“It is not illegal to be smarter than your counter parties in a swap transaction”

Discussion in 'Wall St. News' started by dealmaker, Dec 3, 2018.

  1. dealmaker

    dealmaker

    ""
     
  2. ironchef

    ironchef

    OK, the perfect defense for optionseller.com: It is not illegal or a crime to be dumber than your counter parties.
     
  3. Overnight

    Overnight

    It IS a crime to be dumber than yourself. Counter-party risk has nothing to do with that.
     
  4. JSOP

    JSOP

    I don't think we are getting the whole story here. The case CFTC against DRW is that it set a bid price extremely high on purpose knowing that they won't get hit. Well my first question is WHY weren't they hit? I mean if the bid price is higher what it should be, the seller would make a fortune at the buyer's expense, so WHY weren't the seller taking advantage of this "inflated" bid price? And second, CFTC accuses DRW of manipulating the market by setting an "inflated" bid on one contract to benefit his over positions. How does the price of one contract "benefit" other positions? Contracts of interest rate swaps futures market are priced based on each other? I know the basics of interest rate swaps but I've never traded one so perhaps someone who's familiar with swaps futures can explain a bit here.
     
  5. maxinger

    maxinger

    It is also not illegal to be less foolish than your counter parties in a swap transaction
     
  6. Sig

    Sig

    It may not be the case here but...It is reasonable to think that in a very thinly traded market you could put inflated bids in for a 15 minute period and have them not hit because there's no market makers and no-one is looking at the market at that point in time, or you could easily clear out the small volume that is there. If you have a huge position that is dependent on the fixing price during that 15 minute window, it may be worth your while to be hit on inflated bids and lose say, $100K, if it fixes the the price on a $350M position such that you make, say $13M.

    On a completely unrelated topic, I found it interesting I could click through that WSJ article on Twitter and not have to log in through the paywall?
     
    JSOP likes this.
  7. JSOP

    JSOP

    Ok so contracts in interest rate swaps futures market are priced off each other then I guess so the price on one type of contract would influence the others? But if nobody is watching the market because of the thin liquidity, then who's adjusting the price, the bots?

    Ok let me try to read the WSJ article through twitter. That paywall is annoying.
     
  8. Sig

    Sig

    I'm guessing it's like SSFs, people mainly set up trades bilaterally and use the exchange mainly for clearing and that prints a price. I'm guessing you could leave a way out of market bid up on most SSFs for hours without it being hit because not even any bots are ever looking at them, just as an example of something thinly traded.