I've heard that the LSE are closely examining the trading strategies employed by certain member firms involved in the June auction, in relation to possible misconduct accross several markets. The Exchanges have to be seen to be taking this situation seriously from the standpoint of credibility. However, while most people now seem to recognise the potential that exists to manipulate the existing EDSP process, is there really the will to rock the boat if anything untoward is discovered ?peterpr said:
June FTSE Settlement
- Thread starter Airthrey Capital
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Airthrey Capital
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Interesting article in European edition of Wall Street Journal last week, highlighting that someone purchased £10,000 of the June 5075 calls on the day before expiry.
Either a genius of a trader, a jammy sod, or an insider!
Either a genius of a trader, a jammy sod, or an insider!
I notice the rules have changed for intraday auctions (including tomorrow's option expiry). The top 22 shares with a current weighting of more than 1% of the FTSE100 will be subject to a 1% (instead of 3%) threshold. Should make it a tad 'fairer' I reckon although we may see a couple of Price Monitoring Extensions. Link to the rule change:
http://www.londonstockexchange.com/NR/rdonlyres/B225AD53-A83B-4FDA-ADAE-F6749E49EE4C/0/N3205.pdf
http://www.londonstockexchange.com/NR/rdonlyres/B225AD53-A83B-4FDA-ADAE-F6749E49EE4C/0/N3205.pdf
Good link!
That's a start then -
Through a crack in the stable door I can just see a horses tail disappearing
One thing about tomorrow is that there is no futures rollover to complicate things
I dare say a lot of short positions will be bought back though this time, just in case!
That's a start then -
Through a crack in the stable door I can just see a horses tail disappearing
One thing about tomorrow is that there is no futures rollover to complicate things
I dare say a lot of short positions will be bought back though this time, just in case!
Thanks for all your interesting posts about this issue.
I have heard that the EDSP of this day was at 5250.5. (eSignal gives me 5250.6 for the UKXSP, my broker 5250.5)
My issue is that even if it works rather normally... there was anyway a difference with the real UKX, of "only" 5 points... but 5 points is 0.1%.
I really do not understand why they do not use the real FTSE index during at least 10 minutes (such as ESTX, even if I prefer 30 minutes) or even all day long (such as HSI index).
Trying to manipulate a whole market during all this time seems to be much harder... or even almost impossible.
I hope the LIFFE will change this rules to restore confidence... or I will not be able to avoid buying back the options I wrote before.
Zemysto
I have heard that the EDSP of this day was at 5250.5. (eSignal gives me 5250.6 for the UKXSP, my broker 5250.5)
My issue is that even if it works rather normally... there was anyway a difference with the real UKX, of "only" 5 points... but 5 points is 0.1%.
I really do not understand why they do not use the real FTSE index during at least 10 minutes (such as ESTX, even if I prefer 30 minutes) or even all day long (such as HSI index).
Trying to manipulate a whole market during all this time seems to be much harder... or even almost impossible.
I hope the LIFFE will change this rules to restore confidence... or I will not be able to avoid buying back the options I wrote before.
Zemysto
Windlesham1
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Yes Zem,how terrible for those poor little options brokers,now that you canot trust ftse to be settled sensibly-all those extra commissions,and the paperwork............................. ooh! don't get me started. At least the bar stewards can't fiddle currencies.
Zem
They have changed the "new" system a bit - see mertles post above
The option prices reflect what the future is doing, not the cash.
Prior to last November it was averaged but on occasion some big players moved the index by buying or selling heavily, it was very obvious - that's given as one of the reasons for the change!
When considering buying back, the risk in the auction is MUCH higher when options and futs expire concurrently, I shall definitely be buying back short positions in September
I had some short calls which cashed out this morning and rolled over. The decision to trade them or let them expire was discussed. We let them expire. Cost wise its cheaper that way
To my mind there is a lot of temptation for big hedge funds to play around at expiry because they only have to finance stock positions for a few minutes in theory so that is relatively cheap to do.
When combined with the gearing available from derivatives bought a day or so before for a "guaranteed" profit, it's a no brainer, but it is naughty.
They need to remove that temptation somehow.
