SEC hits UBS with $8 million fine after a complex VIX-linked product burned investors

Jul 20, 2021

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SEC hits UBS with $8 million fine after a complex VIX-linked product burned investors
Markets Insider
Switzerland’s UBS has reached an $8 million settlement with the SEC after it failed to protect investors from a complex product that led to near-guaranteed losses.
Proceeds from the settlement will go back to investors burned by UBS’s lack of protections. The bank’s stock rose 4% on Tuesday after reporting a 63% jump in profits, fueled by its wealth management division.
/bit.ly/2W3ck9x

‘A Lot of Very Young People’ Are Going to Buy the Dip in Stocks
Vildana Hajric and Claire Ballentine – Bloomberg
Someday, the post-pandemic equities rally is going to end. When it does it will take a lot of newly christened stock bulls with it.
Their refusal to bend has been the signature fact of the stock market for at least 12 months, putting a floor under four other selloffs in 2021 alone that look just like the one that has sheared almost 3% off the S&P 500 Index since Thursday. Whether the devotion of retail investors is enough to turn the tide again is the biggest question in markets right now.
/bloom.bg/2VTm45Y

21% Surge Shows Why Investors Love a Complex Product
Sam Potter and Yakob Peterseil – Bloomberg
UVXY was the best-performing major U.S. ETF in Monday selloff
UBS agreed to pay $8.1 million to SEC over VIX-linked note
On the very day U.S. regulators announced the latest fine related to complex volatility products, market gyrations showed just why these controversial strategies are in hot demand on Wall Street.
As stocks sank Monday and the Cboe Volatility Index spiked, the ProShares Ultra VIX Short-Term Futures ETF (ticker UVXY) jumped 21% — trouncing almost every U.S. exchange-traded fund out there.
/bloom.bg/373oa5T

How Derivatives Amp Up Already Heady Crypto Markets
Justina Lee – Bloomberg
Bitcoin has long been known for its violent swings in price. But the volatility isn’t just driven by tweets from Elon Musk or warnings from Chinese regulators: It’s also fed by a massive derivatives industry that has boomed on the back of voracious demand for leverage and speculative tools in cryptocurrency markets. In some ways it’s a tale as old as Wall Street, but now in a new digital wrapper. For instance, when Bitcoin plunged as much as 30% in a day in May, leveraged-up positions in futures and options were wiped out, with the expected consequence of amplifying the sell-off as they had boosted the rally earlier.
/bloom.bg/3rlvNO9

Defensive Quant Trades Are Headed for Best Month Since Covid Hit
Justina Lee – Bloomberg
Regardless of whether the S&P 500 recovers from its miserable start to the week, systematic stock strategies are full of warnings that economic growth has already peaked.
An investing style that buys profitable firms with low debt is on course for its best month since the Covid-spurred market collapse last March, a Dow Jones index shows. Ditto a low-volatility trade beloved by quants during bouts of risk aversion. Investors have also been yanking cash from smart-beta funds that buy up stocks acutely tied to the economic cycle.
/bloom.bg/3wUF294

BlackRock-Led ‘Big Three’ May Forestall Chaos in Stock Markets
Sam Potter – Bloomberg
Critics who assail the growing influence of index giants like BlackRock Inc. may be overlooking their power to prevent a stock-market disaster.
In a paper published this month, academics from America and China show that institutions with notable holdings in multiple firms across industries are less likely to panic sell.
/bloom.bg/3hQg4DC

Oil-Price Swoon Spurs Traders to Bet on Further Declines
Joe Wallace – WSJ
Bets that oil investors made in options markets help explain why crude prices fell so sharply on Monday, and show that traders are bracing for prices to lurch lower once more.
U.S. crude prices swooned in tandem with stocks and other industrial commodities to start the week after the spread of the coronavirus Delta variant shook confidence in the global economic rebound. West Texas Intermediate futures failed to recover on Tuesday, holding prices about 14% below their recent high at $66.41 a barrel.
/on.wsj.com/2UvLqXd

VIX ETFs Skyrocket as Covid Fears Trigger Market Volatility
Max Chen – ETF Trends
The Cboe Volatility Index and VIX-related exchange traded funds surged Monday as equity markets reeled and investors turned risk off in face of rising Covid-19 Delta variant infections.
On Monday, the iPath Series B S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) increased 14.3% and the ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY) advanced 14.5%, both breaking above their short-term resistance at the 50-day simple moving average. Meanwhile, the CBOE Volatility Index climbed 22.0% to 22.5, breaking above its long-term resistance at the 200-day simple moving average.
/bit.ly/3rmYavm

Exchanges

NYSE Group, Inc. Selects TRAFiX LLC as Options Technology Solution
PR Newswire via Business Insider
TRAFiX LLC, a global FinTech company and industry leader of broker-neutral trading systems, and NYSE Group, Inc., which operates the world’s largest securities exchange, have entered into a multi-year agreement in which TRAFiX will provide NYSE American Options and NYSE Arca Options Floor Brokers and their respective customers seamless, electronic integration to NYSE Pillar via TRAFiX’s advanced options Order Management System and/or global FIX network.
/bit.ly/2V05OQ8

