Millennium risk manager defends leverage in basis trade

“Gross notional measures don’t equate to market risk,” says Scott Rofey

A senior risk manager at Millennium Management has defended the use of leverage in the US Treasury basis trade, which has come under intense regulatory scrutiny in recent years.

Scott Rofey, global head of rates, macro and commodities risk at Millennium, cautioned against conflating gross notional leverage with risk-based measures, noting that many long-only strategies can suffer bigger losses than basis trades.

A $1 billion position in the S&P 500 has a 1% chance of losing $88 million over a five