. At numerous times during 2020, the Fed was making dramatic market-moving announcements of interest rate cuts and the creation of a panoply of emergency lending facilities. From January 1, 2020 through April 30, 2020, based in no small part on these Fed announcements, the S&P 500 Index gyrated from down 30 percent in late March to up 10 percent by the end of April. It was a nimble S&P 500 day trader’s dream market.
Throughout 2020, Kaplan was a voting member of the Fed’s Federal Open Market Committee (FOMC) and had access to non-public information.