Back to the Futures? Not Just Yet. Investors Still Spooked by Derivatives

It’s no surprise that investors are still wary of investing in derivatives, given the financial devastation that these vehicles’ collapse caused last year.  Proof of the fact is that the IPO of a financial instrument designed to be on American home prices failed because its auction did not generate adequate investor interest.

According to its Securities and Exchange Commission filing, MacroMarkets turned down all auction bids because there was an “insufficient demand for an equal number of Down and Up shares”.  In other words, MacroMarkets was forced to abandon the auction process because the offering would work only if there was an equal number of shares in both the “up” and the “down” trusts – and if each pair of shares totaled $50.  The firm had initially set a minimum closing investment pool of $125 million, though CEO Sam Masucci did not disclose the value of the bids received before pulling the plug.

MacroMarkets sought out investment from homebuilders and banks who want to hedge their housing exposure, as well as foreign investors seeking a stake in U.S. real estate.  The problem is that investors had difficulty valuing the shares because it meant predicting the movement of the 10-city index on which the offering was based.  That’s not easy in a housing market where prices may not have bottomed out yet.

When housing trusts eventually restart, their shares will trade under the symbols UMM for “up” and DMM for “down” on the NYSE Arca, the New York Stock Exchange’s all-electronic U.S. trading platform.