Back in 2015, UBS had an opportunity to pick up a neat little business with a neat little name. The Yield Enhancement Strategy—just say YES!—had been devised by rival Credit Suisse, buying out-of-the-money index options alongside short-term below-market puts and above-market calls on the same benchmark. It was all supposed to add up to a fairly low-risk option for wealthy clients. Of course, as has since become obvious, Credit Suisse wasn’t great at assessing risk and…
YES involved multiple options trades on stock indexes that produced positive returns when indexes such as the S&P 500 moved steadily, but spiraled into large losses when markets became more volatile. UBS customers lost at least $60 million as of mid-2019…. In one month in 2018, YES lost more than 13%. It ended down 18% that year, the SEC said.
Now, UBS isn’t Credit Suisse, the SEC points out, and so can’t cry total ignorance of risk measurement and management they way its fellow Swiss do. And so UBS must suffer an indignity the likes of which Credit Suisse has become very familiar.
UBS Group AG agreed to pay $25 million to settle fraud charges from the Securities and Exchange Commission over a complex options-trading strategy that lost customers tens of millions of dollars…. It said UBS knew and documented the risk of significant losses from the investments but didn’t share the data with the financial advisers or the investors. The regulator said many of UBS’s advisers didn’t understand the risks themselves, and so couldn’t give appropriate advice.
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