UBS Halts Inverse and Leveraged ETF Trading

Bearish bets made impossible, compliments of UBS. Either that, or UBS' recently upgraded (with i7 chips of course) computers just can't 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.

Comments

[SteadfastMason:]

So, if investors are blocked from buying new short ETF's, then is it reasonable to assume that those current owners of inverse ETF's will still benefit only when the underlying stock in the index being tracked is sold?

Jul 27 10:22 AM

[ERCaptain:]

UBS is not the first firm to do it. The problem is that too many people do not realize the risk and that these leveraged ETFs. They are not intended to be long term holdings. The volatility often eats up the gains.
If someone wants to speculate, there are better and more cost efficient ways to do it.

Jul 27 10:56 AM

[Zapf:]

So if I still own a position in SDS(double short S&P) will this position be more adversely affected due to less volume?

Jul 27 12:17 PM

[kkerr:]

Even inverse ETFs are affected by decay, which many do not know. It is amazing how just a simple lack of understanding of a particular tool (Leveraged ETFs) has caused so much commotion.

Jul 27 12:27 PM

[kkerr:]

Non leveraged inverse ETFs, I mean.

Jul 27 12:28 PM

[GadflyOnThe...:]

Ah yes, it appears that UBS and other brokerage firms who are no longer supporting the inverse ETFs are looking out for their clients, who, ahem, do not understand these instruments.

Why do I have a suspicion that the brokerage firms are up to something? Perhaps they are getting ready to cut out the little guy from playing the next selloff?

Jul 27 12:54 PM

[Suzanne H.:]

Why is it that the inverse and leveraged mutual funds (Profunds, Rydex, ...) that have existed for over a decade now haven't caused so many issues, and I imagine will still be available through UBS. I know that many traders have been trying to trade these leveraged ETFs on margin, so yes, that would definitely be an issue. However, with proper risk management and an investment strategy, these ETFs give a knowledgeable investor (who either does not qualify as an accredited investor and able to invest in hedge funds, or would prefer not to do so due to the issues around hedge funds these days) the ability to implement their own alternative strategy. My goal is to continue to educate advisors, traders, investors, etc. on how to properly use these vs. taking them away. I compare that to not allowing homeowners to own handguns because the risk is too high and a few may end up killing a loved one accidentally (but the bad guys will have the guns because they already know how to use them); and when there is a confrontation (market decline), hmmm, who has the upper hand, anyone want to venture a guess... That is also if they don't restrict short selling as was done last fall.

Suzanne

Jul 27 12:57 PM

[Zapf:]

If this is true, then the ETFs are just derivative chips for investment banks only now. WHICH is fine except the Treasury,SEC and FED seem to feel obligated to SAVE these "hedge fund banks" when the blow it. I suspect ETFs will be banned by the Fall to prevent sale volume from being too overwhelming. Pretty much everyone knwos the market crash 2.0 is coming. It's a self-fulfilling crash as we know Goldman and Co. will pull out by Sept. Oct and take their winnings-and there goes volume liquidity.

Jul 27 01:02 PM

[Analyste de...:]

Look at the conflation here: some of the commentators above cannot distinguish between leveraged and UN-leveraged products as they rush to condemn, condemn, condemn these strategies.

Fact is, investors who didnt have short positions got burned in the collapse of a ridiculously overvalued market, and some now conclude that the solution (to their own incompetence/stupidity... is to BAN SHORT SELLING. (Wow, talk about getting it all wrong!) This is the irrational Blame Game.

The mutual fund industry (whose equity products probably wiped out nearly 20% of the wealth of the US) is likewise blaming the ETFs, owned by relatively very few investors but siphoning off fund family assets at an alarming rate. This is the rational Blame Game - it's called Pass the Buck.

Raymond James, UBS... soon, short ETFs will be dropped at Fido and Schwab and all the other IRA platforms. Why don't we just ban ETFs altogether - investors really don't understand ALL the nuts-&-bolts of these products, right? Great excuse: cut off your nose to spite your face! "I don't understand the choice, ergo no one else should have access" - that's logic for ya!

There goes my alpha. Thanks, mutual fund punks.

