Uridashi losses put at $500 million after Nikkei rebounds

When the Nikkei slumped last May, banks were forced to sell volatility to protect positions built up through the sale of uridashi products – leaving many with losses. A rally in the index at the end of the year inflicted further pain. In total, the industry may have lost as much as $500 million. By Matt Cameron

On page 13 of its fourth-quarter earnings report, published on February 5, UBS tries to explain a Sfr177 million ($188 million) slump in equity trading revenues. Part of the problem, it says, was the Japanese structured products book, which lost money as volatility increased in December's Nikkei 225 index rally. What it does not say is that the rest of the industry suffered too - and not just at the end of the year.

Exotics desks were initially caught out in the second quarter, when the Nikkei