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These trading collars restrict index-arbitrage trading.
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The Deutsche Bank traders established a huge index-arbitrage position, and placed a huge side bet on prices falling.
Index arbitrage is supposed to be a neutral strategy.
In one such area, index arbitrage, traders try to capitalize on slight differences in the price of stock indexes and index futures.
Similarly, the rise of index arbitrage trading in the 1980's increased volatility and set off complaints that the markets were being destroyed.
The strategy used by Deutsche appears to have amounted to index arbitrage done in a way that local regulators might not see coming.
But with the presumed advantage of index arbitrage trading, those numbers could soar, particularly on days when the closing price of the index will affect the expiration of futures contracts.
Those small-town qualities, though, are what Salem Abraham hopes will distinguish his hedge fund and stock-index arbitrage operation, based in a 1,000-square-foot 1,000-square-foot 1,000-square-footis cofficetors.
"Nasdaq has never had and never addressed a market-clearing open and close, meaning that a price is set that satisfies all market orders on the close or open," said the manager of an index arbitrage trading desk at a major Wall Street firm who spoke on the condition that he not be identified.
Program trading is often index arbitrage involving futures and common stock.
His experience includes option spread trading, diversified trend following and the development of a number of index arbitrage programs.
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