They have changed the "new" system a bit - see mertles post above
The option prices reflect what the future is doing, not the cash.
Prior to last November it was averaged but on occasion some big players moved the index by buying or selling heavily, it was very obvious - that's given as one of the reasons for the change!
When considering buying back, the risk in the auction is MUCH higher when options and futs expire concurrently, I shall definitely be buying back short positions in September
I had some short calls which cashed out this morning and rolled over. The decision to trade them or let them expire was discussed. We let them expire. Cost wise its cheaper that way
To my mind there is a lot of temptation for big hedge funds to play around at expiry because they only have to finance stock positions for a few minutes in theory so that is relatively cheap to do.
When combined with the gearing available from derivatives bought a day or so before for a "guaranteed" profit, it's a no brainer, but it is naughty.
They need to remove that temptation somehow.
Windlesham1 said:
I would say that there was a difference between the 5250.5 (or 5250.6, I do not care) and the real level of the index : 5245.3.
So it is 5.2 (or 5.3) points different from the Footsie real index.
Of course it is much much better than previous month... but this month, without triple witching, there is still a difference... and I do not understand the advantage of the UKXSP if it does not even allow to get a more precise level at the end of the month.
I repeat that, at least, the ESTX cannot be manipulated by the same means.
Zemysto
FTSE 100 Auction Price Error
Dear Airthrey Capital
I got burned myself on the June expiry to the tune of £22,750. I have lodged a formal complaint first with my broker and then with Liffe. I also lodged a complaint with the FSA and I strongly urge everyone else to do so. The more who complain the more likely something will be done by Liffe. The FSA has already instructed Liffe to conduct an investigation into the auction process on this day.
Early on I have received info from Liffe via my broker (listed below) and I can see no logical reason why there was a spike to 5138, when the underlying cash index entered the auction at 10.10 am at a price of 5054.1 and then came out of the auction at 10.15 am at 5061.0. How did they manage to get a price of 5138 from this?
Here is the info Liffe sent me.
Jun05 EDSP = 5138.0 (rounded up from Expiry Index Value of 5137.8)
The Cash Index ceased for the auction at 10.10 at a value of 5054.1
The High/Low of the day as the auction began was 5060.3/5044.6
The intra-day auction ended at 10.15 am.
The range of Indicative expiry values was 164.4 index points.
Max Indicative value = 5183.7
Min Indicative value = 5019.3
The Cash Index re-started after the auction with a Value of 5061.0
The LSE confirmed that no individual stocks breached their tolerance limits during the auction.
Numerous complaints have already been filed with both Liffe and the FSA and I once again I strongly urge everyone who does not agree with this auction price to send in written complaints to both Liffe and the FSA.
Unless Liffe adequately explain this situation (and I cannot for the life of me see any valid reasoning behind this) I fully intend to sue Liffe for damages.
The whole point of the new auction process is much the same as the old process and that is to alleviate price spikes (not create them).
Jackal007
Dear Airthrey Capital
I got burned myself on the June expiry to the tune of £22,750. I have lodged a formal complaint first with my broker and then with Liffe. I also lodged a complaint with the FSA and I strongly urge everyone else to do so. The more who complain the more likely something will be done by Liffe. The FSA has already instructed Liffe to conduct an investigation into the auction process on this day.
Early on I have received info from Liffe via my broker (listed below) and I can see no logical reason why there was a spike to 5138, when the underlying cash index entered the auction at 10.10 am at a price of 5054.1 and then came out of the auction at 10.15 am at 5061.0. How did they manage to get a price of 5138 from this?
Here is the info Liffe sent me.
Jun05 EDSP = 5138.0 (rounded up from Expiry Index Value of 5137.8)
The Cash Index ceased for the auction at 10.10 at a value of 5054.1
The High/Low of the day as the auction began was 5060.3/5044.6
The intra-day auction ended at 10.15 am.
The range of Indicative expiry values was 164.4 index points.
Max Indicative value = 5183.7
Min Indicative value = 5019.3
The Cash Index re-started after the auction with a Value of 5061.0
The LSE confirmed that no individual stocks breached their tolerance limits during the auction.
