Is UVXY Shutting Down Due To New SEC Rules?

By | December 15, 2015

Scalper1 News

Summary A look at newly proposed SEC rules. How they could affect ProShares products. A look at the current volatility landscape. Before we get started I wanted to highlight my last article: Neuroeconomics and Volatility . I really enjoyed writing this piece and it is a very different take on your normal volatility reading. Feel free to share this unique piece. A reader of mine recently alerted me to an article that claimed many leveraged ETFs would need to close due to a newly proposed Securities and Exchange Commission (SEC) rule. This article will serve to properly inform readers on how this may affect the ProShares Ultra VIX Short-Term Futures (NYSEARCA: UVXY ). Article In reference to the original article that made this claim, I would like to focus for a minute on the strategy they are talking about. This strategy is close to the ones I have shared with you here on Seeking Alpha in regards to shorting volatility and taking advantage of contango and the effects of leverage. David Miller’s Catalyst Macro Strategy Fund uses a bread basket of many leveraged ETFs to short and take advantage of the decay of the underlying assets over time. He specifically mentions UVXY as one of the funds holdings and maintains a net short position in the volatility ETF. I encourage you to read the article as it presents other ETFs and strategies that we have not discussed in relation to volatility and leveraged ETF investing in general. SEC Comments On 12/11/2015 the SEC proposed new derivatives rules for registered funds and business development companies. You can read the full release here . The bottom line of the proposal, in relation to ETFs, is to prevent funds from liquidating due to extreme moves in their underlying indexes. It appears that this rule may put an end to my dream for a leveraged inverse volatility fund. ProShares Comments According to ProShares (view release here ), they are confident that this proposal will not impact their ability to offer the current 2x inverse and 2x ETF and mutual funds which include UVXY. However, it may impact their ability to operate 3x leverage funds. These funds mainly track broader market indexes and sectors. You can view a list of those funds here . My take I wouldn’t be concerned with the talk about UVXY shutting down and I also wouldn’t let it affected your trading objectives. The only affect this has on my current objectives would be to switch to the iPath S&P 500 VIX ST Futures ETN (NYSEARCA: VXX ) options if I am looking at more than a year until expiration, just in case. Any decision the SEC makes will be phased in over time and this proposed rule must still be approved by the Commission and will then be subject to a 90 day comment period. Seeking Alpha is a great place to get up to date information on these types of changes and any new information will surely be covered by myself or other fine contributors. Current Volatility Futures Backwardation has once again appeared. See below: (click to enlarge) Current Futures: (click to enlarge) Conclusion As we move into 2016 I am looking forward to the change in pace of volatility spikes. Hopefully we will move toward a trading environment where we see backwardation events on average every 2-3 months. I am not currently shopping for a large short volatility position unless market conditions deteriorate a little further. I may take small short positions here and there with very short-term trading objectives. Coming up you have the start of a Federal Reserve meeting that wraps up mid-week with a widely held notion that rates will be raised for the first time since 2006. The government shutdown is still on for the end of the week with a consensus that a deal will be struck before then. It doesn’t appear that UVXY is shutting down anytime soon due to the proposed SEC requirements. I wouldn’t panic and recommend you wait until more information becomes available. Have a great end to 2015 and thank you very much for reading. Scalper1 News

Scalper1 News