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TD Ameritrade caught off guard when VIX spiked in Q1: CEO

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TD Ameritrade caught off guard when VIX spiked in Q1: CEO

One of America's largest retail investment brokers "got caught" in risky positions when volatility spiked during the first quarter, its CEO said at the Sandler O'Neill Global Exchange and Brokerage conference on June 6.

On Feb. 5, the S&P 500 posted its largest one-day loss in six years, as a spike in volatility hit the public equity markets. On that day, the Cboe Volatility Index, a gauge of market anxiety based on the S&P 500, jumped in its largest single-day increase ever.

TD Ameritrade Holding Corp. recorded $58 million in net provision for doubtful accounts on client receivables as a result of the volatility, mostly related to clients who held concentrated positions in short sales and margin transactions, according to the company's quarterly filing.

"The short answer is that there were some positions and exposures that we had [in which] I don't think we did the right job of assessing the risk," President and CEO Timothy Hockey said at the conference. "We got caught."

But the company has seen 20 years of essentially zero losses on margin lending and derivatives trading, Hockey said. The VIX's "blowout" that day was "unbelievably extraordinary," and while the company has learned from that loss and changed some of its exposures, policies and procedures, more drastic changes are not warranted, he said.

"The worst thing I could do, frankly, would be to react to an outsized one-quarter event when we've had 20 years of making a lot of money," he said.

In an April quarterly earnings call, the chief executive said his company is also focusing on spending "the right amount of money" to improve its technology to better manage and assess risk in the future, according to a transcript.

"Let's not turn off the growth engine, and make sure we're getting better as a result," Hockey said at the conference.