Jul 27 02:36 PM

[Analyste de...:]

SEC effectively banned short selling today:
tinyurl.com/lvg67k

Short ETFs are under severe pressure, too:
tinyurl.com/m2nuh7
tinyurl.com/m8on4k

If this persists to a ban on all shorts or short ETFs, the retail investor will be effectively denied cheap investment alternative strategies. Remember, the 401k investor (most Americans) didnt have these investments - their huge loss was from mutual fund products!!!

This ETF ban is a fricken distraction, it's the little investors who loses with these insidious reactionary, diversionary 'regulations.' Smart (big) money will always be able to economically move/trade in freer markets.

So the little guy loses... again.

Jul 27 04:46 PM

[Analyste de...:]

(I meant to write "naked short selling," in the intro to the first link.)


On Jul 27 04:46 PM Analyste de Boston wrote:

> SEC effectively banned short selling today:
> tinyurl.com/lvg67k

Jul 27 04:51 PM

[Barbarous R...:]

Not sure what all the fuss is about. Just buy the long ETF and provide your own leverage (to simulate the leveraged ETF) -- this way you control the leverage and you won't be subject to the mechanical leverage rebalancing inherent in the leveraged ETFs, which you probably don't want anyway.

Similarly get your broker to find borrow and then short the long ETF (to simulate the inverse ETF).

Jul 27 08:00 PM

[BullnBear:]

I hate to sound paranoid as much as I lately hate to feel that way.

Someone tell me what is going on with all the sudden regulation and protection that is designed to save me from myself and is in my best interest. Someone tell me what’s going on with all the official data that is released that at best is misrepresentation such as what’s happening with housing and un-employment numbers, it just doesn’t fell right anymore.

I’m not someone who has spent my life feeling like someone or something is interfering but I can tell you that those days are gone.

Jul 27 11:54 PM

[billyboy54:]

As I understand it, Naked short selling (i.e., short selling without having the borrowed shares in hand) has ALWAYS been banned, therefore illegal.

Does anyone believe the SEC is now going to enforce that ? pfffffffftttttt


On Jul 27 04:51 PM Analyste de Boston wrote:

> (I meant to write "naked short selling," in the intro to the first
> link.)

Jul 28 09:45 AM

[Maxe Paul:]

"I compare that to not allowing homeowners to own handguns because the risk is too high and a few may end up killing a loved one accidentally (but the bad guys will have the guns because they already know how to use them)."

LOL Pathetic argument.

A win for common sense i would say. ETF's are for mugs.

Jul 28 11:57 AM

[RonaldReagan:]

I'll give you my SRS trading when you take it from my cold, dead hands!

Jul 28 03:53 PM

[David Spence:]

Just short FAS and FAZ and you'll make money. Worst case senario is one of them doubles forcing you to cover and you just about break even.

Jul 28 04:32 PM

[msgtb:]

It clearly has nothing to do with the decay or holding over long periods. If that was the case they would ban all bullish leveraged ETF's also. This is just another scam and should be seen as such. Now the retail investor can't hedge his account. Simply disgusting.
Good luck and good trading

Dave

Jul 28 07:26 PM

[wheelbarrel...:]

LOL so FAZ is bad because it is a short fund but FAS is OK? It is obvious that daily decay or leverage is the problem - looks like just trying to reduce convenient vehicles that the average investor can use as a hedge against a market decline

Jul 28 10:06 PM

[Suzanne H.:]

The trick is to catch the trend, to get the mathematical compounding working in your favor. These can't be traded on fundamentals alone, but need a technical based trading strategy. A very simple method for starters is to paper trade using a 21 dma, buy when the ETF crosses above an upward sloping dma, and sell when it crosses below (brief example for S&P legacyfunds.wordpress.... You can improve signals by trading in the direction of the longer term trend, say an 80 week ma. In fact, that is what I use to differentiate between bull and bear markets (for more info, can check out legacyfunds.wordpress.... Hope this is helpful in giving you ideas on developing a trading strategy. It is usually best to trade the triple leveraged ones on an intraday basis and go flat at the end of day.

Jul 29 01:29 AM