Numerous complaints have already been filed with both Liffe and the FSA and I once again I strongly urge everyone who does not agree with this auction price to send in written complaints to both Liffe and the FSA.
Unless Liffe adequately explain this situation (and I cannot for the life of me see any valid reasoning behind this) I fully intend to sue Liffe for damages.
The whole point of the new auction process is much the same as the old process and that is to alleviate price spikes (not create them).
Jackal007
Airthrey Capital said:
Jackel - I too made unexpected losses as a result of the June EDSP and have been in lengthy correspondence with mainly LIFFE but also the LSE about this.jackal007 said:
1. The LSE disclaim any responsibility and state that this is entirely a LIFFE issue. Their position is that they administer the Index and the EDSP process but the latter is undertaken according to the rules laid down and published by LIFFE and that if you are an Option investor you tacitly accept these rules at the time that you make you investment.
2. LIFFE state that the EDSP for June 17th is final and binding because it was arrived at within the EDSP auction rules.
3. The auction rules provide that all bids during the auction process must not exceed 3% from the last automated traded price for any constituent stock in the auction. THAT is what provided the leeway for the EDSP to be so far away from the Index levels during that process. If third party manipulation can be demonstrated to have taken place during the auction process then that does not necessarily mean that the perpetrators were in breach of the EDSP auction rules.
NB: It is interesting to note that this 3% cap does not appear in the rules that were sent to me governing this process. It is also interesting to note that the LSE made an announcement on July 8th stating that the bid cap on the 22 components that individually represented more than 1% of the total weighting on the FTSE 100 Index would be reduced to 1% with immediate effect but that the other 78 components would remain with a 3% cap. The EDSP for July was extremely close to the Index levels during the auction process on July 15th.
4. Neither LIFFE or the LSE have announced any conclusion to their 'investigation' into the circumstances relating to the June 17th EDSP. Either this is still ongoing (although how long does it take to audit an auction process that is conducted electronically) or the July 8th statement was their response to the June 17th EDSP result.
5. If any third party manipulation is uncovered what do you think will happen ! The perpetrator(s) will get their wrist slapped by the FSA and they might even fine them but will this result in compensation to those who were the victims of this manipulation ? As Delboy would say - No way Jose !
6. What is at fault here is the process for determining the EDSP. We invest in FTSE 100 Options yet the exiry settlement price is derived from an auction of the components of that Index and not by direct reference to the Index itself. Therefore the settlement price is derived from a process that is totally divorced from the instrument (the FTSE 100 Index) that we traded. Clearly this is wide open to manipulation.
I'm not a lawyer but I doubt that you could sue LIFFE or the LSE since they can rightly claim that the EDSP was derived from a process that operated within the rules. The fact that the process is flawed can also be countered by their position that our tacit acceptance of this EDSP process is implicit at the time of trading this instrument.
However if you want to try and bring further pressure on LIFFE to change the EDSP process going forward send me a PM since myself and others are already pursuing this objective and the more who join in the greater the credibility we will have in our attempts to achieve this.
Rognvald
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However if you want to try and bring further pressure on LIFFE to change the EDSP process going forward send me a PM since myself and others are already pursuing this objective and the more who join in the greater the credibility we will have in our attempts to achieve this.
Dream on! You knew or should have known the rules and the likelihood of what might happen within them and yet you still cry "foul". As has been said elsewhere this is a relentless war for profits carried on by hardened market professionals.
Dream on! You knew or should have known the rules and the likelihood of what might happen within them and yet you still cry "foul". As has been said elsewhere this is a relentless war for profits carried on by hardened market professionals.
That is a rather crass and unnecessary comment.Rognvald said:
In the first place I am not crying "foul". I was just commenting to the previous poster that if the settlement price is established within the rules then there is no comeback even if it has been manipulated.
If you don't like the rules then you don't have to trade. However since the rules were only changed last November and the Exchange has already modified them since June 17th it is clear that it has been recognised by all sides that these rules were vulnerable to producing a distorted price. Consequently it is in the interests of both the Exchanges - who want the business - and the traders - who want to trade with the minimum risk of being penalised by manipulation - to examine potential modifications or changes to reduce the future potential of expiry price distortion. Feed back from traders on this issue is therefore entirely valid.
