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Complex Data Analyses

Complex Data Analyses

Bates is often called upon to analyze accounts that contain less common investments, foreign currencies  or that are employing strategies not regularly seen in retail investment accounts. Our group of subject matter and product experts can provide significant insights into these areas, and have worked with Bates to generate a set of standards for analyzing these types of cases.

Derivatives and Complex Trading

These cases often begin with simply trying to piece together what happened within the account.  Knowing how different types of derivatives behave, and being able to identify a strategy when it is in place, is crucial to these matters. Our team includes professionals who have practical knowledge of all types of derivative products and trading strategies, and includes individuals who have previously held regulatory roles governing these types of accounts.

The simplest of these derivative strategies involves writing naked puts, in which the seller of the put option does not have an existing position in the underlying entity. As a result of general declines in equity markets beginning in 2008, these previously successful strategies suddenly turned into large losses. Often, the positions were rolled forward into more contracts at higher prices, delaying the occurrence of losses within the account. 

Bates conducted statistical analysis to determine the likelihood that the underlying asset would experience declines of the magnitude seen during that time period, and then combined these probabilities with the characteristics of the put option (time to expiration, moneyness at issuance, premium received) to determine a probability weighted expected profit from each trade.  Our understanding of the intent behind different strategies enables us to produce innovative analyses which capture an ‘a priori’ view of each investment.  When a major Wall Street firm was left with massive exposure as a result of naked put writing in one set of accounts, Bates was able to analyze the account records and locate additional assets to meet the liabilities generated by the put writing.

Structured Products

The 2008 Credit Crisis severely impacted investors’ views of structured products. In assessing structured products cases, it is important to stress several key facts: these products were not designed to fail and presumably were added to client portfolios only after a careful suitability analysis of the client’s investment objectives. In short, the fact that a security or product is “structured,” let alone declined in value, does not mean it was ill-advised or unsuitable.

Bates Group has a long history of analyzing structured products and the role they may play in investors’ portfolios. We begin by searching our proprietary database to review product prospectuses and the precise mechanics of each product’s design. Next, we model how the security performs in relation to the underlying assets. This allows us to accurately analyze complex hypotheticals, including, for example, how investing in the underlying asset itself versus the structured product would have impacted investment performance. It also allows us to accurately assess the impact of declines in credit quality and decisions made by investors during the life of the investment. Just like all structured products, leveraged ETFs can play an important role in an investor’s portfolio, and it is essential to analyze ETFs from this perspective, taking due notice of recent guidance from FINRA regarding these securities.

Securities Market Expertise

Bates has extensive experience in bringing our substantial market expertise to bear on topics that require a higher level of understanding of markets themselves. Claims related to insider trading, collusive trading strategies, and market and price manipulation often require a trained eye to locate. Because our experts are seasoned market participants from major investment banking and financial institutions who have been responsible for sales and trading of numerous asset classes, we can provide the sophisticated analytical look these types of cases require. Our experts have participated in all aspects of securities and derivatives creation, production, underwriting, syndication, marketing and trading. They have also worked closely with issuers, underwriters, institutional and individual investors, and have created and monitored portfolios, measured risk and acted as market makers.    

In the context of market-related claims, we have been asked to review the activities of the parties involved as to: collusive trading, price manipulation, spreading of rumors in the marketplace (and the effects of those rumors on securities prices), the use of Credit Default Swaps to influence market prices, effects of shorting securities, the effects of dissemination of research on the marketplace, and the abuse of media and its influence on securities markets.

Our experts are also able to examine and testify on topics including:

  • General Market Practices
  • Trading Strategies
  • Trade Execution
  • Securities Pricing and Reporting
  • Manipulative Trading
  • Day Trading
  • Churning
  • Secondary Trading
  • Proprietary Trading
  • Unauthorized Trading
  • Rule SHO Violations
  • Hedging Practices
  • Definition of Market Maker
  • LSTA Practices
  • Hedge Funds
  • Broker Operations
  • Asset Allocation
  • Suitability
  • Fiduciary Responsibilities
  • Due Diligence
  • Supervisory
  • Roles and Responsibilities
  • Wrongful Dismissal
  • Sales Practices
  • Marketing
  • Disclosure
  • Trading Operations
  • Trade Clearing
  • Trade Settlement
  • Trade Documentation
  • Margin
  • Collateral, Swap Contracts
  • Derivatives
  • Structured Products
  • Structured Settlements
  • TIC Investments
  • Auction Rate Securities
  • Asset Backed Commercial Paper

Our services revolve around being able to produce precise numbers relating to everything that occurs within a client account. While this becomes more complicated with the addition of derivatives, complex trading strategies, and other investment products, it’s something that still falls directly into our core skills. We can provide you with the same clarity on your most complicated accounts that we provide on your simplest and our experts will help you understand the motivations behind the account activity at the same time.

Contact Bates Group

Bates Group is with you every step of the way. Contact us today for more information on how our End-to-End Solutions can help your firm.