Derivatives Archives

Billions Blown

By Econ70 | 05/22/2012

The $2 billion blunder by J.P. Morgan, while not pretty, is no clarion call for added regulation. Rather, it shows that with enough capital mistakes of this magnitude can be easily absorbed. That is, while regulations can be skirted, and rendered obsolete due to new financial instruments and top notch lawyers, there is nothing that…

Sneaky Securities Scam

By Econ70 | 11/21/2011

Mutual funds (MFs) must get 90% of their income from stocks, bonds and traditional securities. To bypass this, MFs that invest in derivatives and commodities set up shell corps in the Caymans to do it. They then sell shares in the offshore subsidiary shells to the mutual funds. This way the funds technically invest in…

Risky Business

By Econ70 | 09/19/2011

The recent $2.3 billion trading loss reported by UBS begs the question, what are these guys doing? The activity is called Delta One (D1) trading and involves trading derivatives. It’s appealing because buying derivatives is more lucrative than buying the underlying asset and it gives clients exposure to investments regulators prohibit. A pension fund might…