[HN Gopher] SEC Charges S&P Dow Jones for Failures Relating to V...
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SEC Charges S&P Dow Jones for Failures Relating to Volatility-
Related Index
Author : epa
Score : 122 points
Date : 2021-05-17 19:01 UTC (3 hours ago)
(HTM) web link (www.sec.gov)
(TXT) w3m dump (www.sec.gov)
| gregwebs wrote:
| There is a new XIV-like ETF just launched called SVOL. It reduces
| the exposure level and hedges risk with options (XIV ended up
| collapsing!).
|
| https://www.simplify.us/blog/volatility-premium-harvesting-r...
| Black101 wrote:
| Penny stocks often have unreal bid/asks after-hours and they are
| completely fake... could they do something about that too?
|
| As an example for today, look at ALPP... bid: $2.00, ask: $7.00
| ... but is is messed up across the board... the real price is
| around $3.70
|
| And I wish that they would also regulate cryptos because a couple
| of days ago the spread was $1000 on BTC so I tried to make some
| money but after I bought with Coinbase, they would not let me
| sell.
| gruez wrote:
| >a couple of days ago the spread was $1000 on BTC
|
| Are you using coinbase or coinbase pro? The former gives much
| worse spreads than the latter, because coinbase is acting as
| the counterparty. I can't be bothered to check coinbase's
| spread right now (captcha wall) but on coinbase pro the spread
| is one cent. https://i.imgur.com/uZHDy4X.png
| smabie wrote:
| Why is a wide spread fake? Market makers adjust width based on
| market conditions, nothing wrong with that.
|
| Regarding the CB $1000 spread, it occured due to an exchange
| outage I believe.
| Black101 wrote:
| > Regarding the CB $1000 spread, it occurred due to an
| exchange outage I believe.
|
| Why would they let you buy and not sell? I bought and tried
| to sell and it didn't work so I bought again and tried to
| sell again and it still would not work... Coinbase is very
| manipulative so they should get regulated.
| smabie wrote:
| Why would you want to buy at the bid and then sell at the
| offer with a $1000 spread? You would lose tons of money,
| unless you mean you were trying to make the market at a
| tighter spread (instead of taking).
| gruez wrote:
| >Coinbase is very manipulative so they should get
| regulated.
|
| Ironic given that coinbase is one of the more regulated
| exchanges out there (the others being gemini and kraken).
| You can definitely go worse, eg. bitfinex or binance.
| elliekelly wrote:
| This bug had serious real-world consequences for real people:
| https://www.reddit.com/r/tradeXIV/comments/7vi6oa/xiv_after_...
| mherdeg wrote:
| That subreddit reminds me I've been meaning to follow up on
| https://www.bogleheads.org/forum/viewtopic.php?t=288192
| (outperforming the market by holding UPRO/TMF). Wish that
| person were still disclosing their returns over time.
| smabie wrote:
| Not sure if they outperform on a risk adjusted basis but both
| UPRO and TMF are 3x levered (55%/45% weight)
|
| A more fair comparison would be like 33% UPRO and 66% TMF.
| This would get you a portfolio that is similar to SPY, but
| with some leveraged treasuries on top.
|
| Regardless, bonds have done really well due to the drop in
| interest rates over the last 10 years and I doubt they can go
| any lower. Bonds will probably perform a lot worse in the
| future, unless the fed wants to try out negative rates
| (unlikely).
|
| Also you don't need them to disclose their returns, you can
| construct your own version:
| https://www.portfoliovisualizer.com/backtest-portfolio
|
| Edit: constructing the portfolio, it does seem to outperform
| SPY on a risk adjusted basis, with a Sharpe of 1.25 from
| 2010-2021. However, my caveat about bonds still stands.
| quickthrowman wrote:
| Agreed, long Treasurys has a low reward, high risk setup.
| Particularly if you believe the inflation narrative.
