YES Strategies: Know to say no
(May 2019)
In recent years, low yields in the bond market and low volatility in the equity markets have combined to give brokerage firms the excuse to develop and sell "Yield Enhancement Strategies (YES)" to retail investors. These strategies almost always consist of selling options on the S&P 500. The sale of an option garners a premium but places the seller (the retail investor) in a short option position. Being short on a call or put option is a risky place to be. In the best-case scenario, the...
Material Misrepresentations in XIV's Prospectus Led to $700 Million in Losses
(Mar 2018)
Executive Summary
Credit Suisse's XIV Exchange Traded Note (ETN) linked to the inverse of short-term VIX futures prices lost 97% of its value or approximately $2 billion in a single day on February 5, 2018. Credit Suisse announced the following morning that it would redeem all outstanding XIV shares at the Closing Indicative Value on February 15, 2018.1
Figure 1 reports the daily closing price for XIV from its inception in November 2010 to its demise in February 2018. The run-up in 2017...
Investors "Strangled" by LJM Preservation and Growth Fund (LJMIX)
(Feb 2018)
The stock market began the month of February on a roller-coaster. During the 6 trading days from Friday, February 2nd to Friday, February 9th, the Dow Jones Industrials had intraday swings of at least 330 points each day. On four of those six days the Dow incurred 1,000 point swings.
Amidst the dramatic market swings two weeks ago, the LJM Preservation and Growth Fund stands out. The Fund plummeted over 80% (from a price of $10.34 to $1.94) in two days. See Figure 1.
Figure 1. LJM Preservation...
This is why UBS paid the SEC $15 Million over Reverse Convertible Structured Products
(Sep 2016)
The Securities and Exchange Commission today announced a $15 million settlement with UBS over structured products linked to high volatility stocks today. The SEC press release announcing the settlement and its Order Instituting Proceedings are available on the SEC website. This post explains the underlying notes and why UBS may have paid the SEC a substantial settlement over sales practices related to UBS's reverse convertible notes ("RCNs").
UBS sold thousands of structured notes to retail...
More on the Sordid Tale of the Global Net Lease and ARC Global Trust II Merger
(Sep 2016)
On August 11, 2016 we wrote about the recently announced merger of Global Net Lease, Inc. (GNL) and American Realty Capital Global Trust II (ARC Global Trust II). See Sacha Baron Cohen and Nicholas Schorsch - Masters of the House! ARC Global Trust II's 8-K announcing the merger (see the merger agreement).
Global Net Lease had been non-traded REIT ARC Global Trust Inc. but began trading on the NYSE under the ticker GNL on June 2, 2015. Read our full June 5, 2015 blog post on ARC Global Trust /...
Sacha Baron Cohen and Nicholas Schorsch - Masters of the House!
(Aug 2016)
On Monday, Global Net Lease, Inc. (GNL) and American Realty Capital Global Trust II (ARC Global Trust II) announce a merger. Under the agreement, ARC Global Trust II shareholders will receive 2.27 shares of GNL for each share of ARC Global Trust II common stock they own, which implies $19.59 per each share of ARC Global Trust II share based on GNL's closing price as of August 5, 2016. See ARC Global Trust II's 8-K announcing the merger and merger agreement.
It's a sordid tale, worthy of a...
This is Why Merrill Lynch Paid the SEC and FINRA $15 million over Bank of America's VOL Index-linked Structured Products.
(Jun 2016)
The Securities and Exchange Commission yesterday announced a settlement with Merrill Lynch over structured products linked to Bank of America's proprietary investable volatility index based on VIX Future contracts ("VOL Index"). The SEC press release announcing the settlement and its Order Instituting Proceedings are available on the SEC website. The companion FINRA settlement press releaseand AWC are available on the FINRA website. Bank of America published its VOL Index in 2010 and shortly...
Smaller Brokerage Firms Are Even Worse!
(May 2016)
Last week we posted Have 1.3% or 7.3% of Stock Brokers Engaged in Misconduct? explaining that the competing estimates of broker misconduct differ because of differences in their definition of misconduct and the sample of brokers studied.
Firms with 400 to 999 Brokers Are Much Worse Than Larger Firms.
In last week's post, we listed the 100 highest risk brokerage firms with 400 or more registered brokers sorted by the percentage of their brokers associated with Investor Harm Events as of...
Investors Lose Over $7 Billion in SandRidge Energy Stock and Notes
(May 2016)
In recent months, investors have lost billions of dollars as a result of their investments in SandRidge Energy, Inc. stock, notes and bonds. Sandridge is involved in the exploration and production of oil and natural gas in the continental United States with some interests in the Gulf of Mexico.
SandRidge's stock price has lost 99% of its value since 2014, erasing more than $4 billion of market capitalization. In addition to near complete losses to SandRidge stockholders, investors have lost...
The Recent Market Turmoil Spells Trouble for "Auto-liquidators" like Interactive Brokers
(Aug 2015)
Interactive Brokers Group, Inc. (IB) caters to active traders including those who trade futures and options. These active traders' accounts typically are subject to "portfolio margin" requirements which we have written about at length. 1 IB requires its customers to agree to have IB auto-liquidate positions when accounts are in a margin deficit.
IB's auto-liquidation procedures were the focus of a FINRA arbitration earlier this year in which the Claimant, Glen Lyon Long-Term Options, LP,...
