Unusual wave of derivatives activity...
May 19 – Financial Times (Gillian Tett ): “The recent sharp falls in stock markets appear to have been exacerbated by an unusual wave of derivatives activity on the part of hedge funds and big banks, traders yesterday indicated. In particular, some banks and big investors appear to have been forced into selling large amounts of equity futures because they have been acting as counter-parties to large, leveraged bets on the direction of stock market volatility in recent months - and these bets are now unravelling because volatility has increased sharply. This forced selling has hurt equity futures index prices on markets such as the London International Futures Exchange - and depressed the value of cash equities as well, some observers suggest. ‘This is an incredibly sensitive topic but it looks as if some big investors are being forced into big moves because they need to hedge these [derivatives] positions,’ one senior trader said yesterday. It is impossible to track this type of derivatives trading with accuracy, since the investors and banks engaged in these markets are extremely anxious to keep their positions private.”