Curbing dispersion exposure

Many dealers were badly hurt by short single-stock variance positions at the end of 2008. Despite this, a number of banks have reopened dispersion desks this year to tap into renewed investor interest in the trade. Have they learned any lessons? By Matt Cameron

Dispersion has proved to be disastrous for equity derivatives dealers in the past. Before the crisis, banks loaded up with short single-stock variance exposures as part of dispersion packages put on with hedge funds – positions that led to massive losses when volatility surged and liquidity dried up in the listed options market after the collapse of Lehman Brothers in September 2008. Response from the market was swift: some shut down dispersion desks altogether, while others stopped quoting on