| [deleted]
| cm2187 wrote:
| I don't think these discussions are about the bug, but rather
| about being wiped out by what the vix did that day.
|
| Which leads me to what I think is the real fuck up. Not only
| the index was also live during after hours, but the fixing used
| as the basis for the formula for the next day was set at a time
| after trading hours. I am not 100% sure but I don't think this
| was the case when the index was initially published.
|
| What that meant was that to replicate the index, the market-
| makers of the XIV and other short-VIX ETNs had to hedge
| themselves in after-trading hours market, i.e. in a much less
| liquid market. And that's when the short-squeeze happened. Now
| would that short-squeeze have happened during trading hours
| when there was more liquidity? Possibly, you would need to ask
| a market participant. But at the minimum it made the problem a
| lot worse. And I am surprised no one got any heat for that.
| rank0 wrote:
| Just want to point out that a "short squeeze" is not possible
| with these volatility ETNs. They are collateralized debt
| instruments for which there is an unlimited supply. The
| underlying for these products is /VX futures, which also have
| an unlimited supply. A short squeeze happens when short
| positions cannot be covered due to limited availability of
| the underlying.
|
| XIV collapse was caused by an unprecedented spike in the VIX
| index.
| cm2187 wrote:
| A short squeeze also happens when you have forced buyers
| (desperate to close their short position) with a limited
| supply of sellers. Which is exactly what happened that day.
| It's not the VIX index itself that caused the XIV to be
| wiped out.
| cobrabyte wrote:
| Some people lost it all, and S&P DJI gets away with a paltry $9M
| penalty.
| ericbarrett wrote:
| Layman question: Was there any arbitrage available to financial
| firms during the times the VIX was stale as a result of this
| "feature"?
| Kranar wrote:
| No because this feature is nothing more a feed that distributes
| a numeric value, it's not a financial instrument that you can
| trade. There are products that track the VIX that can be
| traded, but the price of those products deviated from the value
| published by the S&P.
|
| Part of the complaint is that some people relied too much on
| this feed and got crushed thinking there was some arbitrage
| opportunity when there wasn't. Any remotely competent financial
| firm that trades off of the VIX calculates their own value for
| it.
| ericbarrett wrote:
| Hmm, thank you. But didn't that then create such
| opportunities since there was a knowledge differential
| between firms in the know and others (perhaps day traders)?
| elliekelly wrote:
| In this case DJI specifically licensed the VIX data to Credit
| Suisse for the purpose of offering and listing a security -
| XIV. You're right that there were (and are) other securities
| that track VIX or use VIX as a component calculation but
| what's interesting here is the SEC's focus on XIV
| specifically. It seems the language of the data license
| agreement (quoted and summarized in paragraph 19 of the SEC's
| Order[1]) played a role in the SEC's decision to go after S&P
| Dow Jones for the bad data.
|
| [1]https://www.sec.gov/litigation/admin/2021/33-10943.pdf
| mortehu wrote:
| Were the other products ETNs? For an ETF like SVXY, you are
| buying ownership of the underlying derivatives contracts.
| For an ETN like XIV, there is no underlying instrument, and
| you are buying exactly* the index value (which is why I
| bought XIV after the close that night, and it did not turn
| out well).
|
| *) Subject to counterparty risk
| hartator wrote:
| I am more disappointed about the TSLA situation. Leaving this
| company out of the SP500 until they were in the top 10 company in
| market cap. It was a very active decision when most people would
| assume the sp500 is a passive index.
|
| [edit] For clarification, TSLA already had 4 quarters of profit
| in September 2020 matching sp500 profit requirements but was
| still left out on a very active decision. [1]
|
| [1] https://www.bloomberg.com/news/articles/2020-09-04/tesla-
| fal...
| AlotOfReading wrote:
| Wasn't this the result of the profit criterion, not an active
| decision?
| Kranar wrote:
| The S&P 500 is selected by a committee vote, so every
| inclusion is an active decision. There are hundreds of large
| companies excluded from it for arbitrary reasons, including
| Dell, Snapchat, Square and literally hundreds of others.
