DRW sues CFTC
DRW, one of Chicago’s top of the bill trading firms, has filed a lawsuit against watchdog CFTC. It’s a strange story – at first it sounds like we have a bad loser in the game. But no such thing. The real news seems to be the CFTC is lacking critical expertise.
Interest rate swaps and futures
The fuzz is about listed interest rate swap futures versus OTC swaps. Nasdaq introduced the futures in order to grab some of the OTC swap market. The futures should replicate exactly the swaps. However, there is a little difference in margin treatment.
Interest, margin and collateral
In short, the side of a swap contract which is in the money receives collateral from the other side, but pays interest over the collateral. The same goes for futures, except we call this margining and the receiver of the margin can keep the interest. These contracts are based on interest rates, so you can picture the catch.
Arbitrage between swap and future
The futures and swaps are related things with different prices, but DRW was able to arbitrage the spread against counterparties Jefferies and MF Global. After building their position, they started to quote the future according to their own fair value.
DRW changed closing prices
CFTC is about to charge them for market manipulation. Because DRW changed the closing prices. That’s scary. Quoting tighter around the fair value price is a valuable component of the price discovery process. DRW is filing a pre-emptive lawsuit against CFTC to stop them filing an enforcement action against DRW. Don’t recall any market participant ever suing the Dutch AFM.
More coverage on Bloomberg and especially here in a post from Craig Pirrong.
first !
Jefferies & MF Global not knowing convexity adjustment is hard to believe, how long dated futures are we talking here
the dutch ain’t going to sue AFM as it ain’t in United States of America
USA !! USA !!
VOC-mentaliteit my ass
of course Jefferies & Co knew about convexity adjustment, but exchange decided to change the collateral rules for these contracts after the trades had already been executed assuming same collateral rules for OTC trades, thus exchange contract was no longer equivalent to otc contract as originally had been the assertion of the exchange
If that’s the case it’s still nonsense to accuse DRW of market manipulation. The problem is then the exchange.
the problem is stupid cftc, which rightly has been sued
thats why donald wilson is top of the game
thats why donald wilson owns a private jet while all the other pit boys are just jealous and work out of crappy 40% chop shops still figuring out how to pay their mortgage and cannot afford to send their kids to private school
no need to get all high, there are plenty of smarter and richer people than donald, do you expect people to feel bad all the time looking at someone more successful? inspiration, yes, jealous, you bet your ass no
‘Inspiring’ in the real world sure.
In the chicago pit mentality. Jealousy is all that exists. Nobody likes a peer who got rich in front of your own eyes.
new broker in town: http://www.degiro.nl
if you don’t know how to get inspired and can only suffer jealousy, then too bad, but don’t assume the same for everyone around you, speak for yourself
Donald Wilson named his boat “Convexity.”
yeah, mine is named cross-gamma
On the subject of rich people:
“Het grootste geheim van beurshandelshuis Optiver, het bedrijf dat de meeste nieuwe Quote 500-leden ooit leverde, is wie hoeveel procent van de aandelen bezit. Een opmerkelijk briefje werpt licht op de zaak.
We zijn wat gewend als het gaat om merkwaardige lezerspost, maar een merkwaardig anoniempje zoals nu binnen is gekomen is ook voor ons zeldzaam. Een blocnotevelletje met daarop zes namen gekrabbeld, en daarboven ‘VERDELING Optiver’ geschreven.
Of dit echt de onthulling is van een van de grootste geheimen van de Quote 500, is natuurlijk maar de vraag, maar we willen u de cijfers niet onthouden. Want mochten de cijfers kloppen, dan zitten wij wat te laag met een deel van de schattingen. Chris Oomen dichtten wij tot nu toe 7% van Optiver toe, maar is volgens het briefje goed voor 16% van de aandelen. Bij Jan Dobber nemen we genoegen met het bedrag dat we terugvinden in zijn eigen bv, volgens het blocnotevelletje heeft hij 5% van de aandelen. Johann Kaemingk zou beschikken over 22% van Optiver, Ruud Vlek over 14%, Paul Hilgers (volgens onze gegevens geen Nederlander en daarom niet opgenomen in de Quote 500) eveneens over 14% en Leo van den Berg over 5%.”
http://www.quotenet.nl/Nieuws/Van-Tante-Post-de-aandelenverhoudingen-binnen-Quote-500-hofleverancier-Optiver-89371
on the subject of translation, not good:
“The biggest secret of trading house Optiver, the company that most new Quote 500 members ever did, which is the percentage of the shares. A remarkable note sheds light on the matter.
We are what used to when it comes to curious readers post, but as a curious anoniempje now come inside for us too rare. A notepad sheet with six names scribbled, and there ‘BREAKDOWN Optiver’ written.
If this is really the unveiling of one of the greatest secrets of the Fortune 500, but the question is, of course, but we want you not remember the numbers. Because the figures were correct, then we are what to layer with some of the estimates. Chris Oomen dichtten we now 7% of Optiver, but according to the note accounted for 16% of the shares. At Jan Dobber we settle for the amount we find in his own example, according to the notepad sheet has 5% of the shares. Johann Kaemingk would possess 22% of Optiver, Ruud Vlek about 14%, Paul Hilgers (according to our data not Dutch and therefore not included in the Fortune 500) is also about 14% and Leo van den Berg about 5%. “
A little about D Wilson and his lehman trade
http://www.ft.com/cms/s/0/809d6192-1d20-11e1-a26a-00144feabdc0.html#axzz2gZtXOpDG
Sign uprequired. Please copy pasy
http://www.google.com.hk/url?sa=t&rct=j&q=Wilson%20lehman%20drw&source=web&cd=1&ved=0CCgQFjAA&url=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F809d6192-1d20-11e1-a26a-00144feabdc0.html&ei=iKtMUoWuEaiiigepmIDICg&usg=AFQjCNFS1UUUehp7D_hzgqjAgujPPeQDIQ&sig2=Wg70jRbQWQDFJ9bwkSsmkg&bvm=bv.53371865,d.aGc&cad=rjthis one should work
there is no bloody information on lehman trade except a specuated pnl of 300 bucks, it was just an auction of outstanding exchange traded derivatives?
on the subject of ft link, what’s the trick behind google hk encapsulation?
[…] the firm, founded by legendary trader Donald R. Wilson (“DRW”), came in conflict over interest options with the CFTC. And from my perspective, they are […]