Not the Ronin Death Watch

Thom Thompson

Thom Thompson


The CME announced on March 20 that it had auctioned the portfolios of Ronin Capital, a direct clearing member, because its capital was insufficient “going forward.”  Friday’s Issues and Stops report from the CME, whose Chicago Board of Trade division lists Treasury bond and note futures, indicated that Ronin had been in position to deliver thousands of T-notes against March expiring futures. 

As of March 27, Ronin was listed as an active clearing member at CME and appeared to be intact as an entity. Ronin Capital is not registered with the CFTC as an FCM or broker, and does not clear customer business.  

The previous Friday, March 20, DTCC’s Government Securities Division said it would no longer act for two specific Ronin accounts. According to an unconfirmed article in on March 26, DTCC liquidated Ronin’s holdings on March 25.  

CNBC reported that afternoon that sources had told its reporters that Ronin had sustained losses tied to VIX futures and options, contracts traded at Cboe and cleared at OCC, where Ronin was not a clearing member. What was the connection with portfolios at CME?

ABN Amro takes a loss

On Thursday last week, ABN Amro announced that it had suffered a $250 million loss from guaranteeing a futures and options trading customer. According to the company, “The client had a specific strategy, trading US options and futures, and failed to meet the minimum risk and margin requirements following extreme stress and dislocations in US markets. To prevent further losses, ABN Amro Clearing decided to close-out the positions of this client.“ The bank’s spokesman said that it was an unusual loss, especially the size of the loss. 

Other commenters said it is unusual for a clearing member to sustain such losses in its clearing business. Clearing members guarantee their customers’ performance on their open positions and ABN Amro’s loss ostensibly derived from covering its customer’s losses to a clearinghouse. 

ABN Amro did not name its client, but suspicions turned to Ronin, along the lines of “there are no coincidences.” At the end of its article on Thursday about the ABN Amro loss, apropos of nothing else in the article, Reuters added a statement about the CME’s action against Ronin the week before. 

Parplus Partners disappears

On Thursday afternoon, published an article based on statements from four unnamed sources saying that Parplus Partners, a hedge fund focused on volatility trading, was the source of the loss in ABN Amro’s clearing division. Parplus founder and CEO Jim Carney had earlier told Institutional Investor that it started 2020 with assets of about $500 million. Carney told the publication that Parplus’s strategy “is to invest in S&P 500 index positions, with a portion of the fund’s portfolio set aside for volatility trading through VIX options and VIX ETFs.”  

By Friday, March 27, Parplus’s website had been taken down. Previously, among other things, the site had touted, “Parplus utilizes a wide array of uncorrelated, fundamental, relative value trading strategies, with potential for attractive returns in periods of price discovery, i.e. volatile markets.” It must be noted that there have been no public statements from ABN Amro or Parplus Partners itself that it had suffered any losses, let alone ceased operations. There is also no proof that it lost money trading VIX futures and options, but it nonetheless seems reasonable because Parplus followed a volatility trading strategy. 

Maybe there really are no coincidences. Jim Carney’s bio on the SIFMA (Securities Industry and Financial Markets Association) website states, “In 2009, James [Jim Carney] formed his own trading group in partnership with Ronin Capital LLC, one of the Midwest’s leading proprietary trading houses.  It was over a six-year period with Ronin that James developed and successfully implemented the strategy applied in the Parplus Equity Fund, which he launched in May 2017.” 

Parplus Partners is registered as a CPO (CFTC) and an Investment Advisor (SEC). A quick look at NFA’s BASIC as well as the SEC’s investment advisor database indicate that Ronin Private Investments and principals from Ronin, including the Ronin founders, own significant shares of Parplus. CNBC’s March 20 story that Ronin Capital had suffered significant trading losses from VIX trading looks accurate enough when you insert the word “indirectly” as in, “Ronin Capital suffered significant trading losses indirectly.” 

Ronin hangs in there

And what about Ronin Capital? According to an article by Alphacution, a financial markets research firm, Ronin was one of the largest hedge funds in the market. According to Alphacution, Ronin had about $21 billion in assets at the end of 2018. It might be able to weather the recent volatility losses that took place through its affiliate Parplus Partners. That is not at all clear because, although the loss Parplus left ABN Amro with was a manageable-seeming $200 million that will likely be re-claimed by the bank, there is no information about how much, if anything, Ronin had been floating to Parplus. Ronin could have suffered its own trading losses this month. The firm did become undercapitalized in mid March, leading the CME to auction its portfolios.  

As March 2020 winds down, Ronin Capital is still a clearing member at CME, although its status may be encumbered, and it may even still be trading actively there. Ronin has lost its volatility trading operation, Parplus. Ronin Capital still has three memberships at Eurex: one U.S., one U.K., and one E.U., indicating that the company is a going operation. 

Paul Rowady, director of research for Alphacution, observed that firms like Ronin are steeped in a “maniacal sensitivity to risk management.” 

“It is this culture of risk management upon which Ronin has thrived for so long that makes its sudden demise so strange and surprising . . . ,”  Rowdy wrote. Considering the few facts that are available today about Ronin’s downgrading by the CME Group and its dealings with the DTCC, it is hard to imagine that this is the beginning of the end of Ronin Capital. 

Parplus Partners’ bankruptcy, if indeed there is one, and ABN Amro’s attempt to recover as much of the $250 million in clearing losses will probably end up in litigation which, in turn, will likely bring many new and surprising factors to light. The fact that the markets took ABN Amro’s loss and charge against capital in stride is a hopeful sign that clearinghouse regulations, practices and procedures have been improved since the 2008 financial crisis. 


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