If a plane crashes, despite all the safety features and pre-flights checks, would you tell the survivors that they should have understood the risks of flying and that they had no basis to complain about the consequences or would you seek to determine the cause in order to try and prevent a similar situation recurring again in the future ?
Unless someone is being bombastic, arrogant or phony there is no reason to intervene with such an unconstructive or smart ass comment !
Rognvald
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ok K - whatever you say. My comment was not unconstructive - it was based on the harsh reality of the markets - in fact it is a wake up call. However and as usual, people do not like to be told these things, preferring rather to respond to the language in which the message is conveyed, than to the message itself.
You dont like it - so I won't make any further comment of any sort whether true, untrue, constructive, unconstructive, smart ass or otherwise. I will now leave the floor entirely to you. I genuinely hope you are successful in influencing the the boys at LIFFE and LSE but I think you will eventually find that you have been deluding yourself and the people you seek to enthuse in this cause with false hopes.
You dont like it - so I won't make any further comment of any sort whether true, untrue, constructive, unconstructive, smart ass or otherwise. I will now leave the floor entirely to you. I genuinely hope you are successful in influencing the the boys at LIFFE and LSE but I think you will eventually find that you have been deluding yourself and the people you seek to enthuse in this cause with false hopes.
Well now you're just being patronizing. You portray yourself as the worldly wise cynic and the rest of us as just amateur dupes.Rognvald said:
It' very simple really. Myself and others have been trading FTSE Options. The new EDSP system has made these options vulnerable to distorted settlement prices. That's not acceptable.
What has happened already is history but I'm not prepared to take on board that risk going forward. Representations have been made to the Exchanges to change the EDSP process. They've already amended it but whether thats been prompted by all the complaints they've received nobody knows. The current modification still does not resolve the problem as far as I am concerned and I will continue to lobby them for a while to change the process. If they do fine - if they don't then I'll stop trading FTSE options altogether.
Thats it, case closed !
SOCRATES
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Actually Rognavald your posture is quite correct and you ought not to allow yourself to be browbeaten in this regard. The real cause is as you know the factor K as I have intimated to you in the past in detailed form, in paragraph 7 (e) Also the consideration encapsulated in 7 (e) as a whole is very relevant with regard to this as an adjunct. Now put your attention on 4 (c) and you will now begin to get the drift of how it fits in, smoothly and logically, and not at all force fitted. Now sir, all things considered, you are on the right side of reality. I support your view but entreat you not to further discuss matters such as these in what is after all a public forum, because they only serve to attract abuse and rudeness.
Rognvald
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Soctrates
Now that I have consdidered the matter in more depth, I admit that what you say is quite correct even taking into account the recent information we were both made privy to and were discussing on Sunday. As usual sir, you are right and I bow to your superior knowledge not only of the details but the devil in them.
Now that I have consdidered the matter in more depth, I admit that what you say is quite correct even taking into account the recent information we were both made privy to and were discussing on Sunday. As usual sir, you are right and I bow to your superior knowledge not only of the details but the devil in them.
SOCRATES
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In my post 76 above I predicted abuse and rudeness, and I am (infuriatingly) invariably right. I now predict more abuse and more rudeness.
Edit by mod - one rude post has been deleted
This is exaclty what is required to discourage the right information falling into the wrong hands.
Now have another good laugh.
Go on.
Edit by mod - one rude post has been deleted
This is exaclty what is required to discourage the right information falling into the wrong hands.
Now have another good laugh.
Go on.
Boring Old Codger Invades This Thread
Whats up Albert ! - can't sleep again.
Better ask Matron for a sedative with your Horlicks and go to bed a bit earlier. The other old folk will then at least be able to watch the 10 o'clock news in peace without you droning on and on with your usual mindless garbage.
Whats up Albert ! - can't sleep again.
Better ask Matron for a sedative with your Horlicks and go to bed a bit earlier. The other old folk will then at least be able to watch the 10 o'clock news in peace without you droning on and on with your usual mindless garbage.