Snapshot Eurex EnLight: something to look back on, and more to look forward to
Eurex
EnLight, our selective RFQ platform, has developed into a versatile and nearly indispensable tool for many of our customers. All the more reason for us to support our customers with a continuously evolving platform. Let’s have a quick review of the first half of this year.
Most benchmark equity, equity index and fixed income options, and futures are already available for trading on Eurex EnLight and we have now further extended our offer so that all equity and equity index options and futures available on Eurex are also available on EnLight. To cover our growing FX market, we also expanded our integrated T7 RFQ mechanism, ensuring that clients are able to source the most competitive liquidity and benefit from the full suite of execution models.
/bit.ly/3ineic4

EEX Dairy Derivatives markets set new trading record for H1 2021
EEX
The European Energy Exchange (EEX) set a new record volume in its Dairy Derivatives markets in the first half of 2021. With 77,760 tonnes equivalent traded (equals 15,552 contracts), EEX volumes increased by 58% compared to H1 2020 (49,300 tonnes, equals 9,860 contracts).
/bit.ly/3kGE1PB

Regulation & Enforcement

SEC Slaps UBS With $8M Penalty Over Use of Complex Exchange-Traded Product
Ross Snel – Barron’s
Investments in a complex exchange-traded financial product have landed UBS in hot water with regulators.
The Swiss bank has agreed to pay $8.1 million to settle Securities and Exchange Commission charges related to the use of the iPath S&P 500 VIX Short-Term Futures ETN (VXX) by some of its financial advisors, according to an SEC order. The money will go to harmed investors, the SEC says.
“Advisory firms must protect clients from inappropriate investments in complex financial products,” says Daniel Michael, chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, in a statement. “We will continue to scrutinize firms’ policies and procedures related to these risky products, and we will take action when they are inadequate.”
/bit.ly/3zcJCB6

Technology

Cboe Europe enhances Cboe LIS Block Trading Platform with Directed IOI service
Cboe Global Markets, Inc.
New service offers improved and more secure workflow for the delivery of block IOIs from brokers to clients; Empowers high-touch and sales trading teams by allowing them to better target block liquidity; Further expands Cboe Europe’s block trading capabilities and builds on success of Cboe LIS platform
Cboe Europe, a pan-European exchange operator and subsidiary of Cboe Global Markets, Inc. (Cboe: CBOE), today announced an enhancement to its block trading platform, Cboe LIS, which is powered by BIDS technology, with the addition of Directed Indication of Interest (DIOI) functionality. The service was successfully launched on 12 July 2021 on the Cboe UK LIS platform. Cboe plans to extend this new service to Cboe NL LIS later this year, subject to regulatory approval.
/bit.ly/3kFU0gO

Trading Technologies Connects to Warsaw Stock Exchange
Trading Technologies
Trading Technologies International, Inc. (TT), a global provider of high-performance professional trading software, infrastructure and data solutions, and the Warsaw Stock Exchange (WSE), the national exchange of Poland, today announced that TT’s global user base can now access derivatives products listed on WSE through the TT platform.
/bit.ly/3hTrHtw

Strategy

‘It’s not going to be normal by September’: investors take stock as Delta spreads
Joe Rennison and Eric Platt – Financial Times
As revellers returned to nightclubs at just one minute past midnight to celebrate the lifting of social restrictions in England on Monday, investors were less jubilant.
Instead, they watched as a stock market sell-off unfolded around the world, sending down many of the sectors that had propelled global equities higher earlier this year, some of them into correction territory — 10 per cent below their peaks.
/on.ft.com/3ixN3LY

BUZZ-COMMENT-Watch FX options for clues on currency expectations
Reuters
FX options thrive on volatility and rapid directional moves, so their price action can provide a decent bellwether for those risks.
Implied volatility gauges expected actual volatility over a given timeframe – holders want actual volatility to outperform it in order to profit. The 1-month expiry is a decent benchmark, and it’s higher in all G10 pairings, with higher beta currencies like AUD and CAD posting the biggest gains since last week. EUR/USD implied volatility gains were more limited however, with 1-month to 5.5 from 5.1 – reflecting expectations of lower actual volatility than other pairings.
Risk reversals show how much implied volatility dealers are adding for option strikes in one direction versus the other and, again, the biggest gainers have been the higher beta pairs. The premium for CAD and AUD puts, and JPY calls, has outshone the rise for EUR/USD downside strikes, which is barely changed.
/bit.ly/2W79yQJ

Miscellaneous

How Derivatives Amp Up Already Heady Crypto Markets
Justina Lee – Bloomberg
Bitcoin has long been known for its violent swings in price. But the volatility isn’t just driven by tweets from Elon Musk or warnings from Chinese regulators: It’s also fed by a massive derivatives industry that has boomed on the back of voracious demand for leverage and speculative tools in cryptocurrency markets. In some ways it’s a tale as old as Wall Street, but now in a new digital wrapper. For instance, when Bitcoin plunged as much as 30% in a day in May, leveraged-up positions in futures and options were wiped out, with the expected consequence of amplifying the sell-off as they had boosted the rally earlier.
/bloom.bg/3rlvNO9

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