| thaumasiotes wrote:
| But your grandparent comment isn't complaining about an
| inclusion. _Exclusion_ is almost always a passive decision,
| as it was in this case.
| astrange wrote:
| Yes, the S&P 500 is an active index. Its ETFs are passive
| because they only track that index.
| NicoJuicy wrote:
| Correct. To be included in the S&P you need to be average
| quarterly profitable + your most recent quarter needs to be
| profitable.
| hartator wrote:
| TSLA was matching the profit criterion for a while but was
| left out because it was too dependent on gov incentives.
| Which is fine but it is an active decision. As they are not
| making this kind of arbitrage for other companies relying on
| gov interventions and gov policies as well.
| stonogo wrote:
| Which companies?
| pvarangot wrote:
| Not OP but maybe the defense contractors? Raytheon,
| Lockheed, General Dynamics and I think Teledyne are in
| the S&P 500.
| stonogo wrote:
| Could be, but of those only Teledyne runs any real risk
| of losing profitability status as a result of scheduled
| ends of government incentives. I'm having a hard time
| finding out which companies OP could be referring to.
| CapriciousCptl wrote:
| Nothing worth being upset about here; stocks aren't eligible
| for inclusion to the S&P500 until they have a trailing 4
| quarters of profit.
| Kranar wrote:
| This is not true, it's a recommendation but it's not a
| requirement:
|
| https://www.spglobal.com/spdji/en/documents/methodologies/me.
| ..
|
| At any rate, even if it were a requirement, Tesla satisfied
| it at the moment that it was excluded.
| CapriciousCptl wrote:
| Well, I'm not sure what you think you see or where you see
| it in that 45-page pdf. The S&P 1500 criteria are, for
| instance, on page 8 and refute what you're saying. On a
| quick glance I couldn't find the S&P 500 criteria in that,
| again, 45-page pdf without a page reference. Or you can
| look here[1] on page 2.
|
| [1] https://www.spglobal.com/spdji/en/documents/additional-
| mater...
| Kranar wrote:
| >Well, I'm not sure what you think you see or where you
| see it in that 45-page pdf.
|
| It's not my responsibility nor is it even possible to
| find a reference to a claim that is false. If you claim
| that X is a requirement, I can't possibly cite a specific
| page that says "X is not a requirement" because it's not
| feasible to enumerate all things that are NOT
| requirements. All I can do is refer you to the list of
| requirements and ask you to point out which item in that
| list substantiates your position. That is what I've done
| by referencing that document which specifies the
| eligibility criteria and methodology and that's about the
| most anyone can do since it's generally not possible to
| prove a negative.
|
| Now you mistakenly believe that page 8 substantiates that
| claim, but it doesn't. What page 8 states is the
| following:
|
| >The sum of the most recent four consecutive quarters'
| Generally Accepted Accounting Principles (GAAP) earnings
| (net income excluding discontinued operations) SHOULD be
| positive as SHOULD the most recent quarter.
|
| The use of the word "should" is as a recommendation,
| compared to the use of the word "must" which is used for
| criteria that is mandatory, for example on page 6:
|
| >The issuing company MUST have the following
| organizational structure and share type...
|
| Now being that it's a suggestion instead of a mandatory
| requirement, one would reasonably expect there to be an
| example that goes against that recommendation, and of
| course there are plenty but for a very recent example
| take CZR, which was just added to the S&P 500 in March of
| 2021 despite not having produced a profit since 2019.
|
| https://finance.yahoo.com/quote/CZR?p=CZR
|
| It doesn't fall under any of the exemptions either.
| Amorymeltzer wrote:
| Interesting hn link from those days: A Tiny Hedge Fund Made
| 8,600% on a Vix Bet
| <https://news.ycombinator.com/item?id=16346175>
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(page generated 2021-05-17 23:00 UTC)