Navesink International - March 2021

Infinity Q, the new variance swap skeleton?

Infinity Q may be the new variance swap skeleton. The New York hedge fund has just been suspended by the SEC pending valuation of its variance swaps and its full liquidation.
The fund's main investor is handling the fund, while the founder is on administrative leave.
Skeleton with a tie

Should index providers have oversight?

Railway Tracks
There are complex indices behind trillions of dollars in ETFs and passive funds. Their providers do investment research. They have discretion in inclusions. They suggest indices and strategies to asset managers. Their decisions move markets. When they fail to calculate correctly, investors lose millions.

Should those 'data providers' become 'investment advisors'? The SEC is considering it. Two academics explain why and how this should be implemented.

Roaring Kitty is a Wall Street lion

The first GameStop (GME) lawsuit is out. 'Roaring Kitty', the redittor who started the frenzy, the modern Robin Hood who went after the hedge funds villains, the David fighting the short-selling Goliath, is actually a Wall Street lion himself.

This post explains Keith Gill's actions, his investment and his supervisory background, and the responsibility of his employer, as they are stated in the class action lawsuit. We ask questions and ponder the long-term consequences.
Lion mirror cat

Grandma ate the wolves

Grandma ate the wolves
The billionaire matriarch of the Schottenstein family was being taken advantage by her own two grandsons. So grandma ate the wolves.

She brought her two JP Morgan bankers to FINRA and obtained the largest award since 2018 - $19 millons. The post explains the case.

Are the Robinhood traders going after the VIX?

‘When you combine ignorance and leverage, you get some pretty interesting results.” Warren Buffett

Three good notes from the derivatives research teams of Morgan Stanley, Société Générale, and Nomura point to a potential squeeze in the VIX, as a result of the increasing retail activism. This technical post explains the contents of the research papers. Spoiler alert, yes, the VIX is prone to a squeeze.
Old clamp

The high price of free trade

The high price of free trade
Free doesn't mean without cost. Payment For Order Flow brings benefits to the public, but there are drawbacks to this new execution approach.

This article explains what Payment For Order Flow is, the role of the market-makers, as well as the benefits and the drawbacks of the approach. It highlights the difficulty that SEC will meet in smoothing out those issues.

Paul Mora receives the first Interpol warrant in the Cum/Ex tax trading strategy

The first Interpol warrant has been issued in the Cum/Ex tax trading case.

Paul Mora, looked for by Germany, Denmark, and Belgium, is currently in New Zealand. Mr. Mora said that "he would skip his tax fraud trial because of New Zealand’s low Covid-19 infection rate and argued that he wouldn’t get a fair hearing in Germany."

Paul Mora Interpol

How to compound your regulatory problems

Credit Suisse headquarters
Credit Suisse was warned that one of its top private bankers was up to no good and did nothing, says a recent regulatory report.
This new scandal is unfortunately far from being the first for the Swiss bank. Regulatory investigations (and provisions!) are actually pilling up.

This article explains the last scandal, in the context of the firm's recent compliance woes.


Cryptocurrencies are new and different. Thieves are not.

A young quant trader who had raised $90m for a market-neutral arbitrage fund has managed to waste most of the money. This article shares the details.
Stefan He Qin

Another Ponzi - $1.7 billion and 17,000 investors

Another Ponzi - $1.7 billion and 17,000 investors
The managers of GPB Capital have been using the life savings of many retirees to fund their lifestyle. They just got charged by the SEC.

From promises to arrests, GPB's downfall is a textbook case of what can go wrong when investing. This article lists the initial red flags, which any investors should be wary about, as well as the many steps of their downfall.

The Sherwood Forest of financial markets

Robin Hood is alive and well. He has left the dark forest of Sherwood for the spotlights of social media and financial markets.
This short article introduces the actors of the play and shares the most recent acts/scenes.
Is the main theme of the play still relevant today?
Robin Hood

The revenge of the retail trader

Closed store
GameStop's rally and its short squeeze are more than just market exuberance. Thanks to low-cost trading, employees working from home, and a Fed-induced market rally, retail traders are pushing the market to new highs and enjoying the excitement of the rally. Worse, social media allow them to focus on a few instruments, with wild rallies.
It is only a matter of time before this party is over, for this stock or the market. We should start thinking of the aftermath.

Macro uncertainty as predictor of market volatility

A good note from Ralph Sueppel on the relationship between market volatility and macroeconomic uncertainty.
Storm on the horizon

The schizophrenic behavior of Mr. Market. A bi-modal view of option-implicit asset return expectations

The summary of an interesting article on a bi-modal analysis of option-implicit expected asset returns. The model leads to an interesting market structure interpretation, with applications in asset allocation.

Europe will regret stealing London’s finance business... NOT

Looks like the Square Mile isn't so sure about Brexit. The Bloomberg editorial board, for some unexplained reasons, is asking Europe to play nice with London.
I beg your pardon?
Europe will regret stealing London’s finance business... NOT

Is UK Inc. just fishing? Let's hope not, for Brexit's sake

Boat stuck in the sand
The UK's fishing industry was a critical issue in the Brexit debate - the access to UK fishing grounds was highlighted as Brussel's abuse of British sovereignty.
Two weeks into the divorce, the fishermen can have their fish, but they can't sell them to Europe anymore. Fish rot before reaching the continent, thanks to red tape and delays at the new border. It is an absolute disaster for the industry, laid at the feet of Brexiters, who point the finger at Westminster.

Unfortunately, that 0.2% of the UK's GDP may only be the tip of the iceberg.

SEC's former whistleblowing chief sues the SEC for changes to the whistleblowing program

Jordan A. Thomas, the former whistleblower program manager at the SEC, as well as a leading plaintiff attorney, is suing the SEC for changes to the program.
This article explains what the SEC whistleblowing program is, why it is so successful, and why you should consider it if you see fraud or crime.

You can run but you can't hide - the end of anonymous US shell companies

HRMC poster offshore evasion
The Corporate Transparency Act, enacted in the Defense Appropriation bill of January 2021, is a game-changer for financial investigators. It prevents bad actors from hiding behind anonymous shell companies - right here in the United States.

What is an expert witness?

This short video explains what an expert witness is, and why Navesink International has a unique position in the securities litigation industry.
What is an Expert Witness - static picture

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