ZH: UBS halts inverse ETFs [NotSoBreaking]

Actually, as much as I'd like this to be the 'real' story, I think the SEC is starting to take a good, long look at these things.

As KD and others have pointed out: Inverse ETF's are flawed-by-design (and very dangerous) securities/derivatives. They will, as we all now know, under normal circumstances, trend down towards zero.

While this may be mathematically obvious for anyone who understands the effects of compounding 'percentage-based' moves under normal market volatility -- it isn't clear to many investors. (Judging from the constant stream of frustrated questions, it clearaly wasn't obvious to thousands of people).

Nowhere in the prospectus is a clear-language warning that: "This security will trend to zero under normal market conditions". Whether or not you believe this language should have been there, is of course a subject of open debate -- but this may be one time the SEC is actually doing its job and protecting investors.

Personally, I think that given the amount of confusion on this subject -- the issuing IB's did a terrible job defining the risks of these derivatives.

If I had to guess, I'd say we're going to see many of these securities pulled from the market (as they actually approach zero) -- and we're going to see some regulation added to the table...

"Governments are instituted among Men, deriving their just powers from the consent of the governed, That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government" -- The Declaration of Independence

User Info	ZH: UBS halts inverse ETFs in forum [NotSoBreaking]
Eternalblue Posts: 4721 Incept: 2007-08-09 sokali	Quote: Bearish bets made impossible, compliments of UBS. Either that, or UBS' recently upgraded (with i7 chips of course) computers just cant handle the basis calculations. Either way, is something very fried with ETFs going on behind the scenes? IMPORTANT NOTICE: Inverse, Leveraged and Inverse-Leveraged Exchange Traded Funds are no longer available for new or additional purchases at UBS Effective July 27, 2009, UBS is suspending the offering of Inverse, Leveraged and Inverse-Leveraged Exchange Traded Funds (ETFs). You will no longer be able to make new or additional purchases and will only be able to liquidate current positions through UBS at this time. Any attempt to execute a trade of such ETFs will be rejected. Please contact your Financial Advisor with questions. http://zerohedge.blogspot.com/2009/07/et.... 2009-07-27 09:27:59 Permalink
Early_retirement Posts: 1961 Incept: 2007-06-26 Burlington, Vermont	That's interesting ---------- "You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else." 2009-07-27 09:30:01 Permalink
Fred_flintstone Posts: 5394 Incept: 2008-04-15	Whoa...wonder if we'll see the inverses trading way out of sync with NAV like last summer during the short ban. Hope this does not signal counterparty issues on the index swaps. 2009-07-27 09:38:19 Permalink
Travelerjim Posts: 419 Incept: 2008-05-22 CO	The other thing here is unwinding of some sort with investors who might have been using these as hedges? If major parties were long stocks and long the inverses or more probably short the double or triple longs? 2009-07-27 09:42:29 Permalink
Iliketrends Posts: 1999 Incept: 2007-11-26	good. Get rid of trading crack. ---------- “The danger to America is not Barack Obama but a citizenry capable of entrusting a man like him with the presidency. It will be easier to limit and undo the follies of an Obama presidency than to restore the necessary common sense and good judgment to a depraved electorate willing to have such a man for their president 2009-07-27 09:48:35 Permalink
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Popothebright Posts: 1782 Incept: 2008-05-16 Bangkok ( I'm out. So long, New York )	Or are the indexes about to plunge? Maybe they don't want mom and pop to share the downside winnings? ---------- "Governments are instituted among Men, deriving their just powers from the consent of the governed, That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government" -- The Declaration of Independence 2009-07-27 10:02:28 Permalink
Jlk Posts: 2259 Incept: 2009-05-24 Philadelphia	"Popothebright" wrote.. Maybe they don't want mom and pop to share the downside winnings? How could you be so cynical? (lol). 2009-07-27 10:32:57 Permalink
Popothebright Posts: 1782 Incept: 2008-05-16 Bangkok ( I'm out. So long, New York )	Actually, as much as I'd like this to be the 'real' story, I think the SEC is starting to take a good, long look at these things. As KD and others have pointed out: Inverse ETF's are flawed-by-design (and very dangerous) securities/derivatives. They will, as we all now know, under normal circumstances, trend down towards zero. While this may be mathematically obvious for anyone who understands the effects of compounding 'percentage-based' moves under normal market volatility -- it isn't clear to many investors. (Judging from the constant stream of frustrated questions, it clearaly wasn't obvious to thousands of people). Nowhere in the prospectus is a clear-language warning that: "This security will trend to zero under normal market conditions". Whether or not you believe this language should have been there, is of course a subject of open debate -- but this may be one time the SEC is actually doing its job and protecting investors. Personally, I think that given the amount of confusion on this subject -- the issuing IB's did a terrible job defining the risks of these derivatives. If I had to guess, I'd say we're going to see many of these securities pulled from the market (as they actually approach zero) -- and we're going to see some regulation added to the table... ---------- "Governments are instituted among Men, deriving their just powers from the consent of the governed, That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government" -- The Declaration of Independence Last modified: 2009-07-27 10:54:36 by popothebright 2009-07-27 10:52:05 Permalink
Curbyourrisk Posts: 2201 Incept: 2008-08-19 A chicken in every pot and a banker from every post!	If they get rid of all the ETF's what happens to the volume of the market. My assumption is people were forgoing stock trading and instead trading the ETF's/. The way I looked at it, "smart" guys weer chosing to hedge with ETF's instead of playing the VIX (the reason why it is so low). So if they pull the ETF's do we see a PLUNGE in volume? Do we see a spike in VIX? ---------- Hopium: hope filled delirium preached by the White House and Swallowed whole by the American Sheeple. Kool-Aide drinkers of the world unite - America needs you more now than ever before... "We saved the world from disaster" - Ben Bernanke - Jackson Hole 08/21/2009 2009-07-27 10:56:54 Permalink
Soldtoyou Posts: 1157 Incept: 2007-11-25	The industry just needs to come up with a metric similar to theta decay that shows how the price will trend under a given volatility level. 2009-07-27 11:32:13 Permalink
Shortqqq Posts: 314 Incept: 2007-07-20 las vegas	Have to think the VIX would spike 2009-07-27 11:32:20 Permalink
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Epicdepressive Posts: 1351 Incept: 2009-04-04 this old bunker	My theory on SRS is that Deutche Bank invented a contraption that could be bolted to the side of a broken-down MBS sausage machine and feed the thing money from fools so that said sausage machine could grind on another day as a zombie MBS sausage machine. Of course some people make nice money from it. They understand that the thing must be played with the dedication of Cartman on WOW. ---------- What do you want? What do you value? What do you need? What in exchange? 2009-07-27 11:37:22 Permalink
Curbyourrisk Posts: 2201 Incept: 2008-08-19 A chicken in every pot and a banker from every post!	BREAKING SEC makes rule to curtail short selling permanent AND THER YOU HAVE IT!!!! ---------- Hopium: hope filled delirium preached by the White House and Swallowed whole by the American Sheeple. Kool-Aide drinkers of the world unite - America needs you more now than ever before... "We saved the world from disaster" - Ben Bernanke - Jackson Hole 08/21/2009 Last modified: 2009-07-27 14:10:32 by curbyourrisk 2009-07-27 14:10:12 Permalink
Fred_flintstone Posts: 5394 Incept: 2008-04-15	No uptick rule, just making permanent regs on "abusive" (naked) short selling already in place. http://www.sec.gov/news/press/2009/2009-.... Not seeing how this SEC action is related to UBS or ultra/inverse ETF's at all. Still "studying" circuit breaker, uptick, and so forth. 2009-07-27 14:15:28 Permalink
Zenthunder Posts: 6051 Incept: 2007-10-11	Hey didnt ZH have some speculation a while back that UBS was doing something untoward with the TFS and that they were gonna walk off the deep end of the risk o meter? Maybe... Lemme see if I can find it. 2009-07-27 14:18:23 Permalink
Sheepish_bagholders Posts: 467 Incept: 2007-08-01 Chillin' with former Finance Minister Nakagawa at the pub..	This is to protect themselves from client lawsuits/suitability complaints. Thats all there is to it folks.. ---------- 2009-07-27 14:24:09 Permalink
Zenthunder Posts: 6051 Incept: 2007-10-11	NM - I was remembering wrong, ZH was talking about how Credit Suisse was going nuts on ETFs... 2009-07-27 14:26:09 Permalink
Aldreth Posts: 487 Incept: 2007-09-05 Seattle	Poop shoots! er I mean green shoots? ---------- No deflation->Our banking system is far sounder and not subject to the massive loan problem that Japan now faces. -Ben Bernanke Inequality is not a bad thing, it's necessary -Barney Frank I wonder who the Federal Reserve Corporation will "spend freely to support" during the next presidential election. -me 2009-07-27 14:40:19 Permalink
Boshaugh Posts: 1900 Incept: 2008-08-08 Northern Virginia/DC Metro Area	@ Sheepish - you are exactly right. Expect the other big brokerage houses and banks to follow suit. 2009-07-27 14:43:54 Permalink
Allclear Posts: 4942 Incept: 2007-09-18	its a little late for that, isn't it? ---------- Many of the truths we cling to depend greatly on our point of view...Obi-Wan 2009-07-27 14:51:06 Permalink
Lanemeyers Posts: 1172 Incept: 2008-01-22 Seattle	Was wondering why the VIX was up so much today. Guess that is it. ---------- I change by not changing, at all. 2009-07-27 14:56:07 Permalink
Travelerjim Posts: 419 Incept: 2008-05-22 CO	The lawsuit angle sounds good. Nice class action potential. I wonder who stands behind proshares as well. 2009-07-27 15:00:54 Permalink
Cjinvt Posts: 656 Incept: 2008-09-15 VT	Wouldn't they have to halt regular ETFs too? What happens to the clients long ETFs when the markets crash? 2009-07-27 15:17:42 Permalink
Throxxofvron Posts: 5105 Incept: 2009-02-17 Running Unleashed in the Street with Kanellos	Cjinvt: (sound of toilet flushing) ---------- DIONYSUS: " Thou hast no knowledge of the life thou art leading; thy very existence is now a mystery to thee. " -from 'The Bacchantes' By Euripides “During times of universal deceit, telling the truth becomes a revolutionary act.” -George Orwell 2009-07-27 15:25:44 Permalink
Fnamekeith Posts: 213 Incept: 2008-04-07 Seattle	So, I'm holding some SDS. Does this mean I can only sell to UBS and that the market for these will eventually disappear? What are the implications for outstanding shares? I'm sure it's obvious to more experienced hands. Last modified: 2009-07-27 15:55:52 by fnamekeith 2009-07-27 15:46:55 Permalink

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"Popothebright" wrote..