Posts belonging to Category Derivatives

Insurance Companies Raise Red Flags on Certain Alternative Investments


The recent actions of errors and omissions insurance carriers should serve as a major red flag to investors. Many of these carriers are refusing to issue coverage for sales of certain alternative investments. In other words, these carriers have determined that the risk of loss associated with the sale of certain alternative investments is too […]

More Small Exchange Traded Products (ETPs) are on Death Watch


Large numbers of exotic and niche exchange traded products (both funds and notes) have either folded or are on a “death watch.” One such fund, according to John Waggoner of USA Today, has not traded since January (“Some exchange traded funds in ER”).

Is Time Running Out on Criminal Prosecutions Against Wall Street ?


Federal prosecutors may be about to run out of time to file criminal charges against Wall Street participants for their role in the financial crisis. Charges for most federal offenses, including securities fraud, must be filed within five years of the offense, experts say. The subprime lending that played a significant role in the crisis […]

Wells Fargo Fined for Selling Unsuitable Investments to Municipalities and Non-Profits


Wells Fargo agreed to pay more than $6.5 million to settle SEC charges that it sold commercial paper backed by mortgage securities and collateralized-debt obligations to municipalities, nonprofit institutions and other customers without first understanding the substantial risks of those securities. The securities were unsuitable because the investors had a low risk tolerance. Three of […]

Exchange-Traded Notes – An Investment that Most Investors Should Avoid


Exchange-traded notes are complex products sold by “the best salesmen in the world” who are often betting that their potential customers do not know just how complex they are. In most cases, investors would be better off not buying exchange-traded notes, according to USA Today’s John Waggoner (“Non-experts may want to avoid ETNs”).

Regulators Issue an Alert to Investors Regarding ETNs (Exchange Traded Notes)


The Financial Industry Regulatory Authority (FINRA), the self-regulatory arm of the U.S. securities brokerage industry, has issued an Investor Alert regarding the features and risks of exchange-traded notes (“U.S. brokerage regulator warns of ‘unpleasant surprises’ on ETNs,” by Stuart Gittleman, Reuters).

JPMorgan’s Derivatives Losses Reach $9 Billion and Counting


The New York Times reported that JPMorgan’s trading losses from credit derivatives may total as much as $9 billion, far exceeding the firm’s initial estimate. Initially, CEO Jamie Dimon disclosed that the bank lost more than $2 billion. The losses have increased as the bank has unwound the trades. (“Would you believe $9B? JPMorgan trading […]

Alternative Funds Underperform


Investors who put money in mutual funds that use hedge fund strategies are courting disaster or at least disappointment, according to Lewis Braham (“Serving Up Disappointment,” Bloomberg Markets). Hedge fund-like mutual funds are “today’s hottest yet least rewarding strategy,” he says. They use market-neutral, long-short, managed-futures and other alternative strategies. The long and short of […]

Hedge Funds Hit Hard by Commodities Investments


Slowing U.S. jobs growth, slowing growth in China, concerns about another global recession, and uncertainties relating to the Euro crisis, have turned commodities bulls into bears as hedge funds beat a hasty retreat from commodities for the third consecutive month, according to Businessweek (“Hedge Funds in Longest Rout Since Global Recession,” by Tony C. Dreibus).

Alternative Investments Are No Investment Panacea


Financial advisers need to know that dangers lurk in the complex world of alternative investments and they must disclose these dangers to their clients. At present, many investment advisers are under pressure to sell alternative investments and are doing so in greater numbers than ever before. Alternative investments can include virtually any